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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-21894
SOURCE MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3700438
(State of incorporation) (I.R.S. Employer Identification No.)
8140 WALNUT HILL LANE
SUITE 1000
DALLAS, TEXAS 75231
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 890-9050
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] No [ ]
Aggregate market value of Common Stock held by nonaffiliates as of
April 14, 1997: $32,548,401
Number of shares of Common Stock outstanding as of April 14, 1997:
11,335,418
DOCUMENTS INCORPORATED BY REFERENCE
Listed below are documents parts of which are incorporated herein by
reference and the part of this report into which the document is incorporated:
(1) Proxy statement for the 1997 annual meeting of stockholders-- Part
III
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FORWARD LOOKING INFORMATION
Source Media, Inc. (the "Company") or its representatives from time to
time may make or may have made certain forward-looking statements, whether
orally or in writing, including without limitation any such statements made or
to be made in the Management's Discussion and Analysis of Financial Condition
and Results of Operations, press releases and other information contained in
its various filings with the Securities and Exchange Commission. The Company
wishes to ensure that such statements are accompanied by meaningful cautionary
statements, so as to ensure to the fullest extent possible the protections of
the safe harbor established in the Private Securities Litigation Reform Act of
1995. Accordingly, such statements are qualified in their entirety by reference
to and are accompanied by the following discussion of certain important factors
that could cause actual results to differ materially from those projected in
such forward-looking statements.
The Company cautions the reader that this list of factors may not be
exhaustive. The Company operates in a rapidly changing business, and new risk
factors emerge from time to time. Management cannot predict every risk factor,
nor can it assess the impact, if any, of all such risk factors on the Company's
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those projected in any
forward-looking statements. Accordingly, forward-looking statements should not
be relied upon as a prediction of actual results.
HISTORICAL AND PROJECTED LOSSES. The Company has reported an operating
loss and a net loss attributable to common stockholders in each year since its
inception, including an operating loss of $14.0 million and a net loss
attributable to common stockholders of $13.9 million in the fiscal year ended
December 31, 1996. The Company's operating losses were experienced in the
Company's Interactive Channel, which is in the initial launch phase, although
the Company's IT Network telephone business reached a break-even position. As a
result of these overall losses, the Company had an accumulated deficit of $56.9
million at December 31, 1996. The Company expects to continue to incur
substantial operating losses through 1997 and may incur substantial operating
losses thereafter.
EVOLVING NATURE OF BUSINESS. Both the Company's Interactive Channel and
the IT Network telephone business are experiencing rapid change. In addition,
the Company's Interactive Channel is in the initial launch stage. The Company's
future performance will depend substantially on its ability to manage change in
its businesses and operations, to respond to competitive developments, to
upgrade its technologies and programming, to commercialize products and
services incorporating upgraded technologies and programming and to adapt its
operational and financial control systems as necessary to respond to continuing
changes in its businesses.
ACCESS TO CHANNELS ON CABLE SYSTEMS AND UNCERTAINTY OF SUBSCRIBER
ACCEPTANCE. The Company's ability to offer the Interactive Channel on any cable
television system depends on obtaining an agreement from the cable system
operator on terms satisfactory to the Company. There is intense competition
among suppliers of programming for access to channels. The Company currently
has three agreements in place with cable system operators and is providing
programming in Colorado Springs, Colorado and Denton, Texas. The Company is in
active discussions to obtain channel access for the Interactive Channel with
other cable systems.
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Even if the Company does have channel access, there can be no assurance
that a significant market for on-demand television will develop or that cable
subscribers will use the television as a source of on-demand information and
services. In addition, the Interactive Channel will be competing with other
on-demand information and entertainment sources.
AVAILABILITY OF PROGRAMMING. The success of the Interactive Channel is
highly dependent on the availability of high-quality programming applications
that appeal to the Interactive Channel's subscribers. The Company will depend
on independent programming sources, such as third-party suppliers, local media,
retailers and information service providers, to create, produce and update the
programming disseminated on the Interactive Channel at no, or minimal, cost to
the Company. The Company must supplement the independent programming services
with its internal programming and maintain high quality, up-to-date
information, shopping, entertainment and other programming applications of
interest to Interactive Channel subscribers.
RELIANCE UPON PROPRIETARY TECHNOLOGY. The Company relies on the
patented technology of its wholly-owned Canadian subsidiary, Interactive Channel
Technologies, Inc. ("ICT"). In part, the Company's future success will depend
on its ability to protect and maintain the proprietary nature of its
technology. The National Research Council of Canada ("NRC") partly funded the
original technology developed by ICT. The NRC has the right to require ICT to
grant the NRC a license to the technology for reasonable compensation, if it
determines that ICT has failed to diligently pursue commercial opportunities
for the application of the technology. The NRC would then be able to sublicense
the technology to others for a potential competitive use against the Company.
RISKS RELATING TO IT NETWORK TELEPHONE BUSINESS. The Company's IT
Network telephone business is currently dependent on the Company's ability to
distribute its printed menu of available programming topics in certain of the
yellow Pages directories published by the Regional Bell Operating Companies and
their affiliates ("RBOCs") and other major independent telephone companies
("Independents"). The Company has agreements with three of the seven RBOCs and
two major independents as well as certain other directories for their
respective regions. The Company relies on its ability to renew the current RBOC
and Independents agreements, and to enter into new RBOC and Independents
agreements, on financial terms as favorable as the present agreements.
Historically, a significant portion of the company's monetary revenues
has been generated from the sale of advertising sponsorships in connection with
its programming for the IT Network telephone business. The future success of
the IT Network telephone business depends not only on maintaining these sources
of advertising revenue, but also on adding new sources of revenue, such as
fees from consumer transactions and sales agency fees.
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NEED FOR ADDITIONAL FINANCING. The Company believes it will have
sufficient funds during 1997 to introduce the Interactive Channel on several
additional cable systems, to enhance the Interactive Channel on the present
cable systems on which it is offered and to maintain the IT Network telephone
business. The Company also believes that current resources are sufficient to
meet the Company's anticipated cash needs for working capital and capital
expenditures through the end of 1997. However, if cash generated by operations
is not sufficient to meet the Company's liquidity requirements, the Company may
attempt to sell additional equity securities or to incur additional
indebtedness.
TECHNOLOGICAL CHANGES. The on-line information and services industry is
characterized by rapidly changing technology and evolving industry standards.
Products or technologies developed by others could render obsolete or otherwise
significantly diminish the value of the Company's technology, the Interactive
Channel or the IT Network telephone business. The Company assumes that its
success will depend on its ability to enhance the current products and
technologies as well as design, develop and manufacture competitive products
and services on a timely basis.
RELIANCE ON KEY PERSONNEL. The Company's future performance depends in
large part on the services of certain executive officers and other key
personnel, the loss of any one of which could be detrimental to the Company's
success. In addition, for the Company to implement its strategy and continued
development and growth, it will be necessary for the Company to attract and
retain qualified personnel in all areas.
COMPETITION. The on-demand information and services industry is
characterized by intense competition, significant capital requirements and
rapid technological change. The Company faces potential competition for the
acceptance of its on-demand television and telephone products and services from
a large number of companies, many of which have significantly greater
financial, technical, manufacturing and marketing resources and name
recognition than the Company and may be in a better position to compete in the
industry. On the Interactive Channel side, the Company must compete with other
potential on-demand service providers, as well as other sources of programming,
to establish relationships with both cable system operators and subscribers. On
the IT Network telephone business side, the Company must compete with other
providers for access to RBOC and Independents directories, as well as
newspapers and print media, for distribution of the Company's printed
programming menu.
GOVERNMENT REGULATION. The telecommunications and cable television
industries are subject to extensive regulation by federal, state and local
governmental agencies. These regulations affect cable system operators and RBOCs
and may affect the Company's ability to implement its strategy. In addition,
the legislation may be amended at any time and new, more restrictive,
legislation may also be imposed.
LEGAL PROCEEDINGS. The Company, and certain of its directors and
officers, is presently involved in litigation in U.S. District Court in
Michigan brought by a stockholder from and former director of the Company. The
former director alleges he and other convertible noteholders converted their
notes based on certain misrepresentations by the Company and the named
directors and officers and claims that the Company offered to issue an
unspecified number of shares of the Company to him while he was a director. The
Company and the directors and officers have denied all the plaintiff's
allegations and filed counterclaims alleging breach of a fiduciary duty by the
former director.
In Canada, a former Chief Executive Officer filed suit in December,
1993 against ICT and certain directors and executive officers of the Company.
The plaintiff alleges, among other things, that the named directors and
officers of the Company took action to depress the share price of ICT, a
Canadian listed company at that time, to allow the Company to acquire ICT at a
favorable price. The Company and the named directors and officers dispute all
allegations and no trial date has been set.
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UNLESS THE CONTEXT OTHERWISE REQUIRES, (a) ALL REFERENCES TO THE
"COMPANY" OR "SOURCE" INCLUDE SOURCE MEDIA, INC. AND ITS WHOLLY-OWNED
SUBSIDIARIES, IT NETWORK, INC. ("IT") AND INTERACTIVE CHANNEL TECHNOLOGIES INC.
("ICT" WHICH WAS FORMERLY KNOWN AS CABLESHARE INC.), AND (b) ALL REFERENCES TO
THE COMPANY'S ACTIVITIES, RESULTS OF OPERATIONS OR FINANCIAL CONDITION PRIOR TO
JUNE 23, 1995 RELATE TO IT.
ITEM 1. BUSINESS.
Source is a provider of information and services to consumers through
the television and telephone. In September 1996, in Colorado Springs, Colorado,
Source commercially introduced the Interactive Channel, its television
programming service which provides a range of on-demand information and services
to consumers utilizing cable television and telephone lines. In November 1996,
Source also commercially introduced the Interactive Channel in Denton, Texas.
Source utilizes ICT's interactive television system to deliver the Interactive
Channel. Source has announced distribution agreements for the Interactive
Channel with three cable operators, Marcus Cable Company, L.P. ("Marcus"),
Cablevision Systems Corporation ("Cablevision") and Century Communications
Corporation ("Century"), and is currently offering the Interactive Channel on
the systems of two of these operators. The Interactive Channel offers over 60
interactive programs including on-demand local and national news, sports and
weather, home shopping with companies such as J.C. Penney, Hallmark Connections
and Waldenbooks, interactive Yellow Pages, television and movie guides, travel
information and games.
Since 1988, Source has been delivering audiotext information to
consumers through the touch-tone telephone. Through its IT Network telephone
business, Source provides consumers with information on demand, such as news,
weather and sports, together with topical information for health, legal and
other matters of consumer interest. Source's principal IT Network telephone
business product, called the Network Guide, consists of approximately 800
specific information topics listed in a stand-alone insert generally bound in
the front of Yellow Pages directories distributed by certain Regional Bell
Operating Companies or their affiliates or other Yellow Pages publishers
(collectively, "Directory Publishers").
Source's future performance will depend substantially on its ability to
manage change in its businesses and operations, to respond to competitive
developments, to upgrade its technologies and programming, to commercialize
products and services incorporating such upgraded technologies and programming
and to adapt its operational and financial control systems as necessary to
respond to continuing changes in its businesses.
The Company's operations are conducted through its subsidiaries, IT
Network, Inc. and Interactive Channel Technologies Inc. IT was incorporated in
Colorado on July 19, 1988 and reincorporated in Texas in 1991. On June 23, 1995,
IT merged with a wholly-owned subsidiary of HB Communications Acquisition Corp.
("HBAC"), a public company formed in Delaware for the purpose of acquiring a
company engaged in the communications industry, with IT surviving as a
wholly-owned subsidiary of HBAC (the "Merger"). In connection with the Merger,
HBAC changed its name to Source Media, Inc. Pursuant to the Merger, the
outstanding common stock and preferred stock of IT were converted into Common
Stock of the Company. On January 14, 1997, Source acquired all of the
outstanding shares of ICT that it did not already own in exchange for
1,390,000 shares of the Company's Common Stock, making ICT a wholly-owned
subsidiary of the Company. ICT owns the patented technology utilized by Source
for the Interactive Channel and provides research and development services for
Source.
The Company is a Delaware corporation whose principal executive offices
are located at 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231, and whose
telephone number is (214) 890-9050.
THE INTERACTIVE CHANNEL
The Interactive Channel is designed to provide a range of on-demand
information and services to consumers utilizing cable television and telephone
lines. Subscribers can use the Interactive Channel's menu-driven navigational
system to access desired interactive programming presented in the format of
photographic quality, still-frame pictures, text and graphics accompanied by
audio. The Interactive Channel allows a subscriber to move from one program of
interest to another, obtain the desired information and finalize transactions by
responding to audio and video prompts using a television remote control.
On-demand television and Source's Interactive Channel have only recently been
made available to consumers. While Source has been successful in acquiring
subscribers for its
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service in the first six months of operations in its two current markets,
Colorado Springs and Denton, there can be no assurance that a market for
on-demand television will develop or that cable subscribers will use the
television as a source of on-demand information and services or that consumers
subscribing to the Interactive Channel will maintain their subscriptions. In
addition, the Interactive Channel will be competing with other on-demand
information and entertainment sources. This competition includes services
offering access to the Internet through the television. There can be no
assurance that the Interactive Channel will prove more desirable than such
services or sufficiently desirable to cable subscribers to induce them to pay a
subscription fee for the Interactive Channel. If the Interactive Channel does
not achieve market acceptance, Source will be unable to implement its business
strategy and Source's business will be materially adversely affected.
Programming
Source has independently developed, and has secured from others,
programming for the Interactive Channel. Source is continuously developing and
obtaining additional programming. Source seeks to offer programming for the
Interactive Channel that is useful to consumers and easily presented in a series
of photographic quality, still-frame pictures, text and graphics accompanied by
audio. The success of the Interactive Channel is and will continue to be highly
dependent on the availability of high-quality programming applications that will
appeal to cable television subscribers and induce them to initially subscribe
to, and continue to subscribe to, the Interactive Channel. For a portion of its
programming, Source depends on independent programming sources, such as local
media, retailers and information service providers, to create, produce and
update certain of the programming to be disseminated on the Interactive Channel
and to provide such programming at lower or no cost to Source. There can be no
assurance that Source will succeed in attracting and retaining such independent
programming sources. If independent programming sources do not develop high
quality, up-to-date information, shopping, entertainment and other programming
applications that are capable of being delivered on the Interactive Channel and
that appeal to subscribers, or if such sources are unwilling to provide such
applications to Source on terms favorable to Source, Source's business could be
materially adversely affected. Although Source believes that the Interactive
Channel's menu-driven navigational system could be adapted to offer full-motion
programming, the current cable networks will not support that programming.
Accordingly, Source does not expect to offer full-motion programming in the
foreseeable future.
Distribution and Marketing of the Interactive Channel
In order to offer the Interactive Channel in a particular market, the
Company must enter into a "carriage" agreement with the cable system operator to
obtain a dedicated cable channel. Once the Interactive Channel has been
introduced on a cable system, the Company intends to campaign for subscribers in
that system. The Company expects that the operators of cable systems carrying
the Interactive Channel will permit the Company to use available promotional
airtime to advertise the Interactive Channel. Additionally, the Company has
established business relationships with local media in order to promote the
Interactive Channel in Colorado Springs and Denton. The Company has utilized
sales campaigns employing direct mail, television advertisements, an
infomercial, telemarketing and inserts in monthly billing statements to help
build its subscriber base. The Company also sponsors presentations at industry
trade shows and conferences to enhance industry awareness. Source may use
similar or different distribution and marketing techniques as it enters other
markets. There is intense competition among suppliers of programming for access
to channels. There can be no assurance that Source will be able to obtain
agreements with any other cable system operators providing channel access on
terms favorable to Source, if at all, or that the two cable system operators
currently carrying the Interactive Channel will continue to do so.
Technology
The technology used by the Interactive Channel is designed to deliver
still-frame, photographic quality television pictures, text and graphics
accompanied by audio to a subscriber's television set almost instantaneously in
response to a subscriber's commands. Subscribers select menu options offered on
the television using a remote control unit with alphanumeric keys. A cable
converter box (appropriately modified by a device known as a side-car box),
which is connected to both the television cable and the telephone line, sends
control messages initiated by the subscriber over the telephone line to a
multimedia file server located at the cable operator's facility. The multimedia
file sever then interprets the messages, assembles the requested presentations
and returns the video image over the television cable line and the audio over
the telephone line.
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Upon receiving the video and audio signals, the converter box combines them and
plays the requested presentations on the television set. The transmission and
processing time takes less than one second from the time the subscriber presses
the remote control key. A limited number of cable systems have been upgraded
with two-way cable that would eliminate the need to utilize separate telephone
lines.
All images to be broadcast on the Interactive Channel, together with
their associated audio segments, are digitized and stored in the multimedia file
server at the cable operator's facility. This computer equipment accesses the
compressed digitized picture and sound, decompresses the image and sound and
transmits them to the subscriber's television. The images are photographic
quality images created from photographs, slides or CD ROMs. The multimedia file
server is capable of transmitting still-frame images to the subscriber via
various distribution media, including coaxial cable, UHF, wireless cable or
satellite.
Source currently utilizes traditional analog converter boxes. However,
Source believes that new generations of analog and digital cable converter boxes
are being developed that will eliminate the need for side-car boxes and the
associated costs. Source believes that the design of the new converter boxes
will permit these converter boxes to receive the Interactive Channel's
programming with only minor modifications, which could include either (i) in the
case of analog boxes, inserting a modular component into a port in the converter
box or (ii) in the case of digital converter boxes, modifying the software of
the converter box. Source has signed an agreement with General Instrument in
which the parties agreed to cooperate in the research and development necessary
to enable Interactive Channel technology to be incorporated into General
Instrument cable boxes. Before the technology enabling the Interactive Channel
is incorporated into a particular cable converter box, Source will be required
to obtain an agreement with the cable box manufacturer in which the manufacturer
agrees to incorporate the technology into all or certain of the boxes
manufactured by the cable box manufacturer.
Recently, much attention has been focused on the future replacement of
coaxial cable systems with broadband networks utilizing fiber optic cable and
advanced communications technologies. Broadband networks would allow the two-way
transmission of significantly greater amounts of information than that which can
be transmitted over existing one-way cable systems. Broadband networks, when
coupled with advanced computer storage equipment, would allow the consumer to
interact with and obtain on demand full motion video programming. Source
believes that substantial costs and current technological limitations have
prevented broadband networks from being commercially deployed. For example,
current computer memory capacity does not permit the storage of numerous feature
length full motion videos for on-demand delivery. To date, cable system
operators and other communications companies have only experimented with
broadband networks. However, the interactive information and services industry
is characterized by rapidly changing technology and evolving industry standards.
There can be no assurance that products or technologies developed by others will
not render obsolete or otherwise significantly diminish the value of Source's
technology or the Interactive Channel. If broadband or similar networks were to
become commercially available, Source would attempt to modify its equipment to
the extent necessary, to take advantage of the change. It is impossible to
predict at this time the costs or difficulties that would be associated with
those modifications. In particular, Source expects that it will compete for
subscribers with on-line personal computer services that offer access to the
Internet as an alternative to the Interactive Channel. Some of these services
allow access to the Internet through the television and are currently available
to customers. Source expects that its success will be dependent upon its ability
to enhance its products and services and introduce new products and services on
a timely basis, which may require Source to obtain rights to additional
technologies from other parties. If Source is unable to design, develop and
manufacture, or obtain, and introduce such enhancements to its products and
services and competitive new products on a timely basis, its business could be
materially adversely affected.
Equipment
For Source to deploy the Interactive Channel on a cable system,
subscribers in that system must utilize cable converter boxes appropriately
modified with the attachment of a side-car box and remote controls with
alphanumeric keys. In addition, the cable system operator's local facilities
must be equipped with a multimedia file server to be provided by ICT at Source's
expense. The further deployment of the Interactive Channel will depend on
Source's ability to continue to obtain from manufacturers sufficient quantities
of the necessary subscriber
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equipment and on ICT's ability to continue to obtain necessary multimedia file
server components from its manufacturing source. The side-car boxes and remote
controls operate in conjunction with existing cable converter boxes to permit
access to the Interactive Channel. Source intends to provide the side-car boxes
and remote controls to subscribers, except under its agreement with Cablevision.
Under the Cablevision agreement, if the required technical trial is begun and
successfully completed, Source is obligated to sell, at its cost, to Cablevision
the equipment subsystems that allow the Interactive Channel to function.
Cablevision in turn will complete the manufacturing of a side-car box with
Cablevision-specific features. The multimedia file server is assembled by ICT
from components. The key components for the multimedia file server are obtained
from a domestic single-source supplier. Although Source has received sufficient
amounts of side-car boxes to introduce the Interactive Channel in Colorado
Springs and Denton, there can be no assurance that Source will be able to
continue to obtain a sufficient quantity of subscriber equipment, or that ICT
will be able to continue to obtain the components necessary for its multimedia
file server, on a timely basis or on commercially reasonable terms.
A substantial disruption of the operations of the manufacturers of
subscriber equipment or key components for the multimedia file server would have
a material adverse effect on Source's operations. Although Source generally has
identified alternative manufacturers in order to minimize the time required to
re-establish production of subscriber equipment under such circumstances,
certain of the key components used in Source's products and in ICT's multimedia
file server are obtained from a single source. In the event that ICT or Source
could not obtain needed equipment on a timely basis, Source's business could be
materially adversely affected. In addition, because Source's suppliers of
subscriber equipment are expected to be foreign manufacturers, Source will be
subject to risks related to international regulatory requirements, export
restrictions, tariffs and other trade barriers and fluctuations in currency
exchange rates.
Proprietary Rights and Intellectual Property
Patents. The deployment and operation of the Interactive Channel
utilizes technology owned by ICT. The technology is the subject of three United
States patents issued to ICT and expiring in 2005, 2007 and 2008, respectively,
and two Canadian patents. The ICT patents issued in the United States protect a
system for delivering still-frame television images and accompanying audio to
television viewers in response to viewer requests. This protection covers
multiple transmission media, including UHF, microwave, cable line and satellite.
The patents cover technology within such a system that enables different viewers
to receive video images over different television channels. In addition, the
patents include protection for the implementation of an interactive television
system on a cable network.
Pursuant to an agreement entered into in November 1988, ICT received a
grant from the National Research Council of Canada ("NRC") to develop an on-line
television system. Under the terms of this agreement, ICT was required to obtain
the approval of the NRC in order to license its technology to Source. The
approval was expressly conditioned upon such license being a non-exclusive
license and further provided the NRC the right to rescind its approval on
reasonable cause. The termination of the ICT license could have a material
adverse effect on Source's ability to develop, deploy and operate the
Interactive Channel. The NRC also has the right, if it determines that ICT has
failed to diligently pursue commercial opportunities for the application of
ICT's technology, to require ICT to grant it a license for reasonable
compensation, to the extent necessary to enable the NRC to sublicense to others
the use of ICT's technology.
Source and ICT are currently working without the financial support of
the NRC to translate the software supporting the ICT technology for utilization
on a UNIX-based operating system. If successfully developed, Source believes
that this software could make the NRC-funded software obsolete and that any
licenses of this software would not be subject to the NRC rescission rights. The
NRC does not have any rights to the ICT patents which are used by Source in
connection with the NRC-funded ICT technology. No assurance can be given as to
when or if such software translation can be completed.
Source relies on ICT for research and development of on-line television
services, the assembly of multimedia file servers and the development of certain
set-top box integrated circuits. ICT is currently developing a Windows-based
media production workstation that could be used by Source and others to create
and edit programming for the Interactive Channel.
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Source's future success will depend in part on ICT's ability to protect
and maintain the proprietary nature of its technology. In 1995, GTE Corporation
and GTE MainStreet (collectively, "GTE") sued ICT seeking to invalidate ICT's
United States patents that are licensed to and utilized by Source in connection
with the Interactive Channel. ICT filed a counter-action against GTE claiming
infringement by GTE of ICT's patents in connection with GTE's "MainStreet"
on-line television channel. In early 1996, ICT and GTE settled the litigation.
The settlement included an undisclosed fee paid to ICT and the grant to GTE of a
license to use the ICT patents. Any resulting increase in competition as a
result of the license could materially adversely affect the business of ICT and
Source. However, because GTE has offered MainStreet only on cable systems that
it operates to date, Source does not expect to compete with GTE for carriage
agreements with other cable system operators for the foreseeable future.
Source often enters into confidentiality or license agreements with
certain of its employees, consultants and other outside parties, and generally
seeks to control access to and distribution of its proprietary information.
Despite these precautions, it may be possible for third parties to copy or
otherwise obtain and use Source's products or technology without authorization,
or to independently develop similar products and technology. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries. There can be no assurance that the steps taken by
Source will prevent misappropriation of its technology or that additional
litigation will not be necessary in the future to enforce Source's intellectual
property rights, to protect Source's trade secrets, to determine the validity
and scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in the invalidation of
Source's proprietary rights and, in any event, could result in substantial costs
and diversion of management time, either of which could have a material adverse
effect on Source's business.
IT NETWORK TELEPHONE BUSINESS
Source is a sales agent for and provider of audiotext information over
the telephone, which it makes available to consumers without charge through its
IT Network telephone business. Source provides consumers 24- hour access to its
audiotext programming, which consists of approximately 800 regularly-updated
information topics, through the use of a Company-developed touch-tone menuing
system. This system allows consumers to explore a variety of topics, review
selected topics in more detail, switch to new topics and, in certain
circumstances, immediately speak with an advertiser or other information
provider using a direct-connect feature. Consumers can access Source's audiotext
programming by dialing a local telephone number and entering a four-digit code
associated with each information topic. These codes are grouped by category and
displayed in various print media, such as Yellow Pages and advertisements.
Source's principal IT Network telephone business product, the Network
Guide, consists of approximately 800 specific information topics listed in a
stand-alone insert generally bound in the front of Yellow Pages directories. The
following table provides information as of March 21, 1997 regarding the
distribution of a Network Guide produced by Source or a Yellow Pages directory
publisher in designated market areas ("DMAs") through Yellow Pages or similar
directories.
<TABLE>
<CAPTION>
PUBLISHER Number of DMAs Number of Directories
- --------- -------------- ---------------------
<S> <C> <C>
BellSouth 16 24
Donnelley 6 24
GTE 16 221
Pacific Bell 8 39
USWest 11 16
Other 6 23
------ ------
Total 63 347
====== ======
</TABLE>
Source has agreements with ten Directory Publishers for distribution
through Yellow Pages directories in their respective regions of Source's printed
menu of information topics or to provide audiotext services in these regions.
Some of Source's earlier agreements with these and other publishers have expired
or been terminated in accordance with their terms. There can be no assurance
that Source will be able to obtain agreements with any
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publishers or to renew existing agreements with publishers on terms as favorable
to Source as existing agreements. If the financial terms of any new agreements
with publishers allowing for distribution of Source's printed menus were to
become more costly to Source than the terms of its existing agreements, the
operating losses incurred by the IT Network telephone business could increase.
In addition, if Source were unable to obtain such an agreement with one of the
publishers, the resulting inability of Source to continue to market its IT
Network telephone business in the Yellow Pages in such publisher's region would
have a material adverse effect on Source's financial condition and results of
operations.
Marketing Strategy
In those directories in which it provides programming content, in order
to promote its IT Network telephone business, Source has developed relationships
with local television and radio stations. These media sponsors promote Source's
IT Network telephone business to their audiences and sponsor certain of the
information topics in the Network Guide. Source utilizes local radio and
television personalities to provide the local news, sports and weather
programming on the Network Guide. Consequently, consumers accessing local sports
information on the Network Guide hear the voice of a local sportscaster.
Currently, all arrangements with media sponsors are nonmonetary, with Source
exchanging advertising for production programming and promotion. As of March 21,
1997, Source had media relationships with over 45 radio stations and 17
television stations, including 2 ABC affiliates, 8 CBS affiliates, 5 NBC
affiliates, 1 Fox affiliate and 1 independent television station in the various
markets in which it distributed the Network Guide on such date. Media sponsors
may also participate in "custom pages," such as a music page offering
information on current musical hits.
The Company obtains advertising sponsors for certain of the audiotext
information it provides through a sales and marketing team that combines local
and national sales efforts. The Company's sales force is comprised of a Vice
President of Sales, regional General Managers and direct sales representatives
who are employees of the Company serving local markets.
Audiotext Services
As part of Source's IT Network telephone business Source provides to
other parties audiotext services incorporating Source's programming. These
parties or Source in turn sell the services, directly or indirectly, to their
advertisers. To date, the principal buyers of these audiotext services have been
Directory Publishers.
Technology and Programming
The Company supports its IT Network telephone business through a
network that connects individual computer systems in each of the local markets
via telephone line from the Company's central administration facility in Irving,
Texas. Multiple telephone lines are connected to each system to process local
calls. Using a wide variety of telephony protocols including ISDN, WAN, FTP,
frame relay and digital and analog dial ups, the Company transmits updated
information from its central administration facility to individual markets
throughout the day, seven days a week.
Information distributed widely, such as national news, weather and
sports, is updated from the Company's headquarters. The Company obtains this
information from various sources such as United Press International. The
Company's copywriters prepare written scripts from the information, and the
written scripts are then used to produce recordings with mixed background music
and voice. The Company also edits and produces local advertisers' messages. The
finished audio recording is loaded into a central computer system and
transmitted to the individual markets throughout the day. The information is
available to callers immediately after it has been updated. A majority of the
audiotext information delivered over the Company's IT Network telephone business
is produced at the Company's headquarters.
Local media personalities are able to update the local programming by
using any touch-tone telephone. Local news, weather and sports information
typically is provided by a local network television station, and a variety of
concert, top ten music lists and event information is provided by local radio
stations.
9
<PAGE> 11
Publisher Agreements
The Company's historical arrangements with Directory Publishers have
ranged from strategic operating agreements covering multiple directories
pursuant to which the publisher and the Company share revenues generated by the
Network Guide to directory-specific contracts in which the Company purchases
pages from the publisher. The key agreements between the Company and the
publishers relating to the IT Network telephone business are summarized below.
BellSouth. In August 1996, Source and BellSouth executed a new
agreement with a 5-year term under which Source is the sales agent for all
BellSouth audiotext services and provides certain content information and
customer services. Source earns a commission on advertising sales in 24
directories. In addition, Source earns a set fee per advertiser per year for
certain customer services performed. During 1996, Network Guide monetary
revenues generated from advertisers in the BellSouth region accounted for
approximately 23 percent of Source's monetary revenues.
Donnelly. In October 1996, Donnelly and the Company entered into a
sales agency agreement whereby the Company acts as a sales agent for soliciting
advertisers for the Network Guide in exchange for a sales commission from
Donnelly for each advertising contract sold by the Company. In connection
therewith, the parties also entered into a services agreement whereby the
Company assumed certain of Donnelly's operational responsibilities for its
audiotext business and under which Donnelly is obligated to pay the Company a
minimum of $3.2 million over the term of the agreement. Both agreements have a
three year minimum.
GTE. In December 1996, GTE and the Company entered into a sales agency
agreement whereby the Company acts as a sales agent for soliciting advertisers
for the Network Guide in exchange for a sales commission from GTE for each
advertising contract sold by the Company. Of the total revenues which the
Company expects to generate pursuant to the sales agency agreement, the Company
has guaranteed GTE a minimum of approximately $3.7 million over the term of the
agreement, which is a three year minimum. In connection therewith, the parties
also entered into a services agreement whereby the Company assumed certain of
GTE's operational responsibilities for its audiotext business. If the Company
pays the minimum required amount to GTE in each of the years under the sales
agency agreement, GTE has agreed to pay the Company a minimum of approximately
$2.8 million for services rendered over the term of the agreement, which is a
three year minimum.
Pacific Bell. In the Pacific Bell region, the Company's arrangements
vary depending on the size of the DMA. In exchange for providing audiotext
messages and soliciting advertisers to sponsor the audiotext messages in markets
served by the Company, the Company (i) has agreed to buy 8 to 12 pages in the
front of Pacific Bell Yellow Pages directories in the largest DMAs, (ii)
receives free pages in smaller DMAs and (iii) receives free pages and a fee for
providing the Network Guide in the smallest DMAs. The Company currently
distributes its Network Guide in the Pacific Bell region pursuant to a December
1992 master agreement that expires on September 1, 1998 unless terminated by
Pacific Bell before such date on 30 days' written notice. The agreement with
Pacific Bell allows Pacific Bell to obtain audiotext services and distribute
audiotext products from other providers but requires the Company to obtain
Pacific Bell's written consent before the Company can distribute the Network
Guide in other California Yellow Pages directories. Effective January 1996,
Pacific Bell and the Company amended the master agreement to reduce by almost
half the page costs Source is required to pay and to exclude two small
directories. Network Guide monetary revenues generated from advertisers in the
Pacific Bell region accounted for approximately 20 percent of the Company's
monetary revenues during 1996.
USWest. USWest has a license that expires in August 1998 to use the
Company's audiotext messages in DMAs in which the Company acts as a sales agent
for USWest. In connection therewith, in July 1995, USWest and the Company
entered into a sales agency agreement pursuant to which the Company acts as a
non-exclusive sales agent for soliciting advertisers for the Network Guide in
exchange for consideration from USWest consisting of a fixed quarterly payment
of $25,000 and a sales commission for each advertising contract sold by the
Company. The term of the USWest agreement runs through the end of USWest's
1996/97 Yellow Pages publication cycle. Monetary revenues generated by the
Company in the USWest region accounted for 5 percent of the Company's monetary
revenues during 1996.
10
<PAGE> 12
Because the operating margins pursuant to the USWest agreement are
below the Company's minimum standard, the Company does not expect to renew the
USWest agreement and anticipates that revenues related to that agreement will
decline in future periods and end in the third quarter of 1998.
Ameritech. Source's agreement with Ameritech Publishing, Inc.
("Ameritech"), which permitted the Network Guide to be included in the front of
Ameritech Yellow Pages, was terminated by Ameritech effective as of February 1,
1996. On February 5, 1996, Source initiated litigation against Ameritech in
Texas state court, which related to the termination. In connection with the
pending settlement of this litigation, the parties have agreed to enter into a
definitive agreement pursuant to which the Company will be the exclusive
audiotext sales and service provider in up to 38 Ameritech Yellow Pages
directories for a three year period commencing in January 1998. Network
Guide monetary revenues generated from advertisers in the Ameritech region
accounted for approximately 20 percent of Source's monetary revenues during
1996.
Others. The Company has also entered into various sales agency and
services agreements with certain other Directory Publishers whereby the Company
acts as a sales agent for soliciting advertisers for the Network Guide in
exchange for a sales commission from the Directory Publisher or provides certain
operational responsibilities for the Directory Publisher's audiotext business.
Prior Agreements
DonTech. Source previously published the Network Guide in directories
within the DonTech region. DonTech is a joint venture for publication of
directories between Ameritech and The Reuben H. Donnelley Corporation. The
original agreement for Source to provide Network Guide services expired and was
not renewed. Network Guide monetary revenues generated from advertisers in the
DonTech region accounted for approximately 3 percent of Source's monetary
revenues in 1996.
Southwestern Bell. In the Southwestern Bell region, Source purchased
pages from Southwestern Bell on which to print the Network Guide in exchange for
a fee. Source's agreement with Southwestern Bell expired and Source has no
further arrangement with Southwestern Bell. In 1996, monetary revenues generated
from advertisers in the Southwestern Bell region accounted for approximately 4
percent of Source's monetary revenues.
COMPETITION
In an industry characterized by extensive capital requirements and
rapid technological change, the Company faces potential competition for the
acceptance of its on-demand programming and services from a number of companies,
most of which have significantly greater financial, technical, manufacturing and
marketing resources than the Company and may be in a better position to compete
in the industry. In addition, the Company faces competition for advertiser
revenues from other media, including radio, television, newspapers, and
magazines.
The Interactive Channel. The Company believes that for the foreseeable
future public access to on-demand television will generally be through cable
system operators. Accordingly, the Company must compete with other providers of
television programming to establish relationships with cable system operators to
gain channel access.
Source believes that GTE's "MainStreet" system is the only other
on-demand television navigational system currently being tested in the
marketplace with programming that is comparable to the Interactive Channel and
that is designed to deliver programming over coaxial cable systems. GTE
currently makes the service available in Newton, Massachusetts, Clearwater,
Florida and Ventura, California. In early 1996, GTE and ICT agreed to a
settlement to resolve the litigation with GTE. The settlement involved the
granting of a license, for a fee, of the ICT patents in connection with the
dismissal of the lawsuits. Any resulting increase in competition as a result of
the license could materially adversely affect the business of ICT and the
Company.
The Company is aware of one other commercially available service
developed by ACTV, Inc. and delivered over several cable channels that offers
view selection and instant replay of television programming. Other cable
interactive services developed by Ameritech (tested using ICT technology), AT&T
and Viacom, Bell Atlantic (tested using ICT technology), Sega, Telecable, Time
Warner and USWest are not commercially available to the knowledge
11
<PAGE> 13
of Source. Source is also aware of efforts by other companies or consortiums to
develop and deliver on-demand full motion video programming. Time Warner is
presently conducting a 4,000 home trial of its Full Service Network delivered
over fiber optic cable in Orlando, Florida.
NYNEX, Bell Atlantic and Pacific Telesis have formed a joint venture to
offer on-demand full motion video programming to homes via telephone lines and
to offer interactive services over the World Wide Web. GTE, a competitor of the
Company, is part of the Americast Interactive television joint venture, which
also includes Ameritech, Southwestern Bell, Southern New England Telephone, SBC
Communications and The Walt Disney Company. Additionally, other companies have
established joint ventures to launch interactive television enterprises,
including AT&T Network Systems and Silicon Graphics, Inc. which have joined to
form Interactive Digital Solutions. Source is also aware of other companies or
products, such as TVOL, StarSight Telecast, Inc., NTN Communications, Inc.,
WebTV and World Gate that provide or are testing on-demand services that would
function independently of cable system operations. At least two services, TVOL
and WebTV, offer access to the Internet through the television and are currently
available to consumers.
To the extent one or more competitors is successful in developing an
on-demand television service, the business of the Company could be materially
adversely affected. The Company believes that, for the foreseeable future, the
public's access to on-demand television will generally be achieved through cable
system operators. Therefore, the Company must compete with other potential
on-demand television service providers, as well as other sources of programming,
to establish relationships with cable system operators. In addition, the
on-demand television industry and the Interactive Channel face competition for
consumer usage from personal computer on-demand services. Many of those seeking
to develop an on-demand television service are also seeking to develop, or have
shifted their development efforts to, personal computer on-demand services, in
particular, those offered over the Internet's World Wide Web. Thus, the Company
faces competition in the interactive and on-line services market from companies
in both the on-demand television and on-demand personal computer services
industries.
IT Network telephone business. The Company is aware of other companies
currently offering some of the information services provided over the Company's
IT Network telephone business. Consumers can call a variety of "900" services
for information provided by, among others, Dow Jones & Company, Inc., AT&T, GTE
and certain major newspaper publishers. Callers are generally charged for calls
to these "900" services. In most of its markets, the Company is aware of a
number of companies, local newspapers or radio stations that provide free
on-demand telephone programming similar to that offered on the Company's IT
Network telephone business. Other competitors, such as Brite Voice Interactive
Communications, Inc., some of the RBOCs, certain independent directories and a
subsidiary of Century Telephone Enterprises, and others have indicated an intent
to do so. Brite Voice has taken over services previously provided by the Company
to BellSouth and Ameritech. These competitors may use RBOC or non-RBOC Yellow
Pages directories, newspapers, mailers or other print media to distribute guides
listing their programming services. In addition to these current providers of
on-demand telephone services, potential competitors include any information
service provider, as well as the RBOCs. The IT Network telephone business also
faces competition from personal computer on-demand services.
EMPLOYEES
As of March 15, 1997, the Company had a total of 153 full and part-time
employees. None of the Company's employees are subject to a collective
bargaining agreement. The Company has experienced no work stoppages and believes
that it has good relations with its employees.
REGULATORY MATTERS
The telecommunications and cable television industries are subject to
extensive regulation by federal, state and local governmental agencies. Existing
regulations were substantially affected by the recent passage of
Telecommunications Act of 1996 (the "1996 Telecom Act") in February 1996. This
legislation was implemented in administrative proceedings conducted by the
Federal Communications Commission ("FCC") and state regulatory agencies.
12
<PAGE> 14
Most current regulatory and legislative activity addresses how
telephone companies and cable television companies may enter new lines of
business, the manner in which they can participate in new lines of business and
the rates they can charge consumers. Local exchange carriers, including the
RBOC's, will be facing more serious competition and will be able to enter new
markets. Cable television companies are now also permitted to provide telephone
service. The outcome of pending federal and state administrative proceedings may
also affect the nature and extent of competition that will be encountered by the
Company.
The on-line information and services industry is evolving and will be
affected in the future by laws, regulations and policies adopted at the federal,
state and local levels of government. There are many laws, regulations and
policies, both existing and proposed, at all levels of government that may
impact, in varying degrees, the manner in which the Company deploys the
Interactive Channel and its IT Network telephone business. Neither the outcome
of these proposals, nor their impact upon the on-line information and services
industry in general or on the Company in particular, can be predicted at this
time.
ITEM 2. FACILITIES AND EQUIPMENT
Source leases approximately 19,000 square feet of office space at 8140
Walnut Hill Lane, Suite 1000, Dallas, Texas, where the Company presently
conducts its corporate business activities. This lease expires in August 1997,
and the Company expects to enter into a lease for approximately 9,000 square
feet at that time. Source leases approximately 11,000 square feet of office
space at 5400 LBJ Freeway, Dallas, Texas where it conducts the business of the
Interactive Channel. This lease expires in September, 2001. The Company also
subleases from GTE Directories Corporation approximately 18,500 square feet of
office space at 5601 Executive Drive, Irving, Texas where it conducts the
business of IT Network. This sublease expires in September, 1999. The
Company also has offices in major DMAs where it operates its IT Network
telephone business at which sales representatives are based and the on-line
voice response system that supports the Company's IT Network telephone business
network is maintained. The sales offices are typically small and are leased on a
short-term basis. The Company does not anticipate opening additional regional
facilities in connection with the introduction of the Interactive Channel until
it is widely deployed. The Company believes that its existing facilities are
suitable to meet its requirements for the immediate future but will evaluate
facilities to accommodate the Company's growth as necessary. See "Item 1.
Business -- The Interactive Channel -- Equipment" for a discussion of certain
equipment related to the Interactive Channel.
The Company also leases some of the on-line voice response systems used
in its IT Network telephone business from an equipment vendor that provides
financing over a three-year term ending in 1997.
ITEM 3. LEGAL PROCEEDINGS AND CLAIMS
Lerch. On December 15, 1993, Marvin Lerch, the former Chief Executive
Officer and a former shareholder of ICT, and certain of his relatives who are
also former ICT Shareholders, commenced a legal proceeding in Ontario, Canada in
the Ontario Court (General Division) against Source and certain executive
officers of Source and a director of ICT on the grounds that the defendants
took actions intended to depress the value of ICT to allow Source to acquire a
portion of ICT at a favorable price. The plaintiffs seek, among other things,
orders that certain actions by ICT's board were invalid; a declaration that
ICT's board was incapable of managing its affairs due to conflicts of interest;
an injunction against Source from voting its ICT shares for three years;
purchase by the defendants of the plaintiffs' ICT shares for Cdn$20 per share
or exchange of the plaintiffs' ICT shares for Source Common Shares of equal
value; and damages in the amount of Cdn$8 million to compensate the plaintiffs
for the reduced value of their ICT shares and damages in the amount of Cdn$6
million to compensate Mr. Lerch for the loss of certain ICT stock options. ICT
disputes all of the claims and no trial date has as yet been set. The
plaintiffs have amended their statement of claim for punitive damages in the
amounts of Cdn$1 million against Source and an aggregate of Cdn$2 million
against certain officers of Source. Although the ultimate outcome of this
action cannot be determined at this time, management believes the claims are
without merit and intends to vigorously defend its positions. In addition,
management believes the ultimate outcome of these actions will not have a
material impact on the consolidated financial condition or results of
operations of Source.
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<PAGE> 15
On January 25, 1994, Mr. Lerch also commenced a proceeding against ICT
and several persons who are, or have been, officers and directors of ICT
claiming wrongful termination of Mr. Lerch's employment with ICT and sought
damages in the amount of Cdn$350,000. ICT denied the claim. The trial of
this action began in London, Ontario on April 23, 1996 and was completed May 3,
1996. Judgment was rendered against ICT in the amount of Cdn$200,000. ICT's
appeal of this decision was denied and ICT has applied for review of this
decision before a three judge panel.
Little. On January 17, 1997, William T. Little, a stockholder and
former director of Source, and a trust of which Mr. Little is the trustee,
commenced a legal proceeding in the United States District Court, Western
District of Michigan, against the Company and certain of its executive officers
and directors, alleging that he and various convertible noteholders converted
their notes based upon misrepresentations by Source and those officers and
directors. The plaintiff claims that he suffered damages in excess of $26
million because an alleged promise was made that IT would engage in a public
offering of its stock for approximately $56 per share, which did not occur. The
plaintiff further claims that Source offered to issue to him, during the time he
was serving as a director of Source, an unspecified number of Source Common
Shares in consideration of his release of any claims related to such alleged
misrepresentations and that Source agreed to pay him and other noteholders an
unspecified amount in equivalent interest relating to the conversion of notes.
Although the ultimate outcome of this action cannot be determined at this time,
the Company disputes all of the plaintiff's claims as meritless and intends to
vigorously assert its position in this litigation. In addition, management
believes the ultimate outcome of this action will not have a material impact on
the consolidated financial condition or results of operations of the Company.
The Company and each of the defendants have filed answers denying the
plaintiff's allegations as well as including counterclaims against Mr. Little
for breach of fiduciary duty during his tenure as a director of the Company and
seeking exemplary and punitive damages.
Revenue Canada. In June 1993, Revenue Canada, the Canadian taxing
authority, sent a notice of reassessment to ICT related to Cdn$1.9 million of
investment tax credits claimed in fiscal 1988. In addition, Revenue Canada
demanded repayment from ICT of refundable tax credits paid for the 1988 fiscal
year totaling Cdn$315,000 as well as accrued interest thereon. In January 1997,
the matter was resolved. Revenue Canada reduced ICT's investment tax credits
for the 1988 fiscal year by Cdn$1.1 million. In settlement of the refundable
tax credits, Source committed to pay to Revenue Canada, on behalf of ICT,
Cdn$371,945, consisting of Cdn$146,945 plus an approximate amount of accrued
interest thereon of Cdn$225,000. Source committed to pay the sum to Revenue
Canada in equal payments over a 12 month period commencing in March 1997.
Bauer. In November 1996, Jeanna Bauer, a former employee of Source,
commenced a proceeding in the United States District Court for the Southern
District of Ohio, Western District at Dayton, against IT Network, Inc., alleging
discrimination on the basis of sex and pregnancy and seeking reinstatement and
compensatory damages in the amount of $250,000 and an equivalent amount of
punitive damages. The Company denies the charges of discrimination and contends
that it provided the plaintiff the standard six week maternity leave, even
though the plaintiff did not technically qualify for such leave. The Company
intends to vigorously assert its position in this litigation. No trial date has
yet been set. In addition, management believes the ultimate outcome of these
actions will not have a material impact on the consolidated financial condition
or results of operations of Source.
Others. The Company is aware of certain claims against the Company and
ICT that have not developed into litigation, or if they have, are dormant.
Unnamed shareholders of ICT advised the ICT directors in June 1995 that they
questioned certain of the directors' actions under Ontario law. ICT's attorney
responded to the shareholders' substantive points and the shareholders have not
taken further action.
Further, the Company and ICT are parties to ordinary routine litigation
incidental to their business, none of which is expected to have a material
adverse effect on the Company's results of operations or financial condition.
EXECUTIVE OFFICERS OF THE COMPANY
Information regarding Source Media's executive officers including their
respective ages at March 28, 1997, is set forth below.
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<PAGE> 16
Name Age Position with the Company
- ---- --- -------------------------
Timothy P. Peters 39 Chairman of the Board and Chief Executive Officer
John J. Reed 39 President and Director
William S. Bedford 40 Chief Operating Officer and Director
Michael G. Pate 41 Chief Financial Officer and Treasurer
Maryann Walsh 49 Corporate Counsel and Secretary
Mr. Peters has served as a director of IT since its inception in 1988
and was elected Chief Executive Officer in December 1992 and Chairman of the
Board of IT in August 1994. Mr. Peters was President of IT from 1988 to 1996.
Mr. Peters has served as Chairman of the Board, Chief Executive Officer and a
director of the Company since June 23, 1995, the effective date of the Merger
and was President from that date until 1996. In 1986, Mr. Peters founded
Information Express, Co., an operator-assisted Yellow Pages company that served
the Denver area, where he acted as a Vice President from 1986 to 1988.
Mr. Reed has served as a director of IT since its inception in 1988 and
as Executive Vice President of Strategic Development of IT since December 1992.
Mr. Reed has served as a director of the Company since June 23, 1995, the
effective date of the Merger and served as Executive Vice President from that
date until 1996, when he was appointed President. From 1990 to December 1992,
Mr. Reed served in various positions with IT, including Executive Vice President
of Sales and Marketing. Mr. Reed was Chairman of the Board of ICT from November
1991 to October 1993. From 1986 to 1989, Mr. Reed was President of Reed &
Associates, a Dallas-based real estate brokerage and professional services firm,
of which he is the sole shareholder. Mr. Reed has conducted business through
this firm from time to time since 1989.
Mr. Bedford has served as a director of IT since its inception in 1988
and as Chief Operating Officer of IT since December 1992. Mr. Bedford has served
as Chief Operating Officer and a director of the Company since June 23, 1995,
the effective date of the Merger. From 1988 to December 1992, Mr. Bedford served
in various positions with IT, including Executive Vice President, Vice President
of Sales and Secretary. From October 1993, until January 1997, Mr. Bedford
served as Chairman of the Board of ICT.
Mr. Pate has served as Chief Financial Officer and Treasurer of IT
since March 1992. Mr. Pate has served as Chief Financial Officer and Treasurer
of the Company since June 23, 1995, the effective date of the Merger. From
August 1989 to March 1992, he served as Vice President of Finance and Chief
Financial Officer of Dallas Semiconductor Corporation. From 1984 to 1989, Mr.
Pate held the positions of Assistant Controller and Controller at Dallas
Semiconductor Corporation. From 1979 to 1981, Mr. Pate was a Senior Auditor with
Ernst & Young LLP. Mr. Pate is a CPA.
Ms. Walsh has served as Corporate Counsel of the Company since January
1995 and Secretary of the Company since March 1995. Together with Mr. Peters,
she founded Information Express, Co. and served as its Corporate Counsel and
Secretary. In 1981, she worked for a law firm in London, England and most
recently was with a law firm in Jakarta, Indonesia from 1989 through 1994. She
was also a counsel with Mobil Oil Corporation in New York City and Denver and
handled U.S. Supreme Court and federal court matters for the U.S. Department of
Justice.
PART II
ITEM 4. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the Nasdaq Stock Market's
National Market under the symbol "SRCM" since December 8, 1995. Prior to that,
the Company's Common Stock was quoted on the OTC Bulletin Board.
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<PAGE> 17
The following table sets forth the high and low closing sales prices
per share for the Common Stock for the periods indicated subsequent to the
Merger (as adjusted to estimate the effect of the Reverse Split in the case of
quotations for periods prior to October 10, 1995).
<TABLE>
<CAPTION>
1995 HIGH LOW
------ ------
<S> <C> <C>
Second Quarter (beginning June 22, 1995) $11.50 $10.50
Third Quarter 12.00 8.50
Fourth Quarter 12.88 9.13
1996
First Quarter $ 9.63 7.63
Second Quarter 11.25 8.38
Third Quarter 10.88 7.38
Fourth Quarter 11.50 7.00
</TABLE>
On April 14, 1997, the last reported sale price of the Common Stock was
$4.13 per share. As of April 11, 1997, there were 185 record holders of the
Common Stock.
The Company has never paid cash dividends. Management intends to retain
any future earnings for the operation and expansion of the Company's business
and does not anticipate paying any cash dividends in the foreseeable future.
16
<PAGE> 18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Monetary revenues $ 5,594 $ 6,431 $ 9,194 $ 9,342 $ 8,575
Nonmonetary revenues (1) 14,049 18,752 21,749 15,944 9,944
-------- -------- -------- -------- --------
Total revenues 19,643 25,183 30,943 25,286 18,519
Monetary cost of sales 3,509 4,456 5,248 4,937 3,485
Nonmonetary cost of sales (1) 14,049 18,752 21,749 15,944 9,944
-------- -------- -------- -------- --------
Total cost of sales 17,558 23,208 26,997 20,881 13,429
-------- -------- -------- -------- --------
Gross profit 2,085 1,975 3,946 4,405 5,090
Selling, general and administrative expenses 5,433 6,785 8,987 7,952 11,747
Amortization of intangible assets 139 1,656 1,684 1,031 1,031
Research and development expenses 220 1,339 2,706 3,750 6,331
Write-down of intangible assets -- -- 1,900 -- --
-------- -------- -------- -------- --------
Operating loss (3,707) (7,805) (11,331) (8,328) (14,019)
Other (income) expense (2) (2) 6 1,464 (140) (164)
Charges related to financing incentives -- 2,026 -- 1,581 --
Net loss (4,303) (9,918) (12,857) (9,769) (13,855)
Preferred stock dividends -- 769 1,621 833 --
-------- -------- -------- -------- --------
Net loss attributable to common shareholders $ (4,303) $(10,687) $(14,478) $(10,602) $(13,855)
======== ======== ======== ======== ========
Net loss per common share $ (1.20) $ (2.66) $ (3.22) $ (1.65) $ (1.39)
======== ======== ======== ======== ========
Weighted average common shares
outstanding 3,599 4,022 4,498 6,413 9,935
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 297 $ 1,235 $ 127 $17,479 $ 4,303
Working capital (deficit) (6,040) (3,329) (7,608) 12,223 (466)
Total assets 10,992 13,248 8,219 24,195 15,897
Long-term debt and capitalized lease
obligations (including current maturities) 4,917 701 653 219 4,720
Redeemable convertible preferred stock (3) -- 10,065 16,236 -- --
Total stockholders' equity (capital
deficiency) (3) (4,569) (8,202) (21,965) 13,037 30
</TABLE>
(1) Nonmonetary revenues and nonmonetary cost of sales associated with barter
transactions are included in the consolidated statements of operations at
the estimated fair values of advertising time and information content
received. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 2 of Notes to the Consolidated
Financial Statements.
(2) Includes $1,479,000 of expenses related to a discontinued public offering
for the year ended December 31, 1994.
(3) All of the outstanding redeemable convertible preferred stock was converted
to Common Stock as part of the Merger. See Note 1 of Notes to the
Consolidated Financial Statements.
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Source is a provider of information and services to consumers through
the television and telephone. In September 1996, in Colorado Springs, Colorado,
Source commercially introduced the Interactive Channel, its television
programming service which provides a range of on-demand information and services
to consumers utilizing cable television and telephone lines. In November 1996,
Source also commercially introduced the Interactive Channel in Denton, Texas.
Source utilizes ICT's interactive television system to deliver the Interactive
Channel. Source has announced distribution agreements for the Interactive
Channel with three cable operators, Marcus Cable Company, L.P., Cablevision
Systems Corporation and Century Communications Corporation, and is currently
offering the Interactive Channel on the systems of two of these operators. The
Interactive Channel offers over 60 interactive programs including on demand
local and national news, sports and weather, home shopping with companies such
as J.C. Penney, Hallmark Connections and Waldenbooks, interactive Yellow Pages,
television and movie guides, travel information and games.
Since 1988, Source has been delivering audiotext information to
consumers through the touch-tone telephone. Through its IT Network telephone
business, Source provides consumers with information on demand, such as news,
weather and sports, together with topical information for health, legal and
other matters of consumer interest. Source's principal IT Network telephone
business product, called the Network Guide, consists of approximately 800
specific information topics listed in a stand-alone insert generally bound in
the front of Yellow Pages directories distributed by certain Regional Bell
Operating Companies or their affiliates or other Yellow Pages publishers.
The Company has earned monetary revenues through advertising
sponsorships in the Network Guide, which are recorded as unearned income when
billed and recognized on a straight-line basis as earned over the terms of the
respective contracts (which are typically from 3 to 12 months). The Company also
has earned monetary revenues from sales of audiotext services, principally its
Consumer Tips service, to certain of the RBOCs or Directory Publishers. In the
future, the Company believes a significant portion of its monetary revenues will
be generated from Interactive Channel fees generated by subscribers and
advertisers.
Historical revenues generated from the IT Network telephone business
have been predominantly nonmonetary. In each of its markets, the Company has
entered into nonmonetary barter agreements with local television and radio
stations. These media sponsors provide the Company with advertising time on
their stations and update local news, weather and sports programming on the IT
Network telephone business in exchange for promotional messages on the IT
Network telephone business and print advertisements in the Network Guide.
Revenues and cost of sales associated with these nonmonetary barter transactions
are included in the Company's consolidated statements of operations at the
estimated fair value of the on-air advertisements and information content
provided to the Company by media sponsors. The amount of nonmonetary revenues
has declined in 1996 because of the expiration of the agreement with
Southwestern Bell Yellow Pages, Inc. ("Southwestern Bell"), the termination of
the agreement with Ameritech Publishing, Inc. ("Ameritech") and the decision
by the Company to reduce the amount of space devoted to information provided
by media sponsors in the Network Guide.
On June 23, 1995, IT merged with a wholly-owned subsidiary of HB
Communications Acquisition Corp., which changed its name to Source Media, Inc.
Pursuant to the Merger, the outstanding common stock and preferred stock of IT
was converted into common stock of the Company. The results of operations and
financial position of the Company for periods and dates prior to the Merger
are the historical results of operations and financial position of IT for such
periods and dates. For accounting and financial reporting purposes, the
Company has reflected in its consolidated financial statements the assets,
liabilities and equity of IT at their historical book values.
On January 14, 1997, the Company acquired all of the outstanding shares
that it did not already own of ICT in exchange for 1,390,000 shares of the
Company's common stock, making ICT a wholly-owned subsidiary
18
<PAGE> 20
of the Company. ICT owns the patented technology utilized by the Company for the
Interactive Channel and provides research and development services for the
Company. The Company's historical consolidated results of operations and
financial condition include ICT as the Company previously owned a majority
interest in ICT until the acquisition of the remaining interest.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Monetary revenues declined eight percent to $8.6 million for the year
ended December 31, 1996 from $9.3 million for the year ended December 31, 1995.
The net decline of $767,000 included declines of $1.5 million attributable to
the Network Guide product and $884,000 attributable to the Company's Consumer
Tips service. These declines were partially offset by (i) increases of $1.0
million in revenues attributable to product development trials of the
Interactive Channel and license fees from ICT technology, and (ii) $597,000
related to the Company's other audiotext services.
The decline in Network Guide monetary revenues primarily reflects the
termination of distribution of the Network Guide in 18 DMAs, eight of which are
located within the Southwestern Bell region, six of which are located within the
Ameritech region, three of which are located within the DonTech region and one
of which is located in the BellSouth region. Total Network Guide revenues within
the 18 terminated DMAs were $1.1 million for the year ended December 31, 1996
and $2.8 million for the year ended December 31, 1995. These declines were
partially offset by increases of $137,000 related to 12 new DMAs in which the
Network Guide is distributed and $54,000 in the Company's other 41 existing
DMAs.
Until February 1, 1996, the Company published the Network Guide in
Yellow Pages directories in certain DMAs within the Ameritech region and
produced the related audiotext messages in exchange for a share of the Network
Guide revenues generated in those DMAs. The Company's agreement with Ameritech
was terminated by Ameritech, and the Network Guide has not been included in any
Ameritech Yellow Pages directories published after September 1996. Accordingly,
revenues in those Ameritech DMAs will end in the third quarter 1997 due to the
conclusion of revenue from Network Guide contracts in effect prior to the
termination of the Ameritech agreement. In early 1997, in connection with the
pending settlement of litigation between the parties, the Company and Ameritech
agreed to enter into a definitive agreement pursuant to which the Company will
be the exclusive audiotext sales and service provider in up to 38 Ameritech
Yellow Pages directories for a three year period commencing in January 1998.
Total monetary revenues for both the Network Guide and Consumer Tips products
in the Ameritech region accounted for approximately 20 and 32 percent of the
Company's monetary revenues in 1996 and 1995, respectively. The Company expects
to partially offset such revenue declines in future periods with revenues
generated through (i) its recently-signed sales agency agreement with The
Reuben H. Donnelly Corporation ("Donnelly") to sell the Network Guide in Yellow
Pages published by Donnelly in five top-100 DMAs in the mid-Atlantic region,
(ii) its recently-completed purchase of certain assets from Donnelly and a
related audiotext service contract with Donnelly under which the Company will
provide audiotext services in Yellow Pages published by Donnelly in eight
top-100 DMAs located throughout the United States, (iii) its recently-signed
sales agency agreement with GTE Directories Corporation ("GTE") to sell the
Network Guide in Yellow Pages published by GTE in four top-100 DMAs located
throughout the United States, (iv) its recently-completed purchase of certain
assets from GTE and a related audiotext service contract with GTE under which
the Company will provide audiotext services in Yellow Pages published by GTE
in 9 top-100 DMAs located throughout the United States, and (v) its recently-
signed sales agency agreement with Southern New England Telephone ("SNET") to
sell the Network Guide in Yellow Pages published by SNET in a top-100 DMA
located in the northeastern United States.
The decline in Consumer Tips revenues is the result of the February
1996 termination of the Company's agreement with Ameritech. Consumer Tips
revenues, which were $213,000 and $1.1 million for the years ended December 31,
1996 and 1995, respectively, ended completely in the second quarter of 1996.
Nonmonetary revenues and nonmonetary cost of sales declined 38 percent
to $9.9 million for the year ended December 31, 1996 from $15.9 million for the
year ended December 31, 1995. Substantially all of this $6.0 million decline in
nonmonetary revenues and nonmonetary cost of sales occurred because of the
termination of distribution agreements in certain DMAs and because, in other
DMAs, the Company reduced the amount of space devoted to
19
<PAGE> 21
information provided by media sponsors in its Network Guide and, accordingly,
renewed its barter contracts with such media sponsors for lesser amounts of
promotional advertising.
Monetary cost of sales declined 29 percent to $3.5 million for the year
ended December 31, 1996 from $4.9 million for the year ended December 31, 1995.
In certain RBOC regions, the Company has operated under comprehensive Network
Guide agreements whereby the Company has agreed to share a portion of its
advertising revenues with the RBOC in return for pages in the RBOC's Yellow
Pages directories and use of the RBOC's audiotext equipment and telephone lines.
As DMAs within an RBOC region become governed by such a Network Guide agreement,
the Company's monetary cost of sales reflect increasing revenue sharing expense
and declining Yellow Pages purchase expense and telephone line charges in such
RBOC region. Monetary cost of sales for the years ended December 31, 1996 and
December 31, 1995 was primarily comprised of (i) revenue sharing expenses
associated with Network Guide agreements with Ameritech, DonTech and BellSouth
of $1.9 million and $2.0 million, respectively, a nine percent decrease,
resulting from lower monetary revenues in certain RBOC regions pursuant to
revenue-sharing operating agreements, (ii) operations personnel salaries of
$494,000 and $584,000, respectively, a 15 percent decrease, (iii) Yellow Pages
purchase expenses of $454,000 and $1.2 million, respectively, a 63 percent
decrease, reflecting the discontinuation of distribution in all eight DMAs
within the Southwestern Bell region as well as lower Yellow Pages purchase
prices and the Company's decision to purchase fewer pages in the Pacific Bell
region, (iv) telephone line charges of $292,000 and $369,000, respectively, a 21
percent decrease, primarily reflecting fewer DMAs in the Southwestern Bell
region, and (v) satellite broadcasting charges of $141,000 and $357,000,
respectively, a 60 percent decline, reflecting the Company's decision in 1996 to
update its audiotext systems via telephone lines rather than satellites.
Monetary cost of sales attributable to the Interactive Channel were minimal as
the related revenues primarily consisted of sales of programming and license
fees.
Selling, general and administrative expenses, including amortization of
intangible assets increased 42 percent to $12.8 million for the year ended
December 31, 1996 from $9.0 million for the year ended December 31, 1995. This
increase resulted primarily from increased subscriber acquisition costs
associated with the commercial introduction of the Company's Interactive
Channel. These costs included such items as advertising agency creative fees,
television production costs of commercials and an infomercial, promotional,
direct mail and newspaper advertising fees.
Research and development expenses increased 72 percent to $6.3 million
for the year ended December 31, 1996 from $3.8 million for the year ended
December 31, 1995. This increase occurred due to (i) the addition of personnel
by the Company and by ICT to support business development activities as well as
to continue the development of cable converter boxes which will be deployed in
Interactive Channel subscriber households, (ii) the continued modification of
the ICT on-line television technology to operate on a UNIX-based platform which
increases the speed and capacity of the Interactive Channel headend equipment,
(iii) the continued development of a Windows-based media presentation
workstation that could be used by the Company and others to create and edit
programming for the Interactive Channel, and (iv) other related development
activities associated with the commercial introduction of the Interactive
Channel.
Other Income and Expenses. Net interest income was $175,000 for the
year ended December 31, 1996 compared with net interest expense of $137,000 for
the same period in 1995, reflecting interest earned during 1996 on the proceeds
from a public offering of the Company's common stock in December 1995. The
Company incurred $1.6 million of charges related to financing incentives during
1995 as a result of the issuance of certain warrants in January 1995 and in
connection with interim financings in May 1995.
20
<PAGE> 22
YEARS ENDED DECEMBER 31, 1995 AND 1994
Monetary revenues increased two percent to $9.3 million for the year
ended December 31, 1995 from $9.2 million for the year ended December 31, 1994.
The net increase of $148,000 included an increase of $1.2 million attributable
to the Network Guide product, partially offset by a decline of $847,000 in
revenues earned by Cableshare and a decline of $242,000 attributable to the
Company's Consumer Tips service. The increase in Network Guide monetary revenues
was generated by expansion in 19 new designated market areas ("DMAs") and
slightly increased monetary revenues among the Company's 37 other DMAs. Revenue
increases in certain existing DMAs occurred primarily because of (i) the
creation of a sales force focusing exclusively on selling health and legal
advertising, (ii) the allocation of additional resources to target national
advertisers and (iii) the centralization of customer service operations, which
has allowed the sales force more time to engage in selling activities. The
decline in ICT's revenues in 1995 compared to 1994 reflects hardware sales and
consulting services delivered by ICT in 1994 to Bell Atlantic in connection with
Bell Atlantic's interactive Yellow Pages trial, which did not recur in 1995.
Decreased Consumer Tips revenues in the BellSouth region for the 1995 period,
resulting from the non-renewal of the Company's contract with BellSouth, were
partially offset by increasing Consumer Tips revenues in the Ameritech region.
There were $13,000 in revenues recorded for BellSouth Consumer Tips in the year
ended December 31, 1995, compared with $555,000 in the year ended December 31,
1994.
Nonmonetary revenues and nonmonetary cost of sales declined 27 percent
to $15.9 million for the year ended December 31, 1995 from $21.7 million for the
year ended December 31, 1994. Substantially all of this $5.8 million decline
occurred because, in certain DMAs, the Company reduced the amount of space in
its Network Guide printed menu of available programming devoted to information
provided by media sponsors and, accordingly, renewed its barter contracts with
such media sponsors for lesser amounts of promotional advertising.
Monetary cost of sales declined six percent to $4.9 million for the
year ended December 31, 1995 from $5.2 million for the year ended December 31,
1994. In certain RBOC regions, the Company has operated under comprehensive
Network Guide agreements whereby the Company has agreed to share a portion of
its advertising revenues with the RBOC in return for pages in the RBOC's Yellow
Pages directories and use of the RBOC's audiotext equipment and telephone lines.
As DMAs within an RBOC region become governed by such a Network Guide agreement,
the Company's monetary cost of sales reflect increasing revenue sharing expense
and declining Yellow Pages purchase expense and telephone line charges in such
RBOC region. Monetary cost of sales for the years ended December 31, 1995 and
December 31, 1994 was primarily comprised of (i) revenue sharing expenses
associated with Network Guide agreements with Ameritech, DonTech and BellSouth
of $2.0 million and $1.9 million, respectively, an eight percent increase,
resulting from higher monetary revenues in certain RBOC regions pursuant to
revenue-sharing operating agreements, (ii) Yellow Pages purchase expenses of
$1.2 million and $1.2 million, respectively, a two percent increase, reflecting
lower Yellow Pages purchase expense in those regions operating pursuant to
revenue sharing agreements, offset by increased Yellow Pages purchase expense
attributable to the Company's expansion in the Pacific Bell region, (iii)
operations personnel salaries of $584,000 and $812,000, respectively, a 28
percent decrease, reflecting certain cost-cutting measures implemented by the
Company in the last six months of 1994, (iv) telephone line charges of $369,000
and $444,000, respectively, a 17 percent decrease reflecting certain
cost-cutting measures implemented by the Company in the last six months of 1994
and (v) satellite broadcasting charges of $357,000 and $358,000, respectively,
nearly unchanged.
Selling, general and administrative expenses, including amortization of
intangible assets and write-down of intangible assets, declined 29 percent to
$9.1 million for the year ended December 31, 1995 from $12.6 million for the
year ended December 31, 1994. This decline resulted primarily from (i) the
nonrecurrence of a $1.9 million write-down of intangible assets recorded during
the year ended December 31, 1994 to reflect impairment of the value of such
assets in that period, (ii) lower amortization of intangible assets of $653,000
resulting from such write-down, (iii) lower administrative expenses of $539,000
resulting from certain cost-cutting measures implemented by the Company in the
last six months of 1994, (iv) the nonrecurrence of $456,000 of expense incurred
in 1994 related to the issuance of warrants to an outside advisory committee
that assists the Company in certain matters ("Advisory Warrants") and (v) the
nonrecurrence of $415,000 of expense incurred in 1994 related to a demand made
by
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<PAGE> 23
Revenue Canada for repayment of certain refundable tax credits taken by ICT in
1988. These declines were partially offset by increased administrative expenses
during 1995 attributable to ICT.
Research and development expenses increased 39 percent to $3.8 million
for the year ended December 31, 1995 from $2.7 million for the year ended
December 31, 1994. This increase was the result of the addition of personnel
both within the Company and at ICT required to support business development
activities as well as to begin development of cable converter boxes, the
modification of the ICT on-line television technology to operate on a UNIX-based
platform, and the development of a Windows-based media presentation workstation.
Other Income and Expenses. Net interest expense declined 54 percent to
$137,000 for the year ended December 31, 1995 from $296,000 for the same period
in 1994 as the Company fulfilled certain interest expense obligations effective
in June 1995. The Company incurred $1.6 million of charges related to financing
incentives during 1995 as a result of the issuance of certain warrants in
January 1995 and in connection with interim financings in May 1995. Included in
other (income) expense for 1994 was a non-recurring expense of $1.4 million
related to a discontinued public offering.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has experienced substantial operating
losses and net losses as a result of its efforts to develop, deploy and support
its IT Network telephone business and to develop and conduct trials of the
Interactive Channel. As of December 31, 1996, the Company had an accumulated
deficit of approximately $56.9 million and had used cumulative net cash in
operations of $37.3 million. The difference at December 31, 1996 between the
accumulated deficit and cumulative net cash used in operations since inception
was attributable to (i) $16.8 million of nonmonetary charges related to
financing incentives, write-down of intangible assets, depreciation and
amortization and other non-cash expenses and (ii) $2.8 million of unearned
income, accounts payable and accrued liabilities in excess of accounts
receivable, prepaid expenses and inventory. Source expects that these losses
will increase in 1997 as a result of, among other things, its continuing
expenditures relating to its efforts to commercially introduce, deploy and
enhance the Interactive Channel. Source expects to continue to incur operating
losses through 1997 in excess of the amount of the operating losses experienced
in past years and may incur operating losses at similar or greater levels
thereafter.
The Company's primary source of liquidity is its cash and cash
equivalents, which totaled $4.3 million at December 31, 1996. Since its
inception, the Company has financed its operations primarily through an
aggregate $65.5 million raised from various financing activities, including the
incurrence of debt and issuance of the Company's common stock and preferred
stock. In June 1995, the Company consummated the Merger whereby $7.2 million of
cash, net of redemptions and expenses, became available to the Company. In
connection with the Merger, $4.1 million of debt, and accrued interest thereon,
was retired and all of the Company's preferred stock was converted into Common
Stock. In December 1995, the Company completed a public offering of 2,350,000
shares of Common Stock for net proceeds of $21,850,000, of which the Company
used approximately $3.0 million to repurchase shares of Common Stock from a
stockholder.
In October 1996, the Company acquired certain audiotext servicing
assets from Donnelly for an aggregate purchase price of $750,000, of which
$600,000 was paid in October 1996 and $150,000 is payable in June 1997. In
December 1996, the Company acquired certain audiotext servicing assets from GTE
for an aggregate purchase price of $1.8 million, of which $600,000 was paid in
December 1996 and $1.2 million is payable in $600,000 installments due in May
1997 and August 1997. The Company may consider additional strategic acquisitions
in either of its lines of business from time to time. Although there can be no
assurance that the Company will consummate any such transactions, to the extent
that it does so, such acquisitions would require the Company to expend funds,
issue additional equity securities or incur additional debt. The incurrence of
additional indebtedness by the Company could result in a substantial portion of
the Company's operating cash flow being dedicated to the payment of principal
and interest on such indebtedness, could render the Company more vulnerable to
competitive pressures and economic downturns and could impose restrictions on
the Company's operations.
On April 3, 1996, the Company issued a senior note (the First Tranche
Note) in the principal amount of $5.0 million and a warrant (the First Tranche
Warrant) which entitled the holder thereof to purchase 500,000 shares
22
<PAGE> 24
of the Company's common stock at a purchase price of $10.21 per share. On
September 30, 1996, and March 31, 1997, the Company issued additional senior
notes in the amounts of $326,806 and $350,090, respectively, for the payment of
interest on the First Tranche Note. The First Tranche Note and the additional
senior notes (collectively, the "Aggregate First Tranche Notes") were due on
March 31, 2001 and bore interest at the rate of 13% per annum through March 31,
1998 and 12% thereafter.
On April 9, 1997, the Company received cash proceeds of $15.0 million
upon the issuance of additional senior notes (the Second Tranche Notes) in the
principal amount of $15.0 million and warrants (the Second Tranche Warrants)
entitling the holders thereof to purchase in the aggregate 2,000,000 shares of
the Company's common stock at a purchase price of $6.00 per share at any time
until their expiration on March 31, 2004. Additionally, in connection with the
issuance of the Second Tranche Notes and the Second Tranche Warrants, the
Aggregate First Tranche Notes and the First Tranche Warrant were amended and
restated to terms identical to those of the Second Tranche Notes and the Second
Tranche Warrants, respectively. The amended Aggregate First Tranche Notes and
the Second Tranche Notes are due on March 31, 2002 and bear interest at the
rate of either: (i) 12% per annum through March 31, 1999 if paid in cash, or
(ii) 13% per annum through March 31, 1999 if paid through the issuance of
additional notes, and 12% thereafter. At the option of the Company, interest
payments may be made through the issuance of additional senior notes; however,
to the extent interest payments are made through the issuance of additional
senior notes, additional warrants to purchase .125 shares of the Company's
common stock at a purchase price of $6.00 per share must also be issued to the
holders of the Aggregate First and Second Tranche Notes for each dollar of
principal amount of such senior notes. On March 31, 2001, the Company must make
a prepayment of the notes equal to 33.33% of the then outstanding principal
(together with interest accrued to date on such principal amount). The notes
are secured by a lien on all of the Company's assets. Except for the required
prepayment described above, the note agreement provides for a prepayment
penalty and customary covenants and events of default. The Company also granted
the holders of the warrants demand and "piggyback" registration rights
covering the shares of the Company's common stock issuable upon exercise of the
warrants.
The Company's future capital requirements will depend on many factors,
including, but not limited to, (i) the success and timing of the development,
introduction and deployment of the Interactive Channel, (ii) the operating
results of its IT Network telephone business, (iii) the levels of advertising
required to attain a competitive position in the marketplace for its products,
(iv) the extent of market acceptance of such products, (v) the funds required by
ICT and the Company to fund their costs of litigation, (vi) potential
acquisitions or asset purchases and (vii) competitive factors. Following the
issuance of the Second Tranche Notes, the Company believes its current
resources will be sufficient to meet the Company's anticipated cash needs for
working capital and capital expenditures through the end of 1997. However, if
cash generated by operations is insufficient to satisfy the Company's
liquidity requirements, the Company may attempt to sell additional equity
securities or incur additional indebtedness. To the extent that future
financing requirements are satisfied through the issuance of equity securities,
Source's shareholders may experience dilution. The incurrence of additional
debt financing could result in a substantial portion of Source's operating cash
flow being dedicated to the payment of principal and interest on such
indebtedness, could render Source more vulnerable to competitive pressures and
economic downturns and could impose restrictions on Source's operations.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1996, IT had net operating loss carryforwards of
approximately $42.2 million for United States income tax purposes, which begin
to expire in 2003. See Notes 1 and 9 of Notes to the Consolidated Financial
Statements included elsewhere herein. The Internal Revenue Code of 1986 imposes
limitations on the use of net operating loss carryforwards if certain stock
ownership changes occur. As a result of the Merger, an ownership change occurred
that will cause the Company's utilization of pre-Merger net operating losses to
be limited to approximately $3.5 million in a given year.
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<PAGE> 25
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes certain forward-looking statements of the Company
including future market trends, estimates regarding the economy and the
information service industry in general and key performance indicators which
impact the Company. In developing any forward-looking statements, the Company
makes a number of assumptions including expectations for continued market
growth, anticipated revenue and gross margin levels, and cost savings and
efficiencies. If the industry's or the Company's performance differs materially
from these assumptions or estimates, the Company's actual results could vary
significantly from the estimated performance reflected in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors, and the consolidated financial
statements of the Company and the notes thereto appear on the following pages.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The section entitled "Election of Directors" appearing in the Company's
proxy statement for the annual meeting of stockholders to be held on May 21,
1997 sets forth certain information with respect to the directors of the Company
and is incorporated herein by reference. Certain information with respect to
persons who are or may be deemed to be executive officers of the Company is set
forth under the caption "Executive Officers of the Company" in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" appearing in the
Company's proxy statement for the annual meeting of stockholders to be held on
May 21, 1997 sets forth certain information with respect to the compensation of
management of the Company and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial Owners
and Management" appearing in the Company's proxy statement for the annual
meeting of stockholders to be held on May 21, 1997 sets forth certain
information with respect to the ownership of the Company's Common Stock and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The section entitled "Certain Transactions" appearing in the Company's
proxy statement for the annual meeting of stockholders to be held on May 21,
1997 sets forth certain information with respect to certain business
relationships and transactions between the Company and its directors and
officers and is incorporated herein by reference.
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<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements included in Item 8 herein:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 Consolidated Statements of
Stockholders' Equity (Capital Deficiency) for the years ended
December 31, 1994, 1995, and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995, and 1996 Notes to Consolidated
Financial Statements
(2) Financial Statement Schedules included in Item 8 herein:
All schedules for which provision in made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable or immaterial in relation to the consolidated
financial statements and, therefore, have been omitted.
(3) Exhibits:
The information required by this Item 14(a)(3) is set forth in
the Index to Exhibits accompanying this Annual Report on Form
10-K.
(b) Report on Form 8-K filed on December 30, 1996 reporting acquisition by
IT of certain assets from GTE Directories Corporation for $1,800,000.
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, Source Media, Inc. has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOURCE MEDIA, INC.
Date: April 14, 1997
By /s/ TIMOTHY P. PETERS
-----------------------------------------------
Timothy P. Peters
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ TIMOTHY P. PETERS
- ------------------------ Chairman of the Board and April 14, 1997
Timothy P. Peters Chief Executive Officer
/s/ WILLIAM S. BEDFORD
- ------------------------ Chief Operating Officer April 14, 1997
William S. Bedford and Director
/s/ JOHN J. REED
- ------------------------ President and Director April 14, 1997
John J. Reed
/s/ MICHAEL G. PATE
- ------------------------ Chief Financial Officer April 14, 1997
Michael G. Pate and Treasurer
(Principal Financial and
Accounting Officer)
/s/ JOHN F. BARING
- ------------------------ Director April 14, 1997
John F. Baring
/s/ ALAN M. FLAHERTY
- ------------------------ Director April 14, 1997
Alan M. Flaherty
/s/ JAMES L. GREENWALD
- ------------------------ Director April 14, 1997
James L. Greenwald
/s/ RHODRIC C. HACKMAN
- ------------------------ Director April 14, 1997
Rhodric C. Hackman
/s/ DAVID L. KUYKENDALL
- ------------------------ Director April 14, 1997
David L. Kuykendall
/s/ MICHAEL J. MAROCCO
- ------------------------ Director April 14, 1997
Michael J. Marocco
</TABLE>
26
<PAGE> 28
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Source Media, Inc.
We have audited the accompanying consolidated balance sheets of Source Media,
Inc. (the Company) as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity (capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Source Media,
Inc., at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
February 7, 1997, except for Note 5 and the last
paragraph of Note 6, for which the date is
April 9, 1997
1
<PAGE> 29
SOURCE MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $17,479,223 $ 4,302,943
Restricted investments................................ -- 611,182
Trade accounts receivable, less allowance for doubtful
accounts .......................................... 1,076,239 956,078
Deferred expenses .................................... 889,393 729,819
Prepaid expenses and other current assets ............ 892,234 1,167,201
----------- -----------
Total current assets .............................. 20,337,089 7,767,223
Property and equipment:
Production equipment ................................. 2,421,816 3,951,502
Computer equipment ................................... 927,672 1,937,826
Other equipment ...................................... 960,446 2,520,885
Furniture and fixtures ............................... 120,544 128,235
----------- -----------
4,430,478 8,538,448
Accumulated depreciation and amortization ................ 2,670,017 3,576,999
----------- -----------
1,760,461 4,961,449
Intangible assets:
Patents .............................................. 3,597,989 3,597,989
Goodwill ............................................. 3,010,137 3,010,137
Contract rights ...................................... -- 1,121,000
----------- -----------
6,608,126 7,729,126
Accumulated amortization ................................. 4,510,434 5,541,770
----------- -----------
2,097,692 2,187,356
Other non-current assets ................................. -- 980,745
----------- -----------
Total assets ......................................... $24,195,242 $15,896,773
=========== ===========
</TABLE>
2
<PAGE> 30
SOURCE MEDIA, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Current liabilities:
Trade accounts payable ......................................... $ 1,296,516 $ 917,462
Accrued payroll ................................................ 258,734 420,926
Other accrued liabilities ...................................... 1,650,091 1,483,373
Amounts payable related to acquisitions ........................ -- 1,350,000
Unearned income ................................................ 4,724,957 3,976,244
Current portion of capital lease obligations ................... 184,175 85,683
------------ ------------
Total current liabilities ................................... 8,114,473 8,233,688
Long-term debt, net of discount ................................... -- 4,612,021
Capital lease obligations ......................................... 35,039 22,706
Commitments and contingencies
Minority interests in consolidated subsidiaries ................... 3,618,629 3,665,104
Note receivable and accrued interest from minority
stockholder, net of discount ................................... (610,175) (666,931)
------------ ------------
3,008,454 2,998,173
Stockholders' equity:
Common stock, $.001 par value
Issued shares - 10,303,556 and 10,327,041 shares as of
December 31, 1995 and 1996, respectively ...................... 10,304 10,327
Less treasury stock at cost - 356,200 and 381,351 shares as of
December 31, 1995 and 1996, respectively ...................... (3,515,563) (3,757,641)
Capital in excess of par value ................................. 59,955,392 60,815,785
Accumulated deficit ............................................ (43,076,663) (56,931,832)
Foreign currency translation ................................... (34,619) 3,737
Notes receivable and accrued interest from stockholders ........ (301,575) (110,191)
------------ ------------
Total stockholders' equity .................................. 13,037,276 30,185
------------ ------------
Total liabilities and stockholders' equity ........................ $ 24,195,242 $ 15,896,773
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 31
SOURCE MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Monetary revenues ........................ $ 9,194,068 $ 9,341,720 $ 8,574,823
Nonmonetary revenues ..................... 21,748,976 15,944,656 9,944,082
------------ ------------ ------------
Total revenues ................... 30,943,044 25,286,376 18,518,905
Monetary cost of sales ................... 5,247,685 4,936,729 3,485,045
Nonmonetary cost of sales ................ 21,748,976 15,944,656 9,944,082
------------ ------------ ------------
Total cost of sales .............. 26,996,661 20,881,385 13,429,127
------------ ------------ ------------
Gross profit ............................. 3,946,383 4,404,991 5,089,778
Selling, general, and administrative
expenses ......................... 8,987,438 7,951,837 11,747,155
Amortization of intangible assets ........ 1,684,353 1,031,337 1,031,337
Research and development expenses ........ 2,705,557 3,750,244 6,330,745
Write-down of intangible assets .......... 1,900,000 -- --
------------ ------------ ------------
15,277,348 12,733,418 19,109,237
------------ ------------ ------------
Operating loss ........................... (11,330,965) (8,328,427) (14,019,459)
Interest expense ......................... 417,587 354,333 614,037
Interest income .......................... (122,011) (217,284) (788,629)
Other (income) expense ................... 1,463,571 (24,782) (36,173)
Minority interests in earnings (losses)
of consolidated subsidiaries ............ (232,891) (252,689) 46,475
Charges related to financing
incentives ....................... -- 1,581,250 --
------------ ------------ ------------
Net loss ................................. (12,857,221) (9,769,255) (13,855,169)
Preferred stock dividends ................ 1,621,240 832,651 --
------------ ------------ ------------
Net loss attributable to common
stockholders ..................... $(14,478,461) $(10,601,906) $(13,855,169)
------------ ------------ ------------
Net loss per common share ................ $ (3.22) $ (1.65) $ (1.39)
============ ============ ============
Weighted average common shares
outstanding ...................... 4,498,298 6,412,690 9,935,455
============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 32
SOURCE MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Notes Total
Capital In Foreign Receivable Stockholders'
Treasury Excess of Accumulated Currency From Equity (Capital
Common Stock Stock Par Value Deficit Translation Stockholders Deficiency)
------------------- ------- ----------- ----------- ----------- ------------ --------------
Shares Amount
--------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993 ....................... 4,509,922 4,510 (10,000) 12,242,740 (20,450,187) 63,012 (52,513) (8,202,438)
Issuance of common stock
upon exercise of stock
options .................... 4,583 5 -- 3,460 -- -- -- 3,465
Issuance of common stock
to acquire patents ......... 6,324 6 -- 99,994 -- -- -- 100,000
Issuance of warrants for
services provided .......... -- -- -- 456,250 -- -- -- 456,250
Nonmonetary employee
compensation related
to stock options .......... -- -- -- 231,250 -- -- -- 231,250
Dividend-in-kin ($0.20
per Series A preferred
share) ..................... -- -- -- (1,117,957) -- -- -- (1,117,957)
Dividend-in-kin ($0.21
per Series B preferred
share) ..................... -- -- -- (503,283) -- -- -- (503,283)
Accrued interest on note
receivable from
stockholder ................ -- -- -- -- -- -- (5,000) (5,000)
Net loss ..................... -- -- -- -- (12,857,221) -- -- (12,857,221)
Foreign currency
translation ................ -- -- -- -- -- (70,533) -- (70,533)
--------- ------- ------- ----------- ----------- ------- ------- -----------
Balance at December 31,
1994 ....................... 4,520,829 4,521 (10,000) 11,412,454 (33,307,408) (7,521) (57,513) (21,965,467)
</TABLE>
5
<PAGE> 33
SOURCE MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(CONTINUED)
<TABLE>
<CAPTION>
Total
Notes Stockholders'
Capital In Foreign Receivable Equity
Treasury Excess of Accumulated Currency From (Capital
Common Stock Stock Par Value Deficit Translation Stockholders Deficiency)
--------------------- ---------- ----------- ----------- ----------- ------------ -------------
Shares Amount
---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock upon exercise
of stock options .... 84,639 85 -- 254,685 -- -- (225,000) 29,770
Nonmonetary
employee
compensation related
to stock options .... -- -- -- 46,875 -- -- -- 46,875
Dividend-in-kind
($0.10 per Series A
preferred share) ... -- -- -- (564,022) -- -- -- (564,022)
Dividend-in-kind
($0.13 per Series B
preferred share) ... -- -- -- (268,629) -- -- -- (268,629)
Issuance of warrant on
bridge financings ... -- -- -- 1,581,250 -- -- -- 1,581,250
Conversion of notes
payable to common
stock ............... 67,570 68 -- 329,932 -- -- -- 330,000
Conversion of
preferred stock to
common stock in the
Merger .............. 2,109,516 2,109 -- 17,553,869 -- -- -- 17,555,978
Company common stock
deemed issued
in the Merger ....... 1,184,440 1,184 -- 8,905,898 -- -- -- 8,907,082
Redemption of Merger
dissenting shares ... -- -- (527,220) -- -- -- -- (527,220)
Merger expenses ....... -- -- -- (1,135,099) -- -- -- (1,135,099)
Cancellation of
treasury stock in the
Merger .............. (13,438) (13) 10,000 (9,987) -- -- -- --
Accrued interest on
notes receivable
from stockholders ... -- -- -- -- -- -- (19,062) (19,062)
Issuance of common
stock in secondary
offering ............ 2,350,000 2,350 -- 21,848,166 -- -- -- 21,850,516
Purchase of treasury
stock ............... -- -- (2,988,343) -- -- -- -- (2,988,343)
Net loss .............. -- -- -- -- (9,769,255) -- -- (9,769,255)
Foreign currency
translation ........... -- -- -- -- -- (27,098) -- (27,098)
---------- ------- ---------- ----------- ----------- ---------- -------- ----------
Balance at December
31, 1995 .............. 10,303,556 10,304 (3,515,563) 59,955,392 (43,076,663) (34,619) (301,575) 13,037,276
</TABLE>
6
<PAGE> 34
SOURCE MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(CONTINUED)
<TABLE>
<CAPTION>
NOTES TOTAL
CAPITAL IN ACCUMULATED FOREIGN RECEIVABLE STOCKHOLDERS'
TREASURY EXCESS OF DEFICIT CURRENCY FROM EQUITY (CAPITAL
COMMON STOCK STOCK PAR VALUE ------------ TRANSLATION STOCKHOLDERS DEFICIENCY)
------------------- ----------- ----------- ----------- ------------ ----------
SHARES AMOUNT
--------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
upon exercise of stock
options ................. 23,485 23 -- 141,777 -- -- -- 141,800
Issuance of warrant with
First Tranche Note ...... -- -- -- 745,830 -- -- -- 745,830
Repayment of notes
receivable and accrued
interest from stockholder
through surrender of
common stock ............ -- -- (242,078) -- -- -- 242,078 --
Other ..................... -- -- -- (27,214) -- -- (50,694) (77,908)
Net loss .................. -- -- -- -- (13,855,169) -- -- (13,855,169)
Foreign currency
translation ............. -- -- -- -- -- 38,356 -- 38,356
--------- ------- ----------- ----------- ------------ ------ --------- -----------
Balance as of December 31,
1996 .................... 10,327,041 $10,327 $(3,757,641) $60,815,785 $(56,931,832) $3,737 $(110,191) $ 30,185
========== ======= =========== =========== ============ ====== ========= ===========
</TABLE>
See accompanying notes.
7
<PAGE> 35
SOURCE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................. $(12,857,221) $ (9,769,255) $(13,855,169)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation ...................................... 732,049 801,339 906,982
Amortization of intangible assets ................. 1,684,332 1,031,337 1,031,337
Non-cash interest expense ......................... -- -- 589,990
Provision for losses on accounts receivable ....... 32,353 108,123 82,269
Minority interests in net earnings (losses) ....... (232,891) (252,689) 46,475
Charges relating to financing incentives .......... -- 1,581,250 --
Write-down of intangible assets ................... 1,900,000 -- --
Warrants issued for services provided ............. 456,250 -- --
Other, net ........................................ 172,036 (28,903) (59,453)
Changes in operating assets and liabilities:
Trade accounts receivable ......................... 327,849 (198,983) 37,892
Prepaid expenses and other current assets.......... 254,004 (193,754) (274,967)
Deferred expenses ................................. (397,245) 159,168 159,574
Trade accounts payable ............................ 568,058 (263,017) (379,054)
Accrued payroll ................................... (313,149) 69,651 162,192
Other accrued liabilities ......................... 558,461 502,025 (339,781)
Other accrued liabilities to related parties ...... (268,685) (204,880) --
Unearned income ................................... 1,030,799 (648,722) (748,713)
------------ ------------ ------------
Net cash used in operating activities ................ (6,353,000) (7,307,310) (12,640,426)
INVESTING ACTIVITIES
Capital expenditures ................................. (412,438) (257,888) (2,678,970)
Acquisitions of equipment and contract rights ........ -- -- (1,200,000)
Interactive Channel Technologies acquisition costs ... -- -- (645,984)
Restricted investments ............................... -- -- (611,182)
Other ................................................ -- -- (47,998)
------------ ------------ ------------
Net cash used in investing activities ................ (412,438) (257,888) (5,184,134)
FINANCING ACTIVITIES
Net proceeds from issuance of debt and
warrant .............................................. 1,000,000 3,050,000 4,606,163
Payments on debt ..................................... (200,000) (4,050,000) --
</TABLE>
8
<PAGE> 36
SOURCE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Payments on capital lease obligations .............. (164,800) (176,503) (110,825)
Proceeds from issuance of common stock upon
exercise of stock options .......................... 3,465 29,770 141,800
Proceeds from issuance of common stock in
secondary offering, net of fees and expenses ....... -- 21,850,516 --
Purchase of treasury stock ......................... -- (2,988,343) --
Proceeds from issuance of preferred stock net of
fees and expenses .................................. 5,054,787 -- --
Cash acquired in the Merger ........................ -- 8,891,389 --
Payment of fees and expenses associated with
Merger ............................................. -- (1,135,099) --
Redemption of Merger dissenter shares .............. -- (527,220) --
Other .............................................. -- -- (27,214)
----------- ------------ ------------
Net cash provided by financing activities .......... 5,693,452 24,944,510 4,609,924
Effect of exchange rate changes on cash and cash
equivalents ........................................ (35,859) (27,099) 38,356
----------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents ........................................ (1,107,845) 17,352,213 (13,176,280)
Cash and cash equivalents at beginning of period ... 1,234,855 127,010 17,479,223
----------- ------------ ------------
Cash and cash equivalents at end of period ......... $ 127,010 $ 17,479,223 $ 4,302,943
=========== ============ ============
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest on long-term debt, notes
payable, and capital leases ...................... $ 417,587 $ 354,333 $ 24,047
=========== ============ ============
</TABLE>
See accompanying notes.
9
<PAGE> 37
SOURCE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY HISTORY AND DESCRIPTION
Source Media, Inc. (SMI or the Company), through its wholly-owned
subsidiary IT Network, Inc. (IT), is a provider of information and
services to consumers through the television and telephone. In September
1996, in Colorado Springs, Colorado, the Company commercially introduced
the Interactive Channel, its television programming service which provides
a range of on-demand information and services to consumers utilizing cable
television and telephone lines. In November 1996, the Company also
commercially introduced the Interactive Channel in Denton, Texas. The
Interactive Channel offers over 60 interactive programs including on
demand local and national news, sports and weather, home shopping with
companies such as J.C. Penney, Hallmark Connections and Waldenbooks,
interactive Yellow Pages, television and movie guides, travel information
and games. Since 1988, the Company has been delivering audiotext
information to consumers through the touch-tone telephone. Through its IT
Network. telephone business, the Company provides consumers with
information on demand, such as news, weather and sports, together with
topical information for health, legal and other matters of consumer
interest.
IT was incorporated on July 19, 1988, as a Colorado corporation and
subsequently, on July 23, 1991, reincorporated in Texas. On June 23, 1995,
IT merged (the Merger ) into a wholly-owned subsidiary of HB
Communications Acquisition Corp. (HBAC). Pursuant to the Merger agreement,
IT's outstanding common stock and preferred stock were converted into an
aggregate 6,696,992 shares of the Company's common stock. In connection
with the Merger, HBAC changed its name to Source Media, Inc. Because the
Merger resulted in IT's stockholders having a majority ownership in SMI,
the Merger was accounted for as an issuance of IT's shares in exchange for
the net assets of SMI. In connection with the Merger, SMI paid $527,000 to
redeem 50,500 HBAC common shares held by dissenting stockholders and
repaid $4,100,000 of IT debt and related accrued interest. For accounting
and financial reporting purposes, the Company has reflected in its
consolidated financial statements the assets, liabilities, and equity of
IT at their historical book values. Accordingly, the results of operations
and financial position of the Company, for periods and dates prior to the
Merger, are the historical results of operations and financial position of
IT for such period and dates.
The Company has authorized for issuance up to 1,000,000 shares of $.001
par value preferred stock and 50,000,000 shares of $.001 par value common
stock.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company;
its wholly-owned subsidiary IT; and IT's majority-owned Canadian
subsidiaries, Interactive Channel Technologies Inc., a publicly traded
company (ICT), and 997758 Ontario Inc. (997758). All material intercompany
amounts and transactions have been eliminated. Certain amounts from prior
years have been reclassified to conform with the current year
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
10
<PAGE> 38
Minority Interests
Minority interests represent the minority stockholders' proportionate
shares of the equity of both ICT and 997758. At December 31, 1995 and
1996, the Company owned approximately 51% of ICT's capital stock,
representing approximately 74% voting control. At December 31, 1995 and
1996, the Company owned 100% of the voting Class X shares of 997758, while
an individual owned 100% of the Class Y nonvoting shares of 997758, as
more fully discussed in Note 6 - Stock Options, Warrants and Employee
Stock Purchase Plan. In January 1997, the Company completed an arrangement
whereby it acquired the remaining shares of ICT, as more fully discussed
in Note 4 - Acquisitions.
Cash and Cash Equivalents
The Company classifies all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Restricted Investments
On December 12, 1996, the Company entered into a letter of credit which
was collateralized by a deposit of $611,182. This deposit matures on May
6, 1997 in the amount of $624,000 and will be used to pay an overseas
supplier for goods expected to be shipped to the Company at that time.
Monetary Revenue Recognition
The Company earns monetary revenues through advertising sponsorships of
its IT Network telephone business. Monetary revenues are recognized on a
straight-line basis over the term of the respective contracts, beginning
at the time of the annual distribution of the applicable local Yellow
Pages directory, or at the applicable contract start date, if later, and
continuing to the end of the term of the respective contracts, which is
typically from 3 to 12 months. As the Company typically bills the
sponsorship fees before the end of the contracts, unearned income
represents cumulative amounts billed under monetary contracts in excess of
cumulative revenues earned under the same contracts.
The Company has entered into agreements with certain Regional Bell
Operating Companies or their affiliates or other Yellow Pages publishers
(collectively, "Directory Publishers") whereby the Company agreed to share
certain revenues and the Directory Publisher agreed to bear certain costs.
Under the terms of certain of these agreements, the Company's sales force
sells certain advertising sponsorships for the Company's interactive
telephone programming. In these cases, the Company recognizes the full
amount of revenues received, pursuant to sponsorships sold by the
Company's sales personnel, as revenue on a straight-line basis and
recognizes the Directory Publisher's costs under such agreements as cost
of sales. In other agreements, the Directory Publisher's sales force sells
such sponsorships. In these cases, the Company recognizes as revenues only
its share of the contract amount as these services are provided.
Under its agreements with certain Directory Publishers, the Company pays
the Directory Publisher fees equal to a percentage of cash collected under
monetary contracts with advertisers, as discussed above. Such fees are
paid to the Directory Publisher prior to the end of the contracts with the
advertisers, while the related expenses are recognized on a straight-line
basis over the length of the advertising contracts. Accordingly, deferred
expense represents cumulative fees paid to the Directory Publishers, under
revenue and cost-sharing agreements, in excess of cumulative expenses
recognized under the same contracts.
To date, the majority of revenues generated by the Interactive Channel
have been associated with trials related to Interactive Channel
technology. The Company anticipates the majority of future Interactive
Channel revenues will be generated by subscribers and advertisers and
recognized as revenues on a monthly basis as the services are provided.
11
<PAGE> 39
Nonmonetary Revenue Recognition
In each of its markets, the Company has entered into nonmonetary barter
agreements with local television and radio stations. These media sponsors
provide the Company with advertising time on their stations and update
local news, weather and sports programming on the IT Network telephone
service in exchange for promotional messages provided in connection with
the IT Network telephone business and print advertisements in the
Company's printed Network Guide. Revenues and cost of sales associated
with these nonmonetary barter transactions are included in the Company's
consolidated statements of operations at the estimated fair value of the
on-air advertisements and information content provided to the Company by
media sponsors.
Nonmonetary revenues and cost of sales are recognized on a straightline
basis over the terms of the respective contracts. The Company was
obligated to provide future services and was entitled to receive future
advertising and information content of $9,430,099 and $3,507,507 at
December 31, 1995 and 1996, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization, including the amortization of assets recorded under capital
lease obligations (which is included in depreciation expense), are
computed by the straight-line method over the estimated useful lives of
the assets. Computer equipment is depreciated over a three-year period.
Production and other equipment are depreciated over a five-year period.
Furniture and fixtures are depreciated over a seven-year period.
Intangible Assets
Goodwill and patents are related to the acquisition of the ICT interest in
1992 and are amortized using the straight-line method over an estimated
useful life of five years. Contract rights, which relate to the 1996 IT
Network telephone business acquisitions discussed in Note 4 -
Acquisitions, are amortized over the minimum contract period of three
years.
The Company continually reevaluates the propriety of the carrying value of
intangible assets, as well as the amortization periods, to determine
whether current events and circumstances warrant adjustment to the
carrying value or revisions to estimates of useful lives. To measure any
potential impairment of goodwill and patents, the Company periodically
compares the carrying value of its investment in ICT to its equity
ownership percentage of the fair market value of ICT. As a result of this
periodic evaluation, effective December 31, 1994, the Company recorded a
write-down of its patents and goodwill in the amount of $1,900,000.
Advertising Costs
The Company expenses the costs of advertising as incurred. Advertising
expense was $1,315,286 for the year ended December 31, 1996. Advertising
expenses were not material for the years ended December 31, 1995 and 1994.
Translation of Foreign Currencies
The financial positions and results of operations of ICT and 997758 are
measured using local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the exchange rate in
effect at each year-end. Statement of operations accounts are translated
at the average rate of exchange prevailing during the year. Translation
adjustments arising from the use of differing exchange rates from period
to period are included in the foreign currency translation account in
stockholders' equity.
12
<PAGE> 40
Computation of Net Loss Per Common Share
The computation of net loss per common share in each period is based on
the weighted average number of common shares outstanding for each period,
after the retroactive adjustment to reflect shares issued to the former IT
common stockholders as part of the Merger. Convertible securities and
stock options are not included in the net loss per common share
calculation for each period because they are anti-dilutive. The common
stock held by HBAC stockholders and the common stock issued upon the
conversion of the preferred stock of IT are included in the computation
from the date of the Merger.
Stock Options
The Company accounts for employee and director stock option grants in
accordance with Accounting Principles Board Opinion No. 25, Accounting For
Stock Issued to Employees (APB 25) and related Interpretations. Under APB
25, no compensation expense is recognized for stock option grants to
employees and directors if the exercise price of the Company's stock
option grants is at or above the fair market value of the underlying stock
on the date of grant.
Expenses Related to Discontinued Public Offering
Included in Other (Income) Expense for the year ended December 31, 1994
are expenses of $1,479,000 associated with a discontinued public
offering.
3. COMMITMENTS AND CONTINGENCIES
On January 17, 1997, William T. Little, a stockholder and former director
of the Company, and a trust of which Mr. Little is the trustee, commenced
a legal proceeding in the United States District Court, Western District
of Michigan, against the Company, IT and certain of its executive officers
and directors, alleging that he and various convertible noteholders
converted their notes into common stock of the Company based upon
misrepresentations by the Company and those officers and directors. The
plaintiff claims that he suffered damages in excess of $26 million because
an alleged promise was made that IT would engage in a public offering of
its stock for approximately $56 per share, which did not occur. The
plaintiff further claims that the Company also offered to issue to him,
during the time he was serving as a director of the Company, an
unspecified number of shares of the common stock of the Company in
consideration for his release of any claims related to such alleged
misrepresentations and that the Company agreed to pay him and other
noteholders an unspecified amount in equivalent interest relating to the
conversion of notes. Although the ultimate outcome of this action cannot
be determined at this time, the Company disputes all of the plaintiff's
claims as meritless and intends to vigorously assert its position in this
litigation. In addition, management believes the ultimate outcome of this
action will not have a material impact on the consolidated financial
condition or results of operations of the Company. The Company and each of
the defendants have filed answers denying the plaintiff's allegations as
well as including counterclaims against Mr. Little for breach of fiduciary
duty during his tenure as a director of the Company and seeking exemplary
and punitive damages.
On December 15, 1993, Marvin Lerch, the former Chief Executive Officer and
a former shareholder of ICT and certain of his relatives, who are also
former ICT shareholders, commenced a legal proceeding in Ontario, Canada
in the Ontario Court (General Division) against the Company and certain
executive officers of the Company and a director of ICT on the grounds
that the defendants took actions intended to depress the value of ICT to
allow the Company to acquire shares of ICT at a favorable price. The
plaintiffs seek, among other things, orders that certain actions by ICT's
board were invalid; a declaration that ICT's board was incapable of
managing its affairs due to conflicts of interest; an injunction against
the Company from voting its ICT shares for three years, purchase by the
defendants of the plaintiffs' ICT shares for Cdn$20 per share or exchange
of the plaintiffs' ICT shares for common shares of the Company of equal
value; and damages in the amount of Cdn$8 million to compensate the
plaintiffs for the reduced value of their ICT shares and damages in the
amount of Cdn$6 million to compensate Mr. Lerch for the loss of certain
ICT stock options. ICT
13
<PAGE> 41
disputes all of the claims, and no trial date has as yet been set. On
October 21, 1996, the plaintiffs advised that they intended to move to
amend their statement of claim for punitive damages in the amounts of
Cdn$1 million against the Company and an aggregate of Cdn$2 million
against certain officers of the Company. A date has not been set for the
plaintiffs' motion to amend the statement of claim. Although the ultimate
outcome of this action cannot be determined at this time, management
believes the claims are without merit and intends to vigorously defend
its positions. In addition, management believes the ultimate outcome of
these actions will not have a material impact on the consolidated
financial condition or results of operations of the Company.
The Company is party to ordinary routine litigation and other claims
incidental to its business, none of which is expected to have a material
adverse effect on the Company's results of operations or financial
position. The costs of defending litigation and other claims are expensed
as incurred.
4. ACQUISITIONS
In October 1996, the Company acquired certain audiotext servicing assets
from The Reuben H. Donnelly Corporation ("Donnelly") for an aggregate
purchase price of $750,000, of which $600,000 was paid in October 1996 and
$150,000 is due in June 1997. In connection therewith, the Company
executed a services agreement with a three year minimum term under which
Donnelly is obligated to pay the Company a minimum of $3.2 million over
the term of the agreement and the Company is assuming Donnelly's operating
responsibilities for its audiotext business. The Donnelly asset
acquisition has been accounted for as the purchase of equipment and
contract rights and the purchase price allocated to the assets acquired
based on the estimated fair values at the date of acquisition.
In December 1996, the Company acquired certain audiotext servicing assets
from GTE Directories Corporation ("GTE") for an aggregate purchase price
of $1,800,000, of which $600,000 was paid in December 1996 and $600,000 is
due in both June and August 1997. In connection therewith, the Company
executed both sales agency and services agreements with a three year
minimum term under which the parties have agreed to share revenues and the
Company is assuming GTE's operating responsibilities for its audiotext
business. Of the shared revenues which the Company expects to generate
pursuant to the sales agency agreement, the Company has guaranteed GTE a
minimum of approximately $3.7 million over the term of the agreement. If
the Company pays the minimum required amount to GTE in each of the years
under the sales agency agreement, then pursuant to the services agreement,
GTE has agreed to pay the Company a minimum of approximately $2.8 million
for services rendered over the term of the agreement. The GTE asset
acquisition has also been accounted for as the purchase of equipment and
contract rights and the purchase price allocated to the assets acquired
based on the estimated fair values at the date of acquisition.
In January 1997, the Company acquired all of the outstanding shares of ICT
held by minority interest shareholders in exchange for 1,390,000 shares of
the Company's common stock, making ICT a wholly-owned subsidiary of the
Company. The Company also issued options to purchase 177,000 shares of the
Company's common stock at exercise prices ranging from $1.43 to $4.96 per
share to certain employees and directors of ICT in exchange for their
outstanding options to purchase ICT common shares, and incurred cash
expenses related to the acquisition of approximately $675,000. The
aggregate purchase price for the acquisition of the ICT minority interest
was approximately $11.2 million, and the acquisition will be accounted for
by the purchase method of accounting. The purchase price will be allocated
primarily to patents, which will be amortized over a five year period.
5. LONG-TERM DEBT
On April 3, 1996, the Company issued a senior note (the First Tranche
Note) in the principal amount of $5.0 million and a warrant (the First
Tranche Warrant) which entitled the holder thereof to purchase 500,000
shares of the Company's common stock at a purchase price of $10.21 per
share. On September 30, 1996 and March 31, 1997, the Company issued
additional senior notes in the amount of $326,806 and $350,090,
14
<PAGE> 42
respectively, for the payment of interest on the First Tranche Note. The
First Tranche Note and the additional senior notes (collectively, the
"Aggregate First Tranche Notes") were due on March 31, 2001 and bore
interest at the rate of 13% per annum through March 31, 1998 and 12%
thereafter. The estimated fair market value of the First Tranche Warrant
was credited to capital in excess of par value and the First Tranche Note
was recorded at a corresponding discount. The discount on the First
Tranche Note was being amortized to interest expense using the effective
interest rate method over the stated term of the First Tranche Note,
resulting in an effective interest rate of 16.2%. As of December 31, 1996,
the carrying value of the Aggregate First Tranche Notes, which had no
public market, approximated their fair market value, which was estimated
using a discounted cash flow analysis.
On April 9, 1997, the Company received cash proceeds of $15.0 million upon
the issuance of additional senior notes (the Second Tranche Notes) in the
principal amount of $15.0 million and warrants (the Second Tranche
Warrants) entitling the holders thereof to purchase in the aggregate
2,000,000 shares of the Company's common stock at a purchase price of
$6.00 per share at any time until their expiration on March 31, 2004.
Additionally, in connection with the issuance of the Second Tranche Notes
and the Second Tranche Warrants, the Aggregate First Tranche Notes and the
First Tranche Warrant were amended and restated to terms identical to
those of the Second Tranche Notes and the Second Tranche Warrants,
respectively.The amended Aggregate First Tranche Notes and the Second
Tranche Notes are due on March 31, 2002 and bear interest at the rate of
either: (i) 12% per annum through March 31, 1999 if paid in cash, or (ii)
13% per annum through March 31, 1999 if paid through the issuance of
additional notes, and 12% thereafter. At the option of the Company,
interest payments may be made through the issuance of additional senior
notes; however, to the extent interest payments are made through the
issuance of additional senior notes, additional warrants to purchase .125
shares of the Company's common stock at a purchase price of $6.00 per
share must also be issued to the holders of the Aggregate First and Second
Tranche Notes for each dollar of principal amount of such senior notes. On
March 31, 2001, the Company must make a prepayment of the notes equal to
33.33% of the then outstanding principal (together with interest accrued
to date on such principal amount). The notes are secured by a lien on all
of the Company's assets. Except for the required prepayment described
above, the note agreement provides for a prepayment penalty and customary
covenants and events of default.
The amendment of the Aggregate First Tranche Notes and First Tranche
Warrant will be accounted for as the extinguishment and replacement of the
existing senior notes and the cancellation of the existing warrants and
issuance of new warrants due to the significance of the modification to
the terms of the senior notes and warrant.
Following the issuance of the Second Tranche Notes, the Company believes
its current resources will be sufficient to meet the Company's anticipated
cash needs for working capital and capital expenditures through the end of
1997. However, if cash generated by operations is insufficient to satisfy
the Company's liquidity requirements, the Company may attempt to sell
additional equity securities or incur additional indebtedness.
6. STOCK OPTIONS, WARRANTS AND EMPLOYEE STOCK PURCHASE PLAN
Stock Options
During 1995, the Company adopted the 1995 Performance Equity Plan (the
Equity Plan). The Equity Plan provides for the grant of options to
purchase shares of the Company's common stock to employees, officers,
directors, and consultants of the Company and its subsidiaries, including
IT. Options granted pursuant to the Equity Plan have a term of ten years
from the date of grant and vest over a five year period. The Equity Plan
authorizes the granting of awards (stock options, stock appreciation
rights, restricted stock, deferred stock, stock reload options, and/or
other stock-based awards, as defined), the exercise of which would allow
up to an aggregate of 900,000 shares of the Company's common stock to be
acquired. As of December 31, 1996, there were options outstanding under
the Equity Plan to purchase 900,000 shares of Common Stock at an average
exercise price of $9.42 per share.
15
<PAGE> 43
During 1989, the Company established a qualified incentive employee stock
option plan. Options granted in 1989 and 1990 have a term of ten years
from the date of grant and vest over a three year period. During 1991 and
1993, the Company established additional qualified incentive employee
stock option plans whereby granted options have a term of ten years from
the date of grant and vest over a five year period. The Company does not
intend to grant any additional options under these plans and,
accordingly, all remaining options available for grant under such plans
are assumed to be canceled.
Stock option activity under the employee stock option plans during the
years ended December 31, 1994, 1995, and 1996 was as follows:
<TABLE>
<CAPTION>
Options Shares
Available Under Aggregate Option or Weighted Average
Employee Stock Option Activity for Grant Option Price Exercise Price Exercise Price
- ------------------------------ ------------ ------------ ------------ -------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 227,134 247,837 $ 3,205,147 $0.74-26.79 $ 12.93
Options authorized -- -- --
Options granted (70,816) 70,816 1,897,200 26.79 26.79
Options exercised -- (4,583) (3,465) 0.74-26.79 0.76
Options canceled 45,324 (45,324) (679,675) 26.79 15.00
------------ ------------ ------------
Balance at December 31, 1994 201,642 268,746 4,419,207 0.74-26.79 16.44
Options authorized 500,000 -- --
Options repriced -- -- (2,449,709)
Options granted (220,586) 220,586 2,247,607 9.77-11.50 10.19
Options exercised -- (84,688) (261,353) 0.74-3.72 3.09
Options canceled 56,035 (56,035) (684,034) 9.77-26.79 12.21
Options assumed canceled (178,092) -- --
------------ ------------ ------------
Balance at December 31,1995 358,999 348,609 3,271,718 0.74-11.50 9.39
Options authorized 400,000 -- --
Options granted (775,224) 775,224 7,181,190 8.25-10.50 9.26
Options exercised -- (23,485) (141,796) 0.74-9.77 6.04
Options canceled - 1995 Plan 16,225 (16,225) (169,731) 8.25-11.12 10.46
Options canceled - Other plans -- (22,379) (217,980) 3.72-9.77 9.74
------------ ------------ ------------
Balance at December 31, 1996 0 1,061,744 $ 9,923,401 $0.74-$11.50 $ 9.35
============ ============ ============
</TABLE>
In March 1995 the Board of Directors approved a reduction in the exercise
price of certain of the Company's outstanding employee stock options. In
total, 145,783 options with exercise prices of $14.88 and $26.79 per
share were revised to an exercise price of $9.77 per share, which
represented fair market value.
Certain additional information as of December 31, 1996, is being
presented based on a range of exercise prices as follows:
<TABLE>
<S> <C> <C>
$0.74-$3.72 $8.25-$11.50
----------- ------------
Number of shares outstanding 17,016 1,044,728
Weighted average exercise price of shares outstanding $1.64 $9.47
Weighted average remaining contractual life 3.3 years 8.9 years
Number of shares exercisable 17,016 196,398
Weighted average exercise price of shares exercisable $1.64 $10.19
</TABLE>
During 1995, the Company adopted the 1995 Nonqualified Stock Option Plan
for Non-Employee Directors (the Directors' Plan). The Directors' Plan
provides for the automatic annual grant to each non-employee director of
the Company an option to purchase 3,000 shares of Common Stock. Options
granted under the Directors' Plan have an exercise price equal to the
fair market value of the Common Stock on the date of grant and are
exercisable at any time from the date of grant until the fifth
anniversary thereof. The Directors'
16
<PAGE> 44
Plan provides for the grant of options to purchase up to 90,000 shares of
Common Stock. During 1995, options to purchase a total of 12,000 shares at
a price of $10.89 per share were granted from the Directors' Plan. During
1996, options to purchase a total of 18,000 shares at a price of $10.43 per
share were issued from the Directors' Plan. As of December 31, 1996, there
were options outstanding under the Directors' Plan to purchase 30,000
shares of Common Stock at an average exercise price of $10.61 per share.
The Company has adopted the pro forma disclosure provisions of the
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). As required by FAS 123, pro forma
information regarding net loss and loss per share has been determined as if
the Company had accounted for employee stock options granted subsequent to
December 31, 1994 under the fair value method provided for under FAS 123.
The fair value for the stock options granted to officers and key employees
of the Company after January 1, 1995 was estimated at the date of the grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Risk-free interest rate 6.55% 6.39%
Expected dividend yield 0.00% 0.00%
Expected volatility 30% 30%
Expected lives 4.0 years 4.0 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
The weighted-average fair value of stock options granted during the years
ended December 31, 1995 and 1996 was $2.85 and $2.34, respectively. For
purposes of the pro forma disclosures, the estimated fair value of stock
options granted during 1995 and 1996 has been amortized to expense over the
vesting period. The Company's pro forma information is as follows (in
thousands, except for loss per common share information):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net loss attributable to As reported $10,602 $13,855
common stockholders Pro forma $10,912 $14,411
Net loss per common share As reported $ 1.65 $ 1.39
Pro forma $ 1.70 $ 1.45
</TABLE>
Because FAS 123 is applicable only to options and stock-based awards
granted subsequent to December 31, 1994, its pro forma effect will not be
fully reflected until 1999.
Warrants
The Company has issued warrants for the purchase of shares of its common
stock from time to time in connection with various financing transactions
and for advisory and consulting services provided to the Company. As of
December 31, 1996, warrants for the purchase of common stock of the
Company were outstanding as follows:
17
<PAGE> 45
<TABLE>
<CAPTION>
Shares Issuable
upon Exercise Exercise Price Expiration Date
------------- -------------- ---------------
<S> <C> <C> <C>
1,903,302 $10.60 - 11.00 June 1998
1,034,687 7.44 May 2000
500,000(1) 10.21 March 2001
476,500(2) 11.00 June 2000
252,676 10.50 December 1998
83,085 10.79 February 2001
10,079 18.60 February 1998
---------
4,260,329(3)
=========
</TABLE>
(1) First Tranche Warrants. See Note 5 - Long-Term Debt.
(2) 451,500 of which are redeemable by the Company at a purchase price of
$0.01 per warrant upon 20 days notice at any time in the event the
sales price of the Company's common stock is at least $20.00 per share
for 20 consecutive trading days.
(3) The majority of the warrants provide for registration rights.
During the year ended December 31, 1995, the Company incurred charges
related to financing incentives of $1,581,250 as a result of the issuance
of certain of the above warrants in connection with interim financings.
During the year ended December 31, 1994, the Company recorded
approximately $456,000 in selling, general and administrative expenses
upon the issuance of warrants for certain advisory and consulting services
provided to the Company.
997758 Class Y Stock Put Rights
On September 24, 1992, the Company's subsidiary, 997758, entered into an
agreement with an individual to issue shares of 997758's nonvoting Class Y
shares in exchange for Class A Subordinate Voting Shares and Class B
Multiple Voting Shares of ICT owned by such individual. The individual has
the right at any time through February 14, 2000, to exchange any or all of
the Class Y shares of 997758 for up to an aggregate of 206,376 shares of
the Company's common stock. Each exercise of the exchange rights shall
include at least Cdn $150,000 in value of Class Y shares of 997758 being
exchanged for the Company's common stock.
Shares Reserved for Future Issuance
As of December 31, 1996, 5,618,449 common shares were reserved for future
issuance, as follows:
<TABLE>
<CAPTION>
NUMBER OF
SECURITY RESERVED SHARES
-------- ---------------
<S> <C>
Stock Warrants.................................................... 4,260,329
Employee and director stock options............................... 1,151,744
997758 Class Y Stock put rights................................... 206,376
---------
5,618,449
=========
</TABLE>
18
<PAGE> 46
Employee Stock Purchase Plan
During July 1996, the Board of Directors of the Company adopted the
Employee Stock Purchase Plan (the Plan), subject to approval by the
Company's stockholders at the 1997 annual meeting. Under the Plan,
eligible employees may purchase shares of the Company's common stock at a
discount through voluntary monthly payroll deductions, beginning in
September 1996. In connection with the Plan, the Company has set aside
100,000 shares of common stock held in treasury.
Anti-Dilution Provisions
Certain of the stock warrants contain anti-dilution provisions whereby the
exercise price and the number of shares exercisable pursuant to the
warrants may be adjusted from time to time upon the occurrence of certain
events. In connection with such provisions, warrants to purchase 1,034,687
shares of the Company's common stock at a purchase price of $7.44 per
share were adjusted to provide for the purchase of the same number of
shares at a purchase price of $6.00 per share, and warrants to purchase
28,302 shares of the Company's common stock at a purchase price of $10.60
per share were adjusted to provide for the purchase of 68,498 shares at a
purchase price of $4.38 per share upon the issuance of common stock in
connection with the ICT acquisition discussed in Note 4 - Acquisitions and
the amendment to the First Tranche Warrant and issuance of the Second
Tranche Warrants discussed in Note 5 - Long-Term Debt.
7. NOTES RECEIVABLE FROM STOCKHOLDERS
On May 20, 1993, the Company loaned $750,000 to the individual holding
Class Y shares of 997758, which note is secured by the individual's
holdings in 997758 and bears interest at a rate per annum of 2%, payable
quarterly. The unpaid principal and interest become due on May 20, 2000.
The Company recorded a discount of $292,000 to reflect the difference
between the actual interest rate and a reasonable market rate (10%) and
increased goodwill accordingly. The note and accrued interest, net of the
unamortized discount of $178,866 and $137,152 as of December 31, 1995 and
1996, respectively, are reflected as a reduction of minority interests in
the accompanying consolidated balance sheet.
On June 30, 1993, the Company loaned $50,000 to an officer, director, and
stockholder. This loan bears interest at the rate of 10% per annum, with
the principal amount and accrued interest due and payable on May 31, 1997.
Payment of the note is secured by a pledge of 6,719 shares of common
stock. Amounts outstanding, including accrued interest, are included in
stockholders' equity (capital deficiency) in the accompanying consolidated
balance sheets.
In May 1995, the Company loaned $225,000 to an officer and stockholder.
Such loan bore interest at the rate of 10% per annum, with principal and
accrued interest due May 31, 1997. In February 1996, the officer and
stockholder repaid the note and all accrued interest through a surrender
of common stock with a fair market value equal to the outstanding note and
accrued interest as of the date of repayment.
8. LEASES
The Company leases office space and various office equipment under
operating leases. Rent expense was $522,093, $508,349, and $485,221 for
the years ended December 31, 1994, 1995, and 1996, respectively. The
Company has non-cancelable operating lease commitments of $610,809 and
$235,699 in the years ending December 31, 1997 and 1998, respectively.
The Company leases certain production equipment under capital leases
having effective interest rates ranging from 3.7% to 21%, with lease terms
that expire through 1998. Assets recorded under capital leases, which are
included in property and equipment, were $454,198 and $502,071 at December
31, 1995 and 1996, respectively. Accumulated amortization related to these
assets was $197,561 and $297,404 at December 31, 1995 and 1996,
respectively.
19
<PAGE> 47
9. INCOME TAXES
For the years ended December 31, 1994, 1995 and 1996, the Company had no
provision or benefit for income taxes because the deferred benefit from
the operating losses was offset by an increase in the valuation allowance
of $2.9 million, $3.2 million and $5.6 million, respectively. Significant
components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation .................... $ (92,502) $ (220,134)
Other ......................................... (302,394) (204,589)
------------ ------------
Total deferred tax liabilities ................ (394,896) (424,723)
Deferred tax assets:
Net operating loss carryforwards .......... 12,386,189 18,191,157
Investment tax credits .................... 3,431,000 3,304,758
Unearned income ........................... 1,555,418 1,471,210
Accrued compensation ...................... 342,160 432,362
Accrued expenses .......................... 53,754 56,540
Other ..................................... 37,729 26,886
------------ ------------
Total deferred tax assets ..................... 17,806,250 23,482,913
Valuation allowance for deferred tax assets ... (17,411,354) (23,058,190)
------------ ------------
Net of valuation allowance ................ 394,896 424,723
------------ ------------
Net deferred tax asset ........................ $ -- $ --
============ ============
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $42.2 million for United States income tax purposes, that
expire in 2003 through 2011, which may be used to reduce future United
States taxable income. The Tax Reform Act of 1986 imposes limitations on
the use of net operating loss carryforwards if certain stock ownership
changes occur. As a result of the Merger, an ownership change occurred
that will cause the Company's utilization of pre-Merger net operating
losses to be limited to approximately $3.5 million in a given year.
At December 31, 1996, ICT had net operating loss carryforwards for
Canadian income tax purposes of approximately Cdn $9.3 million, expiring
in 1997 through 2003, which may be used to reduce future Canadian taxable
income of ICT. ICT also has available at December 31, 1996 investment tax
credits totaling Cdn $4.5 million, expiring in 1997 through 2003.
At December 31, 1996, ICT had net operating loss carryforwards for Ontario
Provincial income tax purposes of approximately Cdn $9.8 million, expiring
in 1998 through 2003, which may be used to reduce future Ontario taxable
income of ICT.
10. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The Company performs ongoing credit evaluations of its customers and does
not require collateral. Overall, concentrations of credit risk with
respect to receivables, except for the customers discussed below, are
limited because of the large number of customers in the Company's customer
base, the relatively small dollar amount of individual customer balances
and their dispersion across many different industries and geographic
areas. The Company maintains an allowance for doubtful accounts, which was
$110,199 and $62,504 as of December 31, 1995 and 1996, respectively, to
reserve for potential credit losses, which have historically been within
management's expectations.
During the years ended December 31, 1995 and 1996, the Company generated
approximately $1,898,000 and $1,466,000 in monetary revenues, or 20% and
17%, respectively, of total monetary revenues for 1995 and 1996, and
approximately $5,975,000 and $3,179,000 in nonmonetary revenues, or 37%
and 32%, respectively, of total nonmonetary revenues for 1995 and 1996,
through contracts with advertisers and media sponsors related to
sponsorships of the Company's printed menu of audiotext topics distributed
in the yellow pages of Ameritech Advertising Services (Ameritech).
Subsequent to year end, Ameritech and the Company agreed to enter into a
definitive agreement pursuant to which the Company will be the exclusive
audiotext sales and service provider in up to 38 Ameritech Yellow Pages
directories for a three year period commencing in January 1998.
During 1995 and 1996, the Company also generated approximately $1,084,000
and $213,000 in monetary revenues, or 12% and 2%, respectively, of total
monetary revenues for 1995 and 1996, through sales of services called
Consumer Tips to Ameritech.
20
<PAGE> 48
As of December 31, 1995 and 1996, balances due from Ameritech represented
24% and 30% of the Company's accounts receivable, respectively.
Additionally, as of December 31, 1996, The Reuben H. Donnelly Corporation
accounted for 38% of accounts receivable pursuant to its service agreement
with the Company, effective in October 1996. All such receivables have
since been collected. No other customer represented more than 10% of the
Company's accounts receivable or accounted for greater than 10% of
monetary revenues as of December 31, 1996, or for either of the two years
then ended.
11. SEGMENT REPORTING
For financial reporting purposes, the Company operates in two business
segments:
On-demand telephone services -- The Company's IT Network telephone
business provides advertiser-sponsored interactive programming via the
telephone in markets throughout the United States.
On-demand television services -- The Company's on-demand television
product, the Interactive Channel, is designed to provide a broad range of
interactive programming via the television.
Corporate assets consist primarily of cash and cash equivalents and
deferred debt issuance costs.
The following are operating results and certain other information by
business segment:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net revenues:
On-demand telephone ........ $ 30,093 $ 25,283 $ 17,487
On-demand television ....... 850 3 1,032
-------- -------- --------
$ 30,943 $ 25,286 $ 18,519
======== ======== ========
Operating loss:
On-demand telephone ........ $ (2,633) $ (756) $ (301)
On-demand television ....... (6,659) (5,819) (10,311)
Corporate expenses ......... (2,039) (1,753) (3,407)
-------- -------- --------
$(11,331) $ (8,328) $(14,019)
======== ======== ========
Identifiable assets:
On-demand telephone ........ $ 4,363 $ 4,120 $ 6,482
On-demand television ....... 3,729 2,596 4,166
Corporate assets ........... 127 17,479 5,249
-------- -------- --------
$ 8,219 $ 24,195 $ 15,897
======== ======== ========
Depreciation and amortization:
On-demand telephone ........ $ 470 $ 458 $ 361
On-demand television ....... 1,946 1,374 1,577
-------- -------- --------
$ 2,416 $ 1,833 $ 1,938
======== ======== ========
Capital expenditures:
On-demand telephone ........ $ 195 $ 17 $ 591
On-demand television ....... 217 241 2,088
-------- -------- --------
$ 412 $ 258 $ 2,679
======== ======== ========
</TABLE>
21
<PAGE> 49
Foreign net revenues, operating loss, and identifiable assets of all
consolidated foreign subsidiaries located outside the United States and
its territories, and possessions as of and for the years ended December
31, 1994, 1995, and 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net revenues:
United States ........................ $ 30,098 $ 25,286 $ 17,806
Canada ............................... 845 -- 713
Transfers between geographic areas ... 665 2,423 3,945
Adjustments and eliminations ......... (665) (2,423) (3,945)
-------- -------- --------
$ 30,943 $ 25,286 $ 18,519
======== ======== ========
Operating income (loss):
United States ........................ $ (6,955) $ (7,069) $(12,659)
Canada ............................... (2,940) (508) 128
Adjustments and eliminations ......... (1,436) (751) (1,488)
-------- -------- --------
$(11,331) $ (8,328) $(14,019)
======== ======== ========
Identifiable assets:
United States ........................ $ 5,150 $ 21,402 $ 15,029
Canada ............................... 3,069 2,793 868
-------- -------- --------
$ 8,219 $ 24,195 $ 15,897
======== ======== ========
</TABLE>
22
<PAGE> 50
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3.1 Restated Certificate of Incorporation, as amended (filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-1,
as amended (No. 33-97564), and incorporated herein by reference).
3.2 Bylaws (filed as Exhibit 3.2 to HBAC's Registration Statement on
Form S-1, as amended (No. 33-62606), and incorporated herein by
reference).
4.1 Form of Common Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (No. 33-97564), and
incorporated herein by reference).
10.1 Master Agreement between IT Network, Inc. and Pacific Bell
Directory, dated December 16, 1992, as amended (filed as Exhibit
10.18 to HBAC's Registration Statement on Form S-4 (No.
33-90482), and incorporated herein by reference).
10.2 Master AudioText Agreement between IT Network, Inc. and
BellSouth, dated May 1, 1993 (filed as Exhibit 10.22 to HBAC's
Registration Statement on Form S-4 (No. 33-90482), and
incorporated herein by reference).
10.3 Sales Agency Agreement by and between US West Marketing Resources
Group, Inc. and IT Network, Inc., dated July 6, 1995 (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, and incorporated herein by
reference).
10.4 Development and Licensing Agreement dated as of April 1, 1995
between IT Network, Inc., Source Media, Inc., ICT Inc., Cable
Share International Inc., ICT (U.S.) Limited and ICT B.V. (filed
as Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1995, and incorporated herein by
reference).
10.5 Interactive Television License Agreement between IT Network,
Inc., ICT (U.S.) Limited and ICT Inc., dated June 11, 1992 (filed
as Exhibit 10.40 to HBAC's Registration Statement on Form S-4
(No. 33-90482), and incorporated herein by reference).
10.6 Interactive Channel Distribution Agreement dated November 16,
1995 between IT Network, Inc. and Cablevision Systems Corporation
(filed as Exhibit 99.2 to the Company's Current Report on Form
8-K filed January 30, 1996, and as amended on March 19, 1996, and
incorporated herein by reference).
10.7 Interactive Cable Agreement between IT Network, Inc. and Sammons
Communications, Inc., dated June 4, 1993 (filed as Exhibit 10.53
to HBAC's Registration Statement on Form S-4 (No. 33-90482), and
incorporated herein by reference).
10.8 Contribution Agreement between National Research Council Canada
and ICT Inc. (filed as Exhibit 10.54 to HBAC's Registration
Statement on Form S-4 (No. 33-90482), and incorporated herein by
reference).
10.9 Letter of Understanding between IT Network, Inc. and Pacific Bell
Directory dated August 25, 1994 (filed as Exhibit 10.55 to HBAC's
Registration Statement on Form S-4 (No. 33-90482), and
incorporated herein by reference).
10.10 Note Agreement dated as of March 28, 1996 between Northstar
Advantage High Total Return Fund and the Company (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1996, and incorporated herein by
reference).
<PAGE> 51
10.11 13% Senior Secured Note Due March 31, 2001 (filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1996, and incorporated herein by reference)
10.12 Stock Purchase Warrant dated April 13, 1996 between Northstar
Advantage High Total Return Fund and the Company (filed as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1996, and incorporated herein by
reference).
10.13 Registration Rights Agreement dated April 3, 1996 between
Northstar Advantage High Total Return Fund and the Company (filed
as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1996, and incorporated herein by
reference).
10.14 Sales Agency Agreement dated May 20, 1996 between The Reuben H.
Donnelley Corporation and IT Network, Inc. (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1996, and incorporated herein by reference).
10.15 License Agreement dated June 6, 1996 between WinStar New Media
Co., Inc. and the Company (filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1996, and incorporated herein by reference).
10.16 Charter Affiliation Agreement between Century Communications
Corporation and the Company (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed April 23, 1996, and
incorporated herein by reference).
10.17 Services Agreement dated October 21, 1996 between The Reuben H.
Donnelley Corporation and IT Network, Inc. (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1996, and incorporated herein by reference).
10.18 Arrangement Agreement dated November 13, 1996 between the Company
and ICT. (filed as Exhibit 10.18 to the Company's Registration
Statement on Form S-1 (No. 33-16883), subsequently withdrawn,
and incorporated herein by reference).
10.19 Form of Plan of Arrangement. (filed as Exhibit 10.19 to the
Company's Registration Statement on Form S-1 (No. 33-16883),
subsequently withdrawn, and incorporated herein by reference).
10.20 (Intentionally left blank)
10.21 (Intentionally left blank)
10.22 Amended and Restated Note Agreement dated as of April 9, 1997
among the Company, IT Network, Inc. ("ITN"), Northstar High Total
Return Fund ("Northstar"), Delaware State Employees' Retirement
Fund ("Delaware"), Declaration of Trust for Defined Benefit Plan
of Zeneca Holdings, Inc. ("Zeneca"), Declaration of Trust for
Defined Benefit Plan of ICI American Holdings Inc. ("ICI"), and
The J. W. McConnell Family Foundation ("McConnell").
10.23 Amended and Restated Senior Secured Note due March 31, 2002
issued by the Company and ITN to Northstar.
10.24 Senior Secured Note due March 31, 2002 issued by the Company and
ITN to Northstar.
10.25 Senior Secured Note due March 31, 2002 issued by the Company and
ITN to Delaware.
10.26 Senior Secured Note due March 31, 2002 issued by the Company and
ITN to Zeneca.
10.27 Senior Secured Note due March 31, 2002 issued by the Company and
ITN to ICI.
10.28 Senior Secured Note due March 31, 2002 issued by the Company and
ITN to McConnell.
10.29 Stock Purchase Warrant dated as of April 9, 1996 between the
Company and Northstar.
<PAGE> 52
10.30 Amended and Restated Stock Purchase Warrant dated as of April 9,
1997 between the Company and Northstar.
10.31 Stock Purchase Warrant dated as of April 9, 1997 between the
Company and Zeneca.
10.32 Stock Purchase Warrant dated as of April 9, 1997 between the
Company and Delaware.
10.33 Stock Purchase Warrant dated as of April 9, 1997 between the
Company and ICI.
10.34 Stock Purchase Warrant dated as of April 9, 1997 between the
Company and McConnell.
10.35 Amended and Restated Registration Rights Agreement dated as of
April 9, 1997 among the Company and Northstar, Zeneca, McConnell,
ICI and Delaware.
10.36 Amended and Restated Security Agreement dated as of April 9,
1997, made by the Company to Pecks Management Partners Ltd., as
Collateral Agent ("Collateral Agent").
10.37 Amended and Restated Pledge Agreement dated as of April 9, 1997,
made by the Company to the Collateral Agent.
10.38 Amended and Restated Security Agreement dated as of April 9,
1997, made by ITN to the Collateral Agent.
10.39 Amended and Restated Pledge Agreement dated as of April 9, 1997,
made by ITN to the Collateral Agent.
10.40 Management Lock-Up and Voting Agreement dated as of April 9, 1997
among each of the persons named on Schedule I thereto, the
Company and Northstar, Zeneca, McConnell, ICI and Delaware.
21 Subsidiaries.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
<PAGE> 1
EXECUTION COPY
Exhibit 10.22
=================================================================
SOURCE MEDIA, INC.
IT NETWORK, INC.
$20,676,895.06
SENIOR SECURED NOTES DUE MARCH 31, 2002
---------------
AMENDED AND RESTATED
NOTE AGREEMENT
---------------
Originally Dated as of March 28, 1996
Amended and Restated as of April 1, 1997
=================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not Part of Agreement)
Page
----
1. AUTHORIZATION OF ISSUE OF NOTES......................................-3-
2. PURCHASE, SALE AND DELIVERY OF NOTES;
DELIVERY OF WARRANTS.................................................-4-
2A. CLOSING........................................................-4-
2B. WARRANTS TO PURCHASE COMMON STOCK..............................-5-
3. CONDITIONS AT CLOSING................................................-7-
3A. CERTAIN DOCUMENTS..............................................-7-
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT....................-11-
3C. DUE DILIGENCE.................................................-11-
3D. PURCHASE PERMITTED BY APPLICABLE LAWS.........................-11-
3E. EXECUTION OF AGREEMENTS.......................................-11-
3F. FEES AND EXPENSES.............................................-11-
3G. PROCEEDINGS...................................................-11-
4. PREPAYMENTS.........................................................-11-
4A. REQUIRED PREPAYMENT...........................................-11-
4B. OPTIONAL PREPAYMENT...........................................-12-
4C. NOTICE OF OPTIONAL PREPAYMENT.................................-12-
4D. PARTIAL PAYMENTS PRO RATA.....................................-13-
4E. RETIREMENT OF NOTES...........................................-13-
5. AFFIRMATIVE COVENANTS...............................................-13-
5A. FINANCIAL STATEMENTS..........................................-13-
5B. INFORMATION REQUIRED BY RULE 144A.............................-16-
5C. INSPECTION OF PROPERTY........................................-15-
5D. PERFORMANCE OF OBLIGATIONS....................................-16-
5E. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE..............-16-
5F. MAINTENANCE OF PROPERTY; INSURANCE............................-16-
5G. FURTHER SECURITY INTEREST.....................................-17-
5H. FURTHER ASSURANCES............................................-17-
5I. ELECTION OF PECKS DESIGNEE....................................-18-
5J. TRANSFER OF INTELLECTUAL PROPERTY.............................-18-
<PAGE> 3
5K. CARRIAGE AGREEMENTS...........................................-19-
5L. MINIMUM CASH AND CASH EQUIVALENTS.............................-20-
5M. CASH BALANCE REPORTING REQUIREMENT............................-20-
6. NEGATIVE COVENANTS..................................................-20-
6A. INTEREST CHARGES COVERAGE RATIO...............................-20-
6B. ADJUSTED DEBT TO EBITDA RATIO.................................-21-
6C. LIMITATION ON DEBT. .........................................-21-
6D. LIMITATION ON LIENS...........................................-23-
6E. LIMITATION ON MERGERS AND REINCORPORATIONS....................-24-
6F. LIMITATION ON SALES OF PROPERTY. ............................-24-
6G. LIMITATION ON TRANSACTIONS WITH AFFILIATES....................-25-
6H. LIMITATION ON DIVIDENDS.......................................-25-
6I. LIMITATION ON CREDIT EXTENSIONS...............................-25-
6J. LIMITATION ON NEGATIVE PLEDGE CLAUSES.........................-25-
6K. LIMITATION ON LINES OF BUSINESS...............................-25-
6L. LIMITATION ON INVESTMENTS.....................................-26-
6M. LIMITATION ON ACTIVITIES OF CERTAIN
ICT SUBSIDIARIES.........................................-26-
6N. LIMITATION ON SETTLEMENTS OF SUITS............................-26-
7. EVENTS OF DEFAULT...................................................-26-
7A. ACCELERATION..................................................-26-
7B. RESCISSION OF ACCELERATION....................................-29-
7C. NOTICE OF ACCELERATION OR RESCISSION..........................-30-
7D. OTHER REMEDIES................................................-30-
8. REPRESENTATIONS, COVENANTS AND WARRANTIES...........................-30-
8A. ORGANIZATION, ETC.............................................-30-
8B. FINANCIAL STATEMENTS..........................................-31-
8C. ACTIONS PENDING...............................................-31-
8D. OUTSTANDING DEBT..............................................-31-
8E. TITLE TO PROPERTIES...........................................-31-
8F. TAXES.........................................................-31-
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS......................-32-
8H. OFFERING OF NOTES.............................................-32-
8I. USE OF PROCEEDS...............................................-32-
8J. ERISA.........................................................-33-
8K. GOVERNMENTAL CONSENT..........................................-33-
8L. ENVIRONMENTAL COMPLIANCE......................................-33-
8M. DISCLOSURE....................................................-34-
8N. INTELLECTUAL PROPERTY.........................................-34-
<PAGE> 4
8O. SUBSIDIARIES..................................................-36-
8P. CAPITALIZATION; ETC...........................................-36-
8Q. SECURITIES LAWS FILINGS.......................................-36-
8R. CERTAIN MATTERS PERTAINING TO THE COMPANY,
THE CANADIAN SUBSIDIARY AND ICT..........................-37-
8S. CERTAIN MATTERS PERTAINING TO CERTAIN
ICT SUBSIDIARIES.........................................-37-
8T. CARRIAGE AGREEMENTS...........................................-37-
8U. RIGHTS TO TECHNOLOGY..........................................-37-
9. REPRESENTATIONS OF EACH PURCHASER...................................-38-
9A. NATURE OF PURCHASE............................................-38-
10. DEFINITIONS.........................................................-38-
10A. TERMS.........................................................-38-
10B. ACCOUNTING PRINCIPLES.........................................-44-
11. MISCELLANEOUS.......................................................-45-
11A. NOTE PAYMENTS.................................................-45-
11B. EXPENSES......................................................-45-
11C. CONSENT TO AMENDMENTS.........................................-46-
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES;
LOST NOTES...............................................-46-
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS.........................-47-
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..-47-
11G. SUCCESSORS AND ASSIGNS........................................-47-
11H. DISCLOSURE TO OTHER PERSONS...................................-47-
11I. NOTICES.......................................................-48-
11J. PAYMENTS DUE ON NON-BUSINESS DAYS.............................-48-
11K. SATISFACTION REQUIREMENT......................................-48-
11L. GOVERNING LAW.................................................-48-
11M. SEVERABILITY..................................................-49-
11N. DESCRIPTIVE HEADINGS..........................................-49-
11O. COUNTERPARTS..................................................-49-
11P. LIMITATION ON INTEREST........................................-49-
11Q. SUBMISSION OF JURISDICTION; WAIVERS...........................-49-
11R. ACKNOWLEDGMENTS...............................................-50-
11S. WAIVERS OF JURY TRIAL.........................................-50-
11T. ACCOUNTING TERMS AND DETERMINATIONS...........................-50-
11U. LEGENDS ON NOTES..............................................-50-
<PAGE> 5
SCHEDULE 1 -- PURCHASER SCHEDULE
SCHEDULE 2 -- SECURITY DOCUMENTS
SCHEDULE 3 -- EXISTING ACQUISITION DEBT
SCHEDULE 4 -- EXISTING DEBT
SCHEDULE 5 -- EXISTING SUBSIDIARIES
SCHEDULE 6 -- EXISTING LITIGATION
SCHEDULE 7 -- MATERIAL LEASES
SCHEDULE 8 -- USE OF PROCEEDS
SCHEDULE 9 -- ENVIRONMENTAL COMPLIANCE
SCHEDULE 10 -- CLAIMS REGARDING INTELLECTUAL PROPERTY
SCHEDULE 11 -- EXISTING WARRANTS, OPTIONS AND OTHER RIGHTS
SCHEDULE 12 -- EXCEPTIONS TO SECURITIES LAW FILINGS
EXHIBIT A -- FORM OF NOTE
EXHIBIT B -- FORM OF MANAGEMENT LOCK-UP AND
VOTING AGREEMENT
EXHIBIT C -- TRANSFER OF TECHNOLOGY AGREEMENT (ICT)
EXHIBIT D -- PATENT ASSIGNMENT AGREEMENT (ICT)
EXHIBIT E -- TRANSFER OF TECHNOLOGY AGREEMENT (ICT AND THE
BARBADIAN SUBSIDIARY)
EXHIBIT F -- PATENT ASSIGNMENT AGREEMENT (ICT AND THE
BARBADIAN SUBSIDIARY)
EXHIBIT G -- ASSIGNMENT OF TECHNOLOGY AGREEMENT
EXHIBIT H -- 1997 AMENDMENT
ANNEX I -- ASSETS AND PROPERTIES OF ICT SUBSIDIARIES
<PAGE> 6
Source Media, Inc.
IT Network, Inc.
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
Originally Dated As of March 28, 1996
Amended and Restated as of April 9, 1997
Northstar High Total
Return Fund
2 Pickwick Plaza
Greenwich, Connecticut 06830
Delaware State Employees' Retirement Fund
Declaration of Trust for Defined Benefit
Plan of Zeneca Holdings Inc.
Declaration of Trust for Defined Benefit
Plan of ICI American Holdings Inc.
The J.W. McConnell Family Foundation
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza, Suite 900
New York, New York 10020
$20,676,895.06 Senior Secured Notes
Ladies and Gentlemen:
The undersigned, Source Media, Inc. (the "COMPANY") entered into a Note
Agreement, dated as of March 28, 1996 (the "ORIGINAL NOTE AGREEMENT"), with
Northstar Advantage High Total Return Fund (now known as Northstar High Total
Return Fund, "NORTHSTAR"). Capitalized terms used herein, and not otherwise
herein defined, will have the meanings given such terms in the Original Note
Agreement.
On the terms and subject to the conditions of the Original Note
Agreement, Northstar purchased from the Company on April 3, 1996 (i) the secured
senior promissory note of the Company due March 31, 2001 (the "FIRST ORIGINAL
NOTE") in an aggregate principal amount of $5,000,000 for a purchase price of
$4,975,000 in cash and (ii) a warrant (the "ORIGINAL WARRANT") to purchase up to
500,000 shares of common stock, $.001 par value ("COMMON STOCK"), of the Company
for a purchase price of $25,000 in cash. In accordance with the Original Note
Agreement and the First Original Note, the Company issued to Northstar, in
payment of the interest due and payable on September 30, 1996 under the First
Original Note, a secured promissory note of the Company due March 31, 2001 (the
"SECOND ORIGINAL NOTE")
<PAGE> 7
in an aggregate principal amount of $326,805.56. In accordance with the
Original Note Agreement, the First Original Note and the Second Original Note,
the Company subsequently issued to Northstar, in payment of the interest due
and payable on March 31, 1997 under the First Original Note and the Second
Original Note, an additional secured promissory note of the Company due March
31, 2001 (the "THIRD ORIGINAL NOTE," and, together with the First Original Note
and the Second Original Note, the "ORIGINAL NOTES") in an aggregate principal
amount of $350,089.50.
At the time of the Initial Closing under the Original Note
Agreement, as a condition to Northstar's obligation to purchase and pay for the
Original Note, the Company executed and delivered to Northstar the various
documents set forth in paragraph 3A of the Original Note Agreement, among which
were (i) the Registration Rights Agreement, dated April 3, 1996 (the "ORIGINAL
REGISTRATION RIGHTS AGREEMENT"), between the Company and Northstar, pursuant to
which the Company granted certain registration rights to Northstar with respect
to "Restricted Stock" (as such term is defined in the Original Registration
Rights Agreement) and (ii) the Security Documents (hereinafter, the "ORIGINAL
SECURITY DOCUMENTS"), pursuant to which the Company and certain of its
Affiliates granted security interests and liens in pledge to secure or guarantee
the payment and performance of the Company's and certain other Persons' duties
and other obligations under the Note Purchase Documents (hereinafter, the
"ORIGINAL NOTE PURCHASE DOCUMENTS").
The Company and Northstar wish to amend and restate the Original
Note Agreement (as so amended and restated, the "AMENDED AND RESTATED NOTE
AGREEMENT") on the terms hereinbelow stated so as to provide, among other
things, for (i) the purchase of additional principal amounts of secured
promissory notes of the Company by each of Northstar, Delaware State Employees'
Retirement Fund ("DELAWARE"), Declaration of Trust for Defined Benefit Plan of
Zeneca Holdings Inc. ("ZENECA"), The J.W. McConnell Family Foundation
("MCCONNELL") and Declaration of Trust for Defined Benefit Plan of ICI American
Holdings Inc. ("ICI;" and, together with Delaware, Zeneca and McConnell
collectively, the "PECKS INVESTORS;" and, together with Northstar hereinafter
sometimes individually, a "PURCHASER" and collectively, the "PURCHASERS"), (ii)
the amendment and restatement of the Original Notes, (iii) the issuance of
additional warrants to Northstar and the issuance of warrants to the Pecks
Investors to purchase shares of Common Stock, (iv) certain amendments to the
terms and conditions of the Original Note Agreement (including, without
limitation, the addition of IT Network, Inc., a wholly-owned Subsidiary of the
Company as a co-borrower ("IT;" and, together with the Company, hereinafter
sometimes individually, a "SELLER" and collectively, the "SELLERS")) and (v) the
amendment and restatement of certain other of the Original Note Purchase
Documents (including, without limitation, the Original Warrant and certain of
the Original Security Documents). All references herein to "you" or "your"
shall, unless the context expressly provides otherwise, refer to all of the
Purchasers.
Accordingly, in consideration of the foregoing premises and the
mutual covenants herein contained, each of the Company and IT hereby agrees,
jointly and severally, with each of the Purchasers as follows:
PARAGRAPH 1. AUTHORIZATION OF ISSUE OF NOTES.
-2-
<PAGE> 8
1. AUTHORIZATION OF ISSUE OF NOTES. Each of the Company and IT will
authorize:
(i) in the case of Northstar, (x) the issue of a senior
secured promissory note of the Company and IT in the aggregate
principal amount of $5,000,000 (the "1997 NORTHSTAR NOTE") and (y)
the amendment and restatement of the terms governing the Original
Notes to evidence the joint and several obligation of the Company
and IT to pay the holder of such notes an aggregate $5,676,895.06
principal amount and otherwise to provide that such terms, as
amended and restated, will be identical to those governing the 1997
Northstar Note (the Original Notes, as so amended, restated and
combined into one secured promissory note, being hereinafter called
the "AMENDED AND RESTATED NORTHSTAR NOTE"); and
(ii) in the case of each of the Pecks Investors, the issue of
a senior secured promissory note of the Company and IT in the
aggregate principal amount of (w) $6,200,000 in the case of Delaware
(the "1997 DELAWARE NOTE"), (x) $1,200,000 in the case of Zeneca
(the "1997 ZENECA NOTE"), (y) $800,000 in the case of McConnell (the
"1997 MCCONNELL NOTE") and (z) $1,800,000 in the case of ICI (the
"1997 ICI NOTE;" and together with the 1997 Delaware Note, the 1997
Zeneca Note and the 1997 McConnell Note, hereinafter sometimes
individually, a "1997 PECKS INVESTORS NOTE" and, collectively, the
"1997 PECKS INVESTORS NOTES"),
each such Note (as defined below) (a) to be dated the date of issue thereof, (b)
to mature March 31, 2002, (c) to bear interest on the unpaid balance thereof
until such principal amount shall have become due and payable:
(A) from the date of issuance thereof until and including March 31,
1999, at the election of the Sellers, (aa) at the rate of twelve percent
(12%) per annum payable in cash or (bb) at the rate of thirteen percent
(13%) per annum payable in units consisting of (xx) an additional
promissory note of the Company and IT in substantially the form of the
Notes and in principal amount equal to the amount of interest due and
payable and (yy) warrants, substantially in the form of the Warrants (as
defined below), to purchase such number of additional shares of Common
Stock as is equal to .125 share of Common Stock per dollar of principal
amount of such additional promissory note;
(B) subject to the right of election of a holder of a Note as
provided in paragraph 2 thereof, thereafter until the date paid in full at
the rate of twelve percent (12%) per annum, in cash, and
(C) on overdue payments at the rate specified therein,
and (d) to be substantially in the form of Exhibit A attached hereto. The 1997
Northstar Note, the Amended and Restated Northstar Note, the 1997 Pecks
Investors Notes, each other senior promissory note delivered pursuant to any
provision of this Agreement, and each senior promissory note delivered in
substitution or exchange for any other Note pursuant to any such provision (in
each case, as the same may at any time and from time to time be hereafter
-3-
<PAGE> 9
amended, supplemented or modified), are herein sometimes referred to
individually as a "NOTE" and collectively as the "NOTES".
PARAGRAPH 2. PURCHASE, SALE AND DELIVERY OF NOTES; DELIVERY OF WARRANTS.
2A. CLOSING. Each of the Company and IT hereby agrees to sell to each of
you and, subject to the terms and conditions herein set forth, each of you
agrees to purchase from the Company, at 100% of the aggregate principal amount
thereof, a 1997 Note (i) in the case of Northstar, in the aggregate principal
amount of $5,000,000, (ii) in the case of Delaware, in the aggregate principal
amount of $6,200,000, (iii) in the case of Zeneca, in the aggregate principal
amount of $1,200,000, (iv) in the case of McConnell, in the aggregate principal
amount of $800,000, and (v) in the case of ICI, in the aggregate principal
amount of $1,800,000. Each of the Company and IT will deliver to each of you, at
the offices of Northstar's counsel, Reboul, MacMurray, Hewitt, Maynard &
Kristol, 45 Rockefeller Plaza, New York, New York 10111, a 1997 Note registered
in your name or the name of your nominee as set forth in the Purchaser Schedule
attached hereto, on April 9, 1997 (the "CLOSING" or the "DATE OF THE CLOSING"),
which 1997 Note shall be (a) in the case of Northstar, in the aggregate
principal amount of $5,000,000, (b) in the case of Delaware, in the aggregate
principal amount of $6,200,000, (c) in the case of Zeneca, in the aggregate
principal amount of $1,200,000, (d) in the case of McConnell, in the aggregate
principal amount of $800,000 and (e) in the case of ICI, in the aggregate
principal amount of $1,800,000, immediately prior to payment of the purchase
price thereof by transfer of immediately available funds for credit to IT's
account #80-1363-3 at Texas Bank & Trust, N.A. on the Date of the Closing.
Each of the Company and IT hereby agrees with Northstar that the
aforesaid purchase price of the 1997 Northstar Note purchased by Northstar at
the Closing shall be $4,270,638. Each of the Company and IT hereby further
agrees with Northstar that the purchase price of the Northstar Warrant (as
defined below), delivered to Northstar at the Closing as provided in paragraph
2B hereof, shall be $729,362 in the aggregate and shall also be payable in
immediately available funds for credit to IT's account #80-1363-3 at Texas Bank
& Trust, N.A. on the Date of the Closing. Additionally, each of the Company and
IT agrees with Northstar that all tax returns and financial statements of the
Company, IT and Northstar shall be prepared in a manner consistent with the
respective purchase prices of the 1997 Northstar Note and the Northstar Warrant
set forth above.
Each of the Company and IT agrees with Delaware that the aforesaid
purchase price of the 1997 Delaware Note purchased by Delaware at the Closing
shall be $5,446,326. Each of the Company and IT further agrees with Delaware
that the purchase price of the Delaware Warrant (as defined below) delivered to
Delaware at the Closing as provided in paragraph 2B hereof, shall be $753,674
and shall also be payable in immediately available funds for credit to IT's
account #80-1363-3 at Texas Bank & Trust, N.A. on the Date of the Closing.
Additionally, each of the Company and IT agrees with Delaware that all tax
returns and financial statements of the Company, IT and, to the extent
applicable, Delaware shall be prepared in a manner consistent with the
respective purchase prices of the 1997 Delaware Note and the Delaware Warrant
set forth above.
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Each of the Company and IT agrees with Zeneca that the aforesaid
purchase price of the 1997 Zeneca Note purchased by Zeneca at the Closing shall
be $1,054,128. Each of the Company and IT further agrees with Zeneca that the
purchase price of the Zeneca Warrant (as defined below) delivered to Zeneca at
the Closing as provided in paragraph 2B hereof, shall be $145,872 and shall also
be payable in immediately available funds for credit to IT's account #80-1363-3
at Texas Bank & Trust, N.A. on the Date of the Closing. Additionally, each of
the Company and IT agrees with Zeneca that all tax returns and financial
statements of the Company, IT and, to the extent applicable, Zeneca shall be
prepared in a manner consistent with the respective purchase prices of the 1997
Zeneca Note and the Zeneca Warrant set forth above.
Each of the Company and IT agrees with McConnell that the aforesaid
purchase price of the 1997 McConnell Note purchased by McConnell at the Closing
shall be $702,752. Each of the Company and IT further agrees with McConnell that
the purchase price of the McConnell Warrant (as defined below) delivered to
McConnell at the Closing as provided in paragraph 2B hereof, shall be $97,248
and shall also be payable in immediately available funds for credit to IT's
account #80-1363-3 at Texas Bank & Trust, N.A. on the Date of the Closing.
Additionally, each of the Company and IT agrees with McConnell that all tax
returns and financial statements of the Company, IT and, to the extent
applicable McConnell shall be prepared in a manner consistent with the
respective purchase prices of the 1997 McConnell Note and the McConnell Warrant
set forth above.
Each of the Company and IT agrees with ICI that the aforesaid
purchase price of the 1997 ICI Note purchased by ICI at the Closing shall be
$1,581,191. Each of the Company and IT further agrees with ICI that the purchase
price of the ICI Warrant (as defined below) delivered to ICI at the Closing as
provided in paragraph 2B hereof, shall be $218,809 and shall also be payable in
immediately available funds for credit to IT's account #80-1363-3 at Texas Bank
& Trust, N.A. on the Date of the Closing. Additionally, each of the Company and
IT agrees with ICI that all tax returns and financial statements of the Company,
IT and, to the extent applicable, ICI shall be prepared in a manner consistent
with the respective purchase prices of the 1997 ICI Note and the ICI Warrant set
forth above.
At the Closing, and against delivery to the Company of the Original
Notes, the Company and IT will deliver to Northstar a duly executed Amended and
Restated Northstar Note.
2B. WARRANTS TO PURCHASE COMMON STOCK. In consideration of and as an
inducement to your respective purchase of the Notes, each of the Company and IT
also agrees as follows:
(i) That it will, on the Date of the Closing, deliver to
Northstar (a) a warrant (the "NORTHSTAR WARRANT") to purchase, at an
exercise price per share of $6.00, 750,000 shares of Common Stock
and (b) an amended and restated Original Warrant (as so amended and
restated, the "AMENDED AND RESTATED NORTHSTAR WARRANT") to purchase,
at an exercise price of $6.00 per share, 500,000 shares of Common
Stock.
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(ii) That it will, on the Date of the Closing, deliver to
Delaware a warrant (the "DELAWARE WARRANT"), registered in the name
of your nominee set forth in the Purchaser Schedule attached hereto,
to purchase, at an exercise price per share of $6.00, 775,000 shares
of Common Stock.
(iii) That it will, on the Date of the Closing, deliver to
Zeneca a warrant (the "ZENECA WARRANT"), registered in the name of
your nominee set forth in the Purchaser Schedule attached hereto, to
purchase, at an exercise price per share of $6.00, 150,000 shares of
Common Stock.
(iv) That it will, on the Date of the Closing, deliver to
McConnell a warrant (the "MCCONNELL WARRANT"), registered in the
name of your nominee set forth in the Purchaser Schedule attached
hereto, to purchase, at an exercise price per share of $6.00,
100,000 shares of Common Stock.
(v) That it will, on the Date of the Closing, deliver to ICI
a warrant (the "ICI WARRANT;" and, together with the Northstar A
Warrant, the Northstar B Warrant, the Amended and Restated Northstar
Warrant, the Delaware Warrant, the Zeneca Warrant and the McConnell
Warrant herein sometimes, individually, a "WARRANT" and
collectively, the "WARRANTS"), registered in the name of your
nominee set forth in the Purchaser Schedule attached hereto, to
purchase, at an exercise price per share of $6.00, 225,000 shares of
Common Stock.
Each of the Warrants to be delivered to each of you shall be in all respects
(including, without limitation, as to both form and substance) satisfactory to
you in your sole discretion and shall provide, among other things, that (i) the
Warrants shall be exercisable at any time after the Date of the Closing and
before March 31, 2004, (ii) the number of shares that may be purchased upon the
exercise of the Warrants and the exercise price per share is subject to "full
ratchet" anti-dilution protections (that is to say an anti-dilution adjustment
that reduces the exercise price per share under the Warrants fully and
completely down to the price per share of a dilutive issuance), (iii) beginning
on the second anniversary of the Date of the Closing, the Company may purchase,
at a purchase price of $.01 per share, all (but not less than all) of the
Warrants then outstanding, on the later of (a) 60 days from the date the Company
provides notice of its election to make such purchase, or (b) 60 days from the
date a registration statement covering the shares that may be purchased upon
exercise of the Warrants becomes effective, provided, however, that the Common
Stock has traded at a price equal to or greater than 200% of the then existing
exercise price of the Warrants for 30 of the 40 days immediately preceding such
notice and (iv) in the event of a Change of Control, you shall be entitled to
sell the Warrants to the Company at a price per share equal to the greater of
(A) the fair market value of the Warrants or (B) a price per share that will
provide to you an internal rate of return on your total investment in the
Company and IT of 30%.
PARAGRAPH 3. CONDITIONS PRECEDENT.
3. CONDITIONS AT CLOSING. Your obligation to purchase and pay for the 1997
Notes to be purchased by you hereunder at the Closing is subject to the
satisfaction, on or before the Date of the Closing, of the following conditions:
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<PAGE> 12
3A. CERTAIN DOCUMENTS. Each of you (unless otherwise specified below)
shall have received the following, each dated the Date of the Closing (unless
otherwise specified below), it being expressly understood and agreed by each of
the Sellers that each of the following shall be in all respects (including,
without limitation, as to both form and substance) entirely satisfactory to each
of you in your sole discretion and to your counsel:
(i) The 1997 Notes to be purchased by you on the Date of the
Closing.
(ii) The 1997 Security Documents (as defined below).
(iii) In the case of Northstar, the Amended and Restated Northstar
Note.
(iv) In the case of Northstar, (a) the Northstar Warrant and (b) the
Amended and Restated Northstar Warrant.
(v) In the case of the Pecks Investors, (a) in the case of Delaware,
the Delaware Warrant, (b) in the case of Zeneca, the Zeneca Warrant, (c)
in the case of McConnell, the McConnell Warrant and (d) in the case of
ICI, the ICI Warrant.
(vi) An amendment and restatement of the Original Registration
Rights Agreement (as so amended and restated, the "AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company shall amend
and restate the registration rights originally granted to Northstar and
grant certain registration rights to each of the Pecks Investors with
respect to the Common Stock underlying the Warrants, including, without
limitation, (a) two registrations on Form S-1 or its equivalent, (b)
unlimited registrations on Form S-3 and (c) unlimited incidental or
"piggyback" registrations, in each such case at the sole cost and expense
of the Company.
(vii) Certified copies of the resolutions of the respective Board of
Directors of each of the Company, IT and each of their respective
Subsidiaries which is a party to any of the 1997 Security Documents (a
"SUBSIDIARY PARTY") approving, as applicable, this Agreement, the Notes,
the Amended and Restated Registration Rights Agreement, the Warrants, the
Lockup and Voting Agreement (as defined below), the Intercreditor
Agreement (as defined below) and each 1997 Security Document to which it
is a party, and copies of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Agreement, the Notes, the Warrants, the Amended and Restated Registration
Rights Agreement and the 1997 Security Documents (including, without
limitation, the authorization and reservation of shares of Common Stock
issuable upon exercise of the Warrants and, as provided by paragraph 5I
hereof, the election to the Board of Directors of the Company (and to the
certain committees of such board) of the Pecks Investors Designee (as
defined below).
(viii) A certificate of the Secretary or an Assistant Secretary of
the Company, IT and each Subsidiary Party certifying the names and true
signatures of the officers of the Company and each Subsidiary Party
authorized to sign this Agreement, the Notes, the Warrants, the 1997
Security Documents, the Amended and Restated Registration Rights Agreement
and all other documents to be delivered hereunder.
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<PAGE> 13
(ix) Certified copies of the certificate of incorporation and bylaws
of the Company, IT and each Subsidiary Party.
(x) A favorable opinion of (a) Thompson & Knight, P.C., special
counsel to the Company and IT, of (b) Maryann Walsh, corporate counsel to
the Company, IT and Cableshare US, (c) Davies, Ward & Beck, special
counsel to ICT (as defined below), the Canadian Subsidiary (as defined
below) and the Barbco Subsidiary (as defined below), (d) Chancery
Chambers, special counsel to Barbco.
(xi) Certified copies of (a) Requests for Information or Copies
(Form UCC- 11), or equivalent reports, listing all effective financing
statements which name the Company, IT or any Subsidiary Party (under its
present name and any previous name) as debtor and which are filed with the
Secretaries of State of Arizona, California, Colorado, Florida, Indiana,
Kansas, Michigan, Missouri, North Carolina, Oklahoma, Pennsylvania, South
Carolina, Tennessee and Texas, and (b) Personal Property Security Act
search reports, or equivalent reports, listing all effective financing
statements which name ICT or the Canadian Subsidiary (under their
respective present names and previous names, if any) as debtor and which
are filed in Ontario, Canada.
(xii) Documents (including each Uniform Commercial Code financing
statement or its equivalent) required by law or reasonably requested by
you to be filed, registered or recorded, in order to create and perfect in
your favor a first priority security interest and Lien on all right, title
and interest held by the Company, IT and each Subsidiary Party, in, to and
under all of its tangible and intangible, real and personal properties and
assets, with no further action required on the part of the Company, IT or
any Subsidiary Party in order for you to file, register or record each
such document.
(xiii) Original certificates evidencing all of the issued and
outstanding shares of capital stock required to be pledged to you pursuant
to the 1997 Security Documents, which certificates shall be accompanied by
undated stock powers, duly executed in blank by each relevant pledgor and
with the signatures of such relevant pledgor being guaranteed by a
commercial bank or trust company reasonably satisfactory to each of you.
(xiv) Evidence that the Company has obtained all policies of
insurance called for by paragraph 5F hereof, naming each of you as loss
payee and additional named insured, as your respective interests may
appear.
(xv) (a) Consolidated statements of income and cash flows and
consolidated statements of stockholders' equity of the Company and its
Subsidiaries for the fiscal year ended December 31, 1996, and a
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such fiscal year, which financial statements shall have been
prepared in accordance with generally accepted accounting principles
consistently applied and shall be satisfactory to each of you, and (b) an
Officer's Certificate stating that to the Knowledge of the certifying
Responsible Officer, the report by the independent certified public
accountants of the Company to be delivered, within 10 days after the
Closing, in connection with such year-end financial statements will be
without limitation as to the scope of the audit, without a "going concern"
or like qualification or exception
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<PAGE> 14
and that there is no basis for such limitation, qualification or
exception. Each of the Company and IT hereby covenant and agree to deliver
to each of the Purchasers within 10 days after the Closing such
unqualified report by the independent certified public accountants of the
Company relating to such year-end financial statements.
(xvi) Consent of the Board of Directors and shareholders of ICT to
the pledge of all capital stock of ICT owned by the Company, IT and the
Canadian Subsidiary.
(xvii) (a) Consent of the Board of Directors and shareholders of the
Canadian Subsidiary to the pledge of all capital stock of the Canadian
Subsidiary owned by IT Network, Inc. and the pledge of all capital stock
of ICT owned by the Canadian Subsidiary and (b) consent of the
shareholders of the Canadian Subsidiary approving (i) the execution and
delivery of each 1997 Security Document and the Intercreditor Agreement to
which each member of the ICT Group is a party and (ii) the taking of any
other action required hereunder to be taken by any member of the ICT
Group.
(xviii) An Amended and Restated Landlord Agreement with One Glen
Lakes, Ltd. and a Landlord Agreement with Metropolitan Life Insurance
Company, in each case substantially in form and substance as the original
Landlord Agreement dated as of March 28, 1996, between One Glen Lakes,
Ltd. and IT.
(xix) The Management Lock-Up and Voting Agreement substantially in
the form attached hereto as Exhibit B (the "LOCK-UP AND VOTING AGREEMENT")
among each of the members of the Company's management named in Schedule I
thereto, the Company and the Purchasers, providing, among other things,
that until all of obligations of the Company and IT under this Agreement,
the Notes and the 1997 Security Documents have been paid and satisfied in
full, each such member of the Company's management shall not transfer or
assign any shares of Common Stock or any rights to acquire shares of
Common Stock then owned or thereafter acquired so that, giving effect to
all such transfers or assignments during such period, such member owns of
record and beneficially fewer than 90% of the greatest number of shares of
Common Stock owned by such member during such period, except as otherwise
set forth in Schedule III thereto.
(xx) The Intercreditor Agreement (the "INTERCREDITOR AGREEMENT")
among Northstar, as Collateral Agent, the Purchasers, the Company and IT.
(xxi) Copies of the valuation reports (a) prepared by Ernst & Young
LLP with respect to certain Intellectual Property (as defined below) of
the Company, IT and their respective Subsidiaries, and (b) prepared by
KPMG Peat Marwick with respect to the assets and properties of ICT and the
ICT Subsidiaries.
(xxii) Executed copies of (a) the Transfer of Technology Agreement
among Barbco, ICT and Cableshare US in the form attached hereto as Exhibit
C, (b) the Patent Assignment Agreement between Barbco and ICT in the form
attached hereto as Exhibit D, (c) the Transfer of Technology Agreement
among Barbco, ICT, the Barbco Subsidiary and Cableshare US in the form
attached hereto as Exhibit E and (d) the Patent Assignment Agreement among
Barbco, ICT and the Barbco Subsidiary in the form
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<PAGE> 15
attached hereto as Exhibit F, providing, pursuant to the terms and
provisions therein, for the valid and effective assignment, transfer and
conveyance outright of all right, title and interest held by Barbco, in,
to and under its properties and assets (which properties and assets
include, without limitation, the Intellectual Property owned by Barbco and
the other assets listed on Annex I hereto), to ICT and the Barbco
Subsidiary, free and clear of any liens, pledges, security interests,
claims, charges or other encumbrances of any kind except for the security
interests therein granted to each of you pursuant to the 1997 Security
Documents.
(xxiii) Evidence that (a) J.C. Penney Company, Inc. ("PENNEY") has
consented to the consummation of the transactions contemplated by clause
(xxii) of this paragraph 3A and to the grant of (A) a security interest to
each of you pursuant to the 1997 Security Documents in the assets subject
to the assignment, transfer and conveyance referred to in clause (xxii) of
this paragraph 3A and (B) the liens in pledge with respect to all issued
and outstanding shares of capital stock of the ICT Subsidiaries (other
than Cableshare BV) and (b) any and all rights that Penney had that might
otherwise impair or diminish the right fully to enforce such security
interest and liens in pledge have been terminated. Further, each of you
shall also have received evidence that Penney's security interests in the
assets of the ICT Subsidiaries have been terminated, which evidence shall
be accompanied by termination statements on Form UCC-3 (or on such other
forms as your counsel may advise are required), duly executed by Penny and
in form and substance satisfactory for filing in all jurisdictions where
such filing is necessary or appropriate to give effect to the termination
of such security interests.
(xxiv) An executed copy of the Transfer of Technology Agreement
among ICT, Barbco, Cableshare BV and Cableshare US in the form attached
hereto as Exhibit G.
(xxv) Evidence that notwithstanding the consummation of the
transactions contemplated by clause (xxiv) of this paragraph 3, the
Company/IT License Agreements (as defined below) remain in full force and
effect.
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and
warranties contained in paragraph 8 shall be true on and as of the Date of the
Closing; there shall exist on the Date of the Closing no Event of Default or
Default; and the Company shall have delivered to each of you an Officer's
Certificate, dated the Date of the Closing, to both such effects.
3C. DUE DILIGENCE. Each of you shall have completed and be satisfied in
your sole discretion with the results of your due diligence review of the
Company, IT and each of their respective Subsidiaries.
3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The offer by the Company and IT
of, and the purchase of and payment for the Notes to be purchased by each of you
on the Date of the Closing on the terms and conditions herein provided
(including the use of the proceeds of such Notes by the Company and IT in
accordance with paragraph 8I hereof) shall not violate any applicable law or
governmental regulation (including, without limitation, section 5 of the
Securities Act or Regulation G, T or X of the Board of Governors of the Federal
Reserve
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<PAGE> 16
System) and shall not subject any of you to any tax, penalty, liability or other
onerous condition under or pursuant to any applicable law or governmental
regulation, and each of you shall have received such certificates or other
evidence as you may request to establish compliance with this condition.
3E. EXECUTION OF AGREEMENTS. Each of the other parties hereto shall have
executed and delivered each of the Note Purchase Documents to which it is a
party.
3F. FEES AND EXPENSES. All fees and expenses due and payable hereunder
(including, without limitation, the fees and expenses set forth in paragraph 11B
hereof) at the Closing by the Company or IT to you shall have been paid or
delivered in full.
3G. PROCEEDINGS. All corporate and other proceedings taken or to be taken
in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to each of you, and
each of you shall have received all such counterpart originals or certified or
other copies of such documents as you may reasonably request.
PARAGRAPH 4. PREPAYMENTS.
4. PREPAYMENTS. The Notes shall be subject to prepayment only with respect
to the required prepayments specified in paragraph 4A and the optional
prepayments permitted by paragraph 4B.
4A. REQUIRED PREPAYMENT. On March 31, 2001, the Company shall apply to the
prepayment of the Notes, without premium, an amount equal to thirty-three and
three tenths percent (33.3%) of the then outstanding principal amount of the
Notes, and such principal amount of the Notes, together with accrued and unpaid
interest thereon to the prepayment date, shall become due on such prepayment
date. The remaining outstanding principal amount of the Notes, together with
accrued and unpaid interest thereon, shall become due on the maturity date of
the Notes.
4B. OPTIONAL PREPAYMENT. (i) The Notes shall be subject to prepayment, in
whole at any time, or in part (in multiples of $100,000 on any date as of which
interest is payable under the Notes), at the option of the Company and IT, at
the following amounts:
(a) if the prepayment occurs before April 1, 1999, at a price equal
to 120% of the principal amount so prepaid plus accrued and unpaid
interest thereon to the prepayment date;
(b) if the prepayment occurs on or after April 1, 1999 but before
April 1, 2001, at a price equal to 110% of the principal amount so prepaid
plus accrued and unpaid interest thereon to the prepayment date; and
(c) if the prepayment occurs on or after April 1, 2001, at a price
equal to 100% of the principal amount so prepaid plus accrued and unpaid
interest thereon to the prepayment date.
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(ii) Notwithstanding clause (i) above, the Company and IT may otherwise
offer to prepay the Notes, in whole or in part (in multiples of $100,000 on any
date as of which interest is payable under the Notes), in the same proportion of
the aggregate principal amount of the Notes held by each holder and on the same
terms and conditions, by giving the holder of each Note irrevocable written
notice of the terms and conditions of such prepayment offer under this clause
(ii) (including, without limitation, the prepayment date, the principal amount
of the Notes held by such holder to be prepaid on such date and that such
prepayment is to be made pursuant to this clause (ii)) not less than 30 Business
Days' prior to the prepayment date specified in such notice. The holder of each
Note may, at its own discretion, elect to accept a prepayment offer of the
Company and IT under this clause (ii), by providing written notice to the
Company and IT of such acceptance not less than 10 Business Days' prior to the
specified prepayment date and, upon notice by such holder as aforesaid, the
principal amount of the Notes specified in such notice shall become due and
payable on such prepayment date on the terms specified in such notice.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company and IT shall give the
holder of each Note irrevocable written notice of any prepayment pursuant to
clause (i) of paragraph 4B not less than 10 Business Days prior to the
prepayment date, specifying such prepayment date and the principal amount of the
Notes held by such holder to be prepaid on such date and stating that such
prepayment is to be made pursuant to clause (i) of paragraph 4B. Notice of
prepayment having been given as aforesaid, the principal amount of the Notes
specified in such notice, together with accrued and unpaid interest thereon to
the prepayment date, shall become due and payable on such prepayment date. The
Company and IT shall, on or before the day on which they give written notice of
any prepayment pursuant to clause (i) of paragraph 4B, give telephonic notice of
the principal amount of the Notes to be prepaid and the prepayment date to each
Significant Holder which shall have designated a recipient of such notices in
the Purchaser Schedule attached hereto or by notice in writing to the Company
and IT.
4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the Notes
pursuant to paragraph 4A or clause (i) of paragraph 4B, the principal amount so
prepaid shall be allocated to all Notes at the time outstanding (excluding any
Notes prepaid or otherwise purchased or acquired by the Company, IT or any of
their respective Subsidiaries or Affiliates) in proportion to the respective
outstanding principal amounts thereof.
4E. RETIREMENT OF NOTES. Neither the Company nor IT shall, nor shall
either permit any of its respective Subsidiaries or Affiliates to, prepay or
otherwise retire in whole or in part prior to their stated final maturity, or
purchase or otherwise acquire, directly or indirectly, Notes held by any holder
unless the Company, IT or such Subsidiary or Affiliate shall have offered to
prepay or otherwise retire or purchase or otherwise acquire, as the case may be,
the same proportion of the aggregate principal amount of Notes held by each
other holder of Notes at the time outstanding upon the same terms and
conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise
acquired by the Company, IT or any of their respective Subsidiaries or
Affiliates shall not be deemed to be outstanding for any purpose under this
Agreement. It is understood and agreed that nothing contained in this paragraph
4E shall permit, or be construed to permit, the Company or IT optionally to
prepay any of the Notes otherwise than as expressly permitted by paragraph 4B
hereof.
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PARAGRAPH 5. AFFIRMATIVE COVENANTS.
5. AFFIRMATIVE COVENANTS.
So long as any Note shall remain unpaid, each of the Company and IT
covenants, jointly and severally, that it will comply in full with the following
covenants and cause each of its respective Subsidiaries so to comply with the
following covenants where compliance is called for in this paragraph 5 on the
part of Subsidiaries of the Company or IT.
5A. FINANCIAL STATEMENTS. The Company will deliver to each Significant
Holder in duplicate:
(i) as soon as practicable and in any event within 21 days after
each calendar month, the Company shall to deliver on a monthly basis
copies of all financial statements and other related financial reports
generated by the Company on a monthly basis for its own internal use;
(ii) as soon as practicable and in any event within 45 days after
the end of each quarterly calendar period (other than the last quarterly
calendar period) in each fiscal year, consolidated statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries
for the period from the beginning of the then current fiscal year to the
end of such quarterly period, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable
detail and satisfactory in form to the Required Holder(s), certified by a
Responsible Officer as having been prepared in accordance with generally
accepted accounting principles consistently applied and as fairly
presenting the consolidated financial condition and consolidated results
of operations of the Company and its Subsidiaries (subject to normal
year-end audit adjustments and the absence of certain footnotes);
provided, however, that delivery within the aforesaid 45-day period,
pursuant to clause (iv) below, of copies of the Quarterly Report on Form
10-Q of the Company for such quarterly period filed with the Securities
and Exchange Commission shall be deemed to satisfy the requirements of
this clause (ii) with respect to quarterly consolidated financial
statements;
(iii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, consolidating and consolidated statements of
income and cash flows and a consolidated statement of stockholders' equity
of the Company and its Subsidiaries for such year, and a consolidating and
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit, all in
reasonable detail and satisfactory in form to the Required Holder(s) and,
as to the consolidated statements, reported on by independent public
accountants of recognized national standing selected by the Company whose
report shall be without limitation as to the scope of the audit, and
satisfactory in substance to the Required Holder(s); provided, however,
that delivery within the aforesaid 90-day period, pursuant to clause (iv)
below, of copies of the Annual Report on Form 10-K of the Company for such
fiscal year filed with the
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Securities and Exchange Commission shall be deemed to satisfy the
requirements of this clause (iii) with respect to consolidated financial
statements;
(iv) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Securities and
Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission);
(v) promptly upon receipt thereof, a copy of each other report
submitted to the Company, IT or any of their respective Subsidiaries by
independent accountants in connection with any annual, interim or special
audit made by them of the books of the Company or any Subsidiary;
(vi) as soon as practicable and in any event within five days after
any officer of the Company or IT obtains Knowledge (a) of any condition or
event which, in the opinion of management of the Company or IT, would have
a material adverse effect on the business, condition (financial or other),
assets, properties, operations or prospects of the Company, IT or any of
their respective Subsidiaries, (b) any Person giving any notice to the
Company, IT or any of their respective Subsidiaries of, or taking any
other action with respect to, a claimed default or event or condition of
the type referred to in paragraph 7A(iii), (c) the institution of any
litigation or other proceeding involving claims against the Company, IT or
any of their respective Subsidiaries equal to or greater than $250,000
with respect to any single cause of action or any adverse determination in
any proceeding in any litigation or arbitration involving a potential
liability to the Company, IT or any of their respective Subsidiaries equal
to or greater than $250,000 with respect to any single cause of action
which makes the likelihood of an adverse determination in such litigation
against the Company or such Subsidiary substantially more probable, (d)
any of the events set forth in Section 4043(b) of ERISA (a "REPORTABLE
EVENT"), or (e) of any regulatory proceeding which may have a material
adverse effect on the Company, IT or any of their respective Subsidiaries,
an Officer's Certificate specifying the nature and period of existence of
any such condition or event, or specifying the notice given or action
taken by such Person and the nature of any such claimed default, event or
condition, or specifying the details of such proceeding, litigation or
dispute and what action the Company, IT or any of their respective
Subsidiaries has taken, is taking or proposes to take with respect
thereto;
(vii) promptly after the filing or receipt thereof, copies of all
reports and notices which the Company, IT or any of their respective
Subsidiaries or ERISA Affiliates files under ERISA with the Internal
Revenue Service or the PBGC or the U.S. Department of Labor or which the
Company, IT or any of their respective Subsidiary or ERISA Affiliates
receives from such corporation; and
(viii) with reasonable promptness after request by any Significant
Holder, such other information respecting the condition or operations,
financial or otherwise, of the Company, IT or any of their respective
Subsidiaries as is reasonably available to any director of the Company.
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<PAGE> 20
Together with each delivery of financial statements required by clauses (ii) and
(iii) above, the Company will deliver to each Significant Holder an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance by
the Company, IT and any of their respective Subsidiaries with the provisions of
paragraphs 6A and 6B and stating that there exists no Event of Default or
Default, or, if any Event of Default or Default exists, specifying the nature
and period of existence thereof and what action the Company proposes to take
with respect thereto.
Each of the Company and IT also covenants that immediately after any
Responsible Officer obtains Knowledge of an Event of Default or Default, it will
deliver to each Significant Holder an Officer's Certificate specifying the
nature and period of existence thereof and what action the Company and IT
propose to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company will, upon the request
of the holder of any Note, provide such holder, and any qualified institutional
buyer designated by such holder, such financial and other information as such
holder may reasonably determine to be necessary in order to permit compliance
with the information requirements of Rule 144A under the Securities Act in
connection with the resale of Notes, except at such times as the Company is
subject to the reporting requirements of section 13 or 15(d) of the Exchange
Act. For the purpose of this paragraph 5B, the term "qualified institutional
buyer" shall have the meaning specified in Rule 144A under the Securities Act.
5C. INSPECTION OF PROPERTY. Each of the Company and IT will permit any
Person designated by any Significant Holder in writing to visit and inspect any
of the properties of the Company, IT and any of their respective Subsidiaries,
to examine the corporate books and financial records of the Company, IT and any
of their respective Subsidiaries and make copies thereof or extracts therefrom
and to discuss the affairs, finances and accounts of any of such corporations
with the principal officers of the Company, IT and their respective
Subsidiaries, and their respective independent public accountants, all at such
reasonable times and as often as such Significant Holder may reasonably request.
As long as no Default or Event of Default has occurred and is continuing, such
inspection shall be at such Significant Holder's expense.
5D. PERFORMANCE OF OBLIGATIONS. Neither the Company nor IT shall, nor
shall either permit any of its respective Subsidiaries to, fail to pay,
discharge or otherwise satisfy, at or before maturity or before they become
delinquent, as the case may be, all of its material obligations of whatever
nature, except where the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and reserves in conformity with
generally accepted accounting principles with respect thereto have been provided
on the books of the Company, IT or such Subsidiary, as the case may be. Each of
the Company and IT and their respective Subsidiaries will comply with, all
material obligations under all leases, contracts and other agreements, and all
applicable material laws, rules and regulations (including, without limitation,
any of same (hereinafter "ENVIRONMENTAL LAWS") regulating, relating to or
imposing liability or standards of conduct concerning pollution or the
protection of the environment, as may now or hereafter be in effect), except to
the extent the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a material adverse effect on the business
operations, properties, assets or condition (financial or other) of each of the
Company, IT and their respective Subsidiaries.
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<PAGE> 21
5E. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Each of the Company,
IT and their respective Subsidiaries will continue to engage in business of the
same general types as now conducted by it and preserve, renew and keep in full
force and effect its corporate existence and take all reasonable action to
maintain all material rights, privileges and franchises necessary or desirable
in the normal conduct of its business. In addition, the Company will use its
best efforts to effect the separation of its IT Network telephone and the
Interactive Channel businesses into distinct legal entities.
5F. MAINTENANCE OF PROPERTY; INSURANCE. Each of the Company, IT and their
respective Subsidiaries shall keep all material property useful and necessary in
its business in good working order and condition in accordance with applicable
law and industry practice; maintain with financially sound and reputable
insurance companies insurance on all its property in at least such amounts, with
such deductibles, and against at least such risks (but including in any event
casualty, public liability, product liability and business interruption) as are
usually insured against in the same general area by companies engaged in the
same or a similar business. Not later than the Date of the Closing, each such
insurance policy shall, where applicable, name each of you as an additional
insured and as loss payee in a standard endorsement. The Company shall, within
30 days after the beginning of each of its fiscal years, deliver to each
Significant Holder a report of a reputable insurance broker with respect to the
insurance maintained by the Company, IT and their respective Subsidiaries,
together with a certificate of insurance evidencing the effectiveness of all
such property insurance.
5G. FURTHER SECURITY INTEREST. In the event that the Company, IT or any
Subsidiary of the Company or IT at any time or from time to time shall form or
acquire any Subsidiary (a "NEW SUBSIDIARY") as may be permitted hereby (i) such
of the Company, IT or such Subsidiary, as the case may be, as is the beneficial
owner of the capital stock of the New Subsidiary shall promptly execute and
deliver to the holders of the Notes a supplement to that 1997 Security Document
under which the Company, IT or such Subsidiary has pledged shares of capital
stock to the holders of the Notes, in order that pursuant to such 1997 Security
Document, as supplemented, 100% of the issued and outstanding shares of capital
stock held beneficially by the Company, IT or such Subsidiary, as the case may
be, shall be pledged, (ii) the Company, IT or such Subsidiary, as the case may
be, shall promptly take all actions necessary and appropriate to perfect the
Liens of such pledge (including without limitation, the delivery of stock
certificates evidencing the shares of capital stock so pledged, accompanied by
undated stock powers in blank, duly executed and with signatures being
guaranteed by a commercial bank or trust company satisfactory to each holder of
the Notes) and (iii) the Company, IT or such Subsidiary, as the case may be,
shall promptly deliver to the holders of the Notes such legal opinions
respecting such 1997 Security Document, as so supplemented, and the pledge
granted thereby as the holders of the Notes shall reasonably request.
In the event that 100% of the capital stock of any New Subsidiary
having the power to elect directors shall be owned, directly or indirectly, of
record or beneficially by the Company, IT or any of their respective
Subsidiaries, (i) such of the Company, IT or such Subsidiaries, as the case may
be, as are the such record or beneficial owners of such capital stock shall
promptly cause such New Subsidiary to become a party to a security document
substantially in the form of the 1997 Security Document pursuant to which the
Company and IT have granted the holders of the Notes a Lien on all of their
respective assets and properties, (ii)
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<PAGE> 22
such New Subsidiary shall promptly take all actions necessary and appropriate to
perfect the Liens of such security interests as are granted by such security
document which such New Subsidiary shall have entered into as aforesaid
(including, without limitation, the delivery to the holders of the Notes of
financing statements, executed by such New Subsidiary, and otherwise in form and
substance appropriate for filing in all appropriate jurisdictions) and (iii)
such New Subsidiary shall promptly deliver to the holders of the Notes such
legal opinions respecting such security document and the security interests
granted thereby as the holders of the Notes shall reasonably request.
5H. FURTHER ASSURANCES. Each of the Company and IT, at its own cost and
expense, will cause to be promptly duly taken, executed, acknowledged and
delivered all such further acts, documents and assurances as either of you may
from time to time reasonably request in order to carry out more effectively the
intent and purposes of this Agreement, the Notes, the Warrants, the Amended and
Restated Registration Rights Agreement and the 1997 Security Documents and the
transactions contemplated hereby and thereby. In furtherance, but not in
limitation of, the foregoing, each of the Company and IT agrees to deliver, and
to cause its respective Subsidiaries to deliver, all further instruments and
documents that may be necessary or desirable or that either of you may request
in order to grant, confirm and perfect first and prior Liens in any real or
personal property which is at such time Collateral (as defined in the 1997
Security Documents) or which was intended to be Collateral pursuant to any 1997
Security Document previously executed and not then released.
5I. ELECTION OF PECKS INVESTORS DESIGNEE. For so long as the number of
shares of Common Stock owned of record and beneficially by the Pecks Investors
or any Affiliate of the Pecks Investors is not fewer than 250,000 (appropriately
adjusted to reflect stock splits and dividends and stock combinations after the
Date of the Closing and treating for purposes of this paragraph 5I shares of
Common Stock issuable upon exercise of any Warrants held by the Pecks Investors
or any Affiliates of the Pecks Investors as being owned of record and
beneficially by such of the Pecks Investors or such Affiliates), the Company
shall take all steps necessary and appropriate and legally within its power to
cause a Person designated in writing by the Pecks Investors to the Company (the
"PECKS INVESTOR DESIGNEE") to be elected to the Board of Directors of the
Company and to each committee of such Board of Directors as the Pecks Investors
may request and shall use its best efforts to cause the number and composition
of the directors of the Board of Directors of each of its Subsidiaries to be
identical to that of the Company. Such steps on the part of the Company shall
include, but not be limited to, causing any and all amendments to the Company's
certificate of incorporation and by-laws as may be necessary to give effect to
the provisions of this paragraph 5I and causing the Pecks Investors Designee to
be duly nominated, with the affirmative recommendation of the management of the
Company, for election to the Board of Directors of the Company at each meeting
of the stockholders of the Company at which the election of members of such
Board of Directors (whether for the entire Board of Directors or any class in
which the Pecks Investors Designee may be included) is voted upon. In addition,
in the event that a Pecks Investors Designee shall, during any period when such
designee is entitled pursuant to the provisions of this paragraph 5I to serve on
the Board of Directors of the Company and committees thereof, refuse or become
unable to serve, the Company shall take all steps necessary and appropriate and
legally within its power to cause another Person designated in writing by the
Pecks Investors to the Company to be
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<PAGE> 23
elected promptly to replace the aforesaid designee whose membership on the Board
of Directors of the Company or committees thereof has ceased.
The Company shall, on such terms and conditions that are no less
favorable than those applicable to other members of the Board of Directors of
the Company, (i) compensate the Pecks Investors Designee for serving as a
director of such Board of Directors and as a member of the committees thereof on
which he sits, (ii) reimburse the Pecks Investors Designee for all reasonable
costs and expenses incurred by him in so serving and (iii) provide the Pecks
Investors Designee with director's liability insurance coverage.
5J. TRANSFER OF INTELLECTUAL PROPERTY. (a) The Required Holders may at its
or their option, by notice in writing to the Company and IT, elect to require
the Barbadian Subsidiary to validly and effectively assign, transfer and convey
to ICT, within 60 days of such notice, all right, title and interest held by the
Barbco Subsidiary in, to and under the properties and assets transferred to it
by Barbco pursuant to clause (xxii) of paragraph 3 hereof, provided, that such
assignment and transfer shall be effected, in whole or in part, to the extent
that it does not cause ICT to incur, after taking into account all Tax Credits
(as defined below), aggregate out-of-pocket federal and provincial taxes in
excess of five hundred thousand Canadian dollars (C$500,000).
(b) As soon as practicable and in any event within 45 days after the
end of each quarterly period in each fiscal year, the Company will deliver to
each Significant Holder an Officer's Certificate, executed by a Responsible
Officer of ICT, setting forth the aggregate amount of tax loss carry-forwards,
investment tax credits and other amounts that under applicable law can be used
to offset Canadian federal or provincial taxes on income or gain (collectively,
"TAX CREDITS"), accumulated by ICT as of the end of such quarter.
(c) As soon as practicable after the Date of the Closing, the
Company and IT shall cause Cableshare US to validly and effectively assign,
transfer and convey all of its right, title and interest in, to and under its
properties and assets to ICT or the Barbco Subsidiary, it being agreed and
understood, however, that Cableshare US shall not be required to effect such
assignment and transfer if, in the reasonable opinion of the senior management
of the Company, IT and Cableshare US, such assignment and transfer would cause
Cableshare US to incur out-of-pocket foreign, federal, state and local tax
expenses in excess of $150,000. In furtherance of the foregoing, each of the
Company and IT agree to diligently investigate, and at the request of a
Significant Holder to report the results of such investigation to date, all
steps which lawfully minimize and avoid the imposition of any of the
aforementioned taxes so that the foregoing transfer can be effected.
5K. CARRIAGE AGREEMENTS. (a) The Company and IT shall maintain in full
force and effect Carriage Agreements with one or more multiple system cable
operators (such operators with whom the Company or IT have Carriage Agreements
in effect, being herein referred to collectively as, the "Cable Operators")
which in the aggregate provide cable service to at least 5,000,000 basic cable
subscribers. Within 10 days after the end of each calendar month, the Company
will deliver to each Significant Holder an Officer's Certificate certifying the
aggregate number of basic cable subscribers served by the Cable Operators as
reported by an authoritative industry publication. Within 30 days after the end
of each fiscal quarter, the Company will
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<PAGE> 24
cause to be delivered to each Significant Holder a certificate from the
Company's independent public accountants of recognized standing certifying the
aggregate number of basic cable subscribers served by the Cable Operators as
reported by an authoritative industry publication. In the event the aggregate
number of basic cable subscribers served by the Cable Operators shall ever be
fewer than 5,000,000, the Company shall promptly deliver to each Significant
Holder notice thereof.
(b) The Company and IT agree that in any new Carriage Agreement or
in any renewal or modification of any existing Carriage Agreement, they shall
each use their best efforts to have included as a standard provision thereof, an
agreement on the part of the Cable Operator a party thereto that all right,
title and interest of the Company or IT in, to and under such Carriage Agreement
may be collaterally assigned to any Person making loans or providing any other
financial assistance to the Company or IT, whether such loans or other financial
assistance is then outstanding or is provided in the future, and that such
Person may, subject to reasonable requirements with respect to any transferee,
further transfer and assign such right, title and interest to another upon the
enforcement of such Person's rights in connection with the loans or other
financial assistance provided by it.
5L. MINIMUM CASH AND CASH EQUIVALENTS. As of the end of each calendar
month of the Company, the Company shall have on a consolidated basis aggregate
cash and cash equivalents ("MINIMUM OPERATING CASH RESERVES") in an amount at
least equal to (x) the aggregate amount of estimated operating expenses and
cash-based interest charges of the Company on a consolidated basis for the
Company's next three fiscal months (such operating expenses and interest charges
to be at least equal to those of the immediately preceding three fiscal months),
minus (y) 90% of the Company's accounts receivable on a consolidated basis
outstanding less than 90 days as of the end of the most recently completed
calendar month ("ELIGIBLE RECEIVABLES").
5M. CASH BALANCE REPORTING REQUIREMENT. Within 21 days after the end of
each calendar month of the Company, the Company shall deliver to each
Significant Holder an Officer's Certificate certifying, as of the end of such
month, the Company's (i) available bank balances of aggregate cash and cash
equivalents on a consolidated basis ("AVAILABLE CASH BALANCES"), (ii) fiscal
ledger balances of aggregate cash and cash equivalents on a consolidated basis
("LEDGER CASH BALANCES") and (iii) for the next three and six calendar month
respectively, the aggregate amount of estimated operating expenses and
cash-based interest charges of the Company on a consolidated basis minus 90% of
the Eligible Receivables. Within 30 days after the end of each of the first
eight fiscal quarters after the Closing, the Company will cause to be delivered
to each Significant Holder a certificate from its independent public accountant
of recognized standing certifying that such accountant has confirmed at least
95% of the Available Cash Balances as of the end of the most recently completed
fiscal quarter and has reviewed the Company's reconciliation of Available Cash
Balances and Ledger Cash Balances, noting no unusual or incorrect items.
PARAGRAPH 6. NEGATIVE COVENANTS.
6. NEGATIVE COVENANTS. So long as any Note shall remain unpaid, each of
the Company and IT covenants, jointly and severally, that it will comply with
the following
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<PAGE> 25
covenants and cause each of its respective Subsidiaries so to comply with the
following covenants where compliance is called for in this paragraph 6 on the
part of Subsidiaries of the Company or IT:
6A. INTEREST CHARGES COVERAGE RATIO. The Interest Charges Coverage Ratio
for any period specified below shall not be less than the ratio set forth
opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
For the six-month periods ending December 31, 1999 2.0 to 1.0
and March 31, 2000
For the six-month period ending June 30, 2000 2.5 to 1.0
and September 30, 2000
For the six-month period ending December 31, 2000 3.0 to 1.0
and for each six-month period ending thereafter on a
March 31, June 30, September 30 or December 31 thereafter
</TABLE>
6B. ADJUSTED DEBT TO EBITDA RATIO. The Adjusted Debt to EBITDA Ratio for
any period specified below shall not be greater than the ratio set forth
opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
For the six-month periods ending December 31, 1999 7.0 to 1.0
and March 31, 2000
For the six-month period ending June 30, 2000 6.0 to 1.0
and September 30, 2000
For the six-month period ending December 31, 2000 5.0 to 1.0
and March 31, 2001
For the six-month period ending June 30, 2001 4.0 to 1.0
and for each six-month period ending thereafter on a
March 31, June 30, September 30 or December 31 thereafter
</TABLE>
If the Adjusted Debt to EBITDA Ratio for any period is greater than the ratio
set forth above for such period, the Company shall within fifteen (15) days
after obtaining Knowledge thereof cure such default by increasing the
consolidated amount of cash and cash equivalents owned by the Company and its
Subsidiaries and without increasing the Adjusted Debt.
6C. LIMITATION ON DEBT. Neither the Company nor IT shall, nor shall either
permit any of its respective Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Indebtedness, except:
(i) Debt of the Company and IT in respect of the Notes.
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<PAGE> 26
(ii) Debt of the Company or IT to any of their respective
Subsidiaries and of any such Subsidiaries to the Company or IT or any
other of their respective Subsidiaries, subject to the limitations set
forth in paragraph 6I.
(iii) Debt of the Company, IT or any of their respective
Subsidiaries incurred to finance the acquisition of fixed or capital
assets (whether pursuant to a loan, a Lease Financing or otherwise) in the
ordinary course of business outstanding on the Date of the Closing and
listed on Schedule 3 hereto, and any additional Debt of the Company, IT
and their respective Subsidiaries incurred to finance the acquisition of
fixed or capital assets (whether pursuant to a loan, a Lease Financing or
otherwise) after the date hereof, provided, that all such Debt shall be
equal to or less than the fair market value of the assets acquired with
the proceeds thereof, shall encumber only the assets so acquired and shall
otherwise be subject to the limitations set forth in paragraph 6I.
(iv) Debt of a corporation, limited liability company, partnership
or other entity which becomes a Subsidiary of the Company or IT after the
date hereof, provided that (A) such Debt existed at the time such
corporation became a Subsidiary and was not created in anticipation
thereof, and (B) immediately after giving effect to the acquisition of
such corporation, limited liability company, partnership or other entity
by the Company or IT no Default or Event of Default shall have occurred
and continuing.
(v) Debt outstanding on the Date of the Closing (other than as
described in clause (iii) above), as set forth on Schedule 4 hereto and
any amendments or modifications thereof (but excluding any extension in
the maturity of or increase in the principal amount of such Debt).
(vi) Debt of the Company, IT or any of their respective
Subsidiaries with respect to financings of letters of credit issued to
support obligations of the Company, IT or such Subsidiaries for purchases
of equipment or inventory or to guarantee the performance of the
obligations of the Company, IT or such Subsidiaries in the ordinary course
of business.
(vii) Indebtedness of the Company, IT or any of their respective
Subsidiaries that was incurred by such Person on ordinary trade terms to
vendors, suppliers or other Persons providing goods and services for use
by such Person in the ordinary course of its business, unless and until
such Indebtedness is, or is agreed by its terms to be, outstanding more
than 120 days past the original invoice or billing date therefor.
(viii) Debt owed by the Company, IT or any of their respective
Subsidiaries which is unsecured and subordinated to the Notes upon terms
and conditions deemed in advance and in writing by the Required Holders to
be satisfactory to them in their sole and absolute discretion.
(ix) Indebtedness of the Company, IT or any of their respective
Subsidiaries for any deposit received by the Company, IT or such
Subsidiaries from any customer or client for services to be performed or
goods sold by the Company, IT or such
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<PAGE> 27
Subsidiaries, unless the Company, IT or such Subsidiaries for any reason
becomes duly obligated to refund such deposit.
Notwithstanding anything to the contrary expressed or implied herein:
(A) Indebtedness or Debt otherwise permitted by clauses (i) through
(ix) of this paragraph 6C shall constitute, (x) Debt, for purposes of
calculating the Interest Charges Coverage Ratio and (y) Adjusted Debt, for
purposes of calculating the Adjusted Debt to EBITDA Ratio. Accordingly,
Indebtedness or Debt otherwise permitted by clauses (i) through (ix) of
this paragraph 6C shall be subject to the limitations of paragraphs 6A and
6B hereof.
(B) Debt (x) which is otherwise permitted by clause (iv) of this
paragraph 6C, but which is not cash collateralized, and (y) which is
otherwise permitted by clauses (vi) and (viii) of this paragraph 6C shall
be permitted only if, as at each date during the period from the Date of
the Closing through December 31, 1999 when any such Debt is incurred, the
ratio of consolidated Debt of the Company and its Subsidiaries to
Consolidated Tangible Net Worth is not greater than 1 to 1.
6D. LIMITATION ON LIENS. Neither the Company nor IT shall, nor shall
either permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, except for:
(i) Liens created to secure the Notes.
(ii) Liens for taxes not yet due or which are being contested in
good faith by appropriate proceedings, provided that adequate reserves
with respect thereto are maintained on the books of the Company, IT or
their respective Subsidiaries, as the case may be, in conformity with
generally accepted accounting principles.
(iii) Carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 30 days or which are
bonded and being contested in good faith by appropriate proceedings.
(iv) Pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements.
(v) Deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business.
(vi) Easements, right-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property
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<PAGE> 28
subject thereto or materially interfere with the ordinary conduct of the
business of the Company, IT or their respective Subsidiaries.
(vii) Liens securing Debt of the Company, IT and their respective
Subsidiaries permitted by paragraph 6C(iii) incurred to finance the
acquisition of fixed or capital assets, provided that (A) such Liens shall
be created substantially simultaneously with the acquisition of such fixed
or capital assets, (B) such Liens do not at any time encumber any property
other than (1) the property financed by such Debt and (2) pledges of cash
or cash equivalents and (C) the principal amount of Debt secured by any
such Lien shall at no time exceed 100% of the fair value (as determined in
good faith by the board of directors of the Company, IT or such
Subsidiaries) of the property acquired at the time it was acquired.
(viii) Liens on the property or assets of a corporation which
becomes a Subsidiary of the Company or IT after the date hereof, securing
Debt permitted by paragraph 6C(iv), provided that (A) such Liens existed
at the time such corporation became a Subsidiary and were not created in
anticipation thereof, (B) any such Lien is attached solely to property
owned by such corporation as at the date it became a Subsidiary and is not
spread to cover any property or assets of the Company, IT or any other of
their respective Subsidiaries, and (C) the amount of Debt secured thereby
is not increased.
(ix) Liens securing Debt of the Company, IT and their respective
Subsidiaries permitted by paragraph 6C(v).
(x) Licenses of patents and other technology owned by the
Company, IT or any of their respective Subsidiaries which is granted in
the ordinary course of business by the Company or any of its Subsidiaries.
(xi) Pledges of cash or cash equivalents securing Debt of the
Company or IT permitted by paragraph 6C(vi).
6E. LIMITATION ON MERGERS AND REINCORPORATIONS. Neither the Company nor IT
shall, nor shall either permit any of its Subsidiaries to, directly or
indirectly, enter into any merger, consolidation or amalgamation, 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 property, business or assets, make any material change
in its present method of conducting business, or reincorporate under the laws of
any jurisdiction other than the United States, Canada or any political
subdivision thereof, except:
(i) any Subsidiary of the Company or IT may be merged or
consolidated with or into the Company or IT (provided that the Company or
IT shall be the continuing or surviving corporation) or with or into any
one or more wholly-owned Subsidiaries of the Company or IT (provided that
the wholly-owned Subsidiary or Subsidiaries shall be the continuing or
surviving corporation), provided, that in each such case the continuing or
surviving corporation shall be organized and existing under the laws of
the United States, Canada or any political subdivision thereof; and
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<PAGE> 29
(ii) any wholly-owned Subsidiary of the Company or IT may sell,
lease, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to the Company, IT or any other
wholly-owned Subsidiary.
6F. LIMITATION ON SALES OF PROPERTY. Neither the Company nor IT shall, nor
shall either permit any of its respective Subsidiaries to, directly or
indirectly, convey, sell, lease, assign, transfer or otherwise dispose of any of
its property, business or assets (including, without limitation, receivables and
leasehold interests) or any product line, whether now owned or hereafter
acquired, or, in the case of any such Subsidiaries, issue or sell any shares of
such Subsidiaries capital stock to any person other than the Company, IT or any
wholly-owned Subsidiary of the Company or IT, except:
(i) the sale or other disposition of inventory and equipment in the
ordinary course of business in commercial transactions.
(ii) as permitted by paragraph 6E(ii).
6G. LIMITATION ON TRANSACTIONS WITH AFFILIATES. Neither the Company nor IT
shall, nor shall either permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction (including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any service)
with any Affiliate that is not a wholly-owned Subsidiary, unless such
transaction (i) is otherwise permitted hereunder, (ii) is in the ordinary course
of the Company's, IT's or such Subsidiaries business, and (iii) is on terms no
less favorable to the Company, IT or such Subsidiaries, as the case may be, than
it would obtain in a similar arm's-length transaction. Each of you hereby
agrees, severally and not jointly, that the 1992 Agreement and the 1995
Agreement (as such terms are defined below), true and correct copies of which
have been delivered to each of you, are permitted hereunder.
6H. LIMITATION ON DIVIDENDS. The Company shall not declare or pay any
dividend (other than dividends payable solely by the issue of its common stock)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of its capital stock or any
warrants, options or other rights to acquire such stock, whether now or
hereafter outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of the
Company or any Subsidiary.
6I. LIMITATION ON CREDIT EXTENSIONS. Neither the Company nor IT shall, nor
shall either permit any of its Subsidiaries to, extend credit, make advances or
make loans (including, without limitation, loans or advances to directors,
officers or employees of the Company, IT or any of their respective
Subsidiaries) other than (i) normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of business, which
extensions shall not be for periods longer than the lesser of 90 days or the
periods extended by similar businesses operated in a normal and prudent manner,
(ii) loans to the Company or IT and (iii) loans to ICT, so long as (a) the
outstanding aggregate principal amount of such loans to ICT at any time does not
exceed $2,000,000, (b) each and every such loan to ICT is made on terms and
conditions no less favorable to the lending party than would be the case if such
loan had been made on an arm's-length basis to a party which is not an Affiliate
of the lending party and (c) the entire
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amount of the proceeds of all such loans to ICT are used by ICT in the operation
of the line of business conducted by ICT as of the Date of the Closing.
6J. LIMITATION ON NEGATIVE PLEDGE CLAUSES. Neither the Company nor IT
shall, nor shall either permit any of its Subsidiaries to, enter into any
agreement with any Person, other than the holders of the Notes, which prohibits
or limits the ability of the Company, IT or their respective Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of its properties,
assets or revenues, whether now owned or hereafter acquired, or prohibits or
limits the payment in cash of the obligations of the Company or IT hereunder.
6K. LIMITATION ON LINES OF BUSINESS. Neither the Company nor IT shall, nor
shall either permit any of its respective Subsidiaries to, enter into any
business other than (i) businesses utilizing ICT technology, (ii) interactive
telephone services, (iii) businesses providing data to computer based on-line
services, and (iv) database information services.
6L. LIMITATION ON INVESTMENTS. Neither the Company nor IT shall, nor shall
either permit any of its Subsidiaries to, purchase, hold or acquire beneficially
any stock, bonds, notes, debentures or other securities or any assets
constituting a business unit of, or make any other investment in, any Person,
except (i) as expressly permitted by paragraph 6I hereof, (ii) investments in
capital stock of ICT or any of the Subsidiaries listed in Schedule 5 hereto and
(iii) investments in joint ventures, partnerships and other entities in the
information services and communications business that have, for all such
investments taken together, an aggregate cost basis not greater than $1,000,000,
so long as no Default or Event of Default exists at the time of and after giving
effect to any such investment.
6M. LIMITATION ON ACTIVITIES OF CERTAIN ICT SUBSIDIARIES. Notwithstanding
anything else to the contrary contained herein, after giving effect to the
transfers referred to in clauses (xxii) and (xxiv) of paragraph 3 hereof,
neither the Company nor IT shall permit either Barbco or Cableshare BV (i) to
own any properties or assets (except, in the case of Barbco, for the shares of
capital stock of the Barbco Subsidiary owned by it), (ii) to incur any
liabilities (except, in the case of Barbco, for its obligations under the Note
Purchase Documents to which it is a party and the Promissory Note dated May 28,
1987 (the "BARBCO NOTE"), given by Barbco to ICT, in the aggregate principal
amount of $19,999,000) or (iii) to conduct any business. Neither the Company nor
IT shall permit Cableshare US (a) to own any properties, (b) to incur any
liabilities or (c) to conduct any business, other than activities relating
directly to the enforcement of its rights and the performance of its obligations
under the License Agreement, the US Agreement (as such terms are defined in
Exhibit G hereto) and the Company/IT License Agreements to which it is a party,
and its obligations under the Note Purchase Documents to which it is a party.
6N. LIMITATION ON SETTLEMENTS OF SUITS. Neither the Company nor IT shall
settle or compromise any claim of William T. Little set forth in Schedule 6
hereto (including any future claim brought by Mr. Little related thereto) for
cash or other property having a fair market value in excess of $75,000, without
the prior written consent of the Required Holders, which consent shall not be
unreasonably withheld.
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PARAGRAPH 7. EVENTS OF DEFAULT.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company or IT defaults in the payment of any principal of
any Note when the same shall become due, either by the terms thereof or
otherwise as herein provided; or
(ii) the Company or IT defaults in the payment of any interest on
any Note for more than 5 calendar days after the date due; or
(iii) the Company, IT or any of their respective Subsidiaries
defaults (whether as primary obligor or as guarantor or other surety) in
any payment of principal of or interest on any other obligation for money
borrowed (or any Capitalized Lease Obligation, any obligation under a
conditional sale or other title retention agreement, any obligation issued
or assumed as full or partial payment for property whether or not secured
by a purchase money mortgage or any obligation under notes payable or
drafts accepted representing extensions of credit) beyond any period of
grace provided with respect thereto, or the Company, IT or any of their
respective Subsidiaries fails to perform or observe any other covenant,
term or condition contained in any agreement under which any such
obligation is created (or if any other event of default thereunder or
under any other agreement shall occur and be continuing) and the effect of
such failure or other event of default is to cause, or to permit the
holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such obligation to become due (or to be
repurchased by the Company, IT or any such Subsidiaries) prior to any
stated maturity, provided that the aggregate amount of all obligations as
to which such a payment default shall occur and be continuing or such a
failure or other event causing or permitting acceleration (or resale to
the Company, IT or any such Subsidiaries) shall occur and be continuing
exceeds $250,000; or
(iv) any representation or warranty made by the Company or IT
herein, or by the Company, IT or any of their respective officers in any
writing furnished in connection with or pursuant to this Agreement, shall
be false in any material respect on the date as of which made; or
(v) the Company or IT fails to perform or observe any term,
covenant or agreement contained in paragraph 6 hereof; or
(vi) the Company or IT fails to perform or observe any other
agreement, covenant, term or condition contained herein or in any other
Note Purchase Document and such failure shall not be remedied within 20
days after date such failure has occurred; or
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(vii) (a) the Company, IT or any of their respective Subsidiaries
shall commence any case, proceeding or other action (I) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (II) seeking
appointment of a receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial part of its assets,
or the Company, IT or any of their respective Subsidiaries shall make a
general assignment for the benefit of its creditors; or (b) there shall be
commenced against the Company, IT or any of their respective Subsidiaries)
any case, proceeding or other action of a nature referred to in clause (a)
above which (I) results in the entry of an order for relief or any such
adjudication or appointment or (II) remains undismissed, undischarged or
unbonded for a period of 30 days; or (c) there shall be commenced against
the Company, IT or any of their respective Subsidiaries) any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its assets which results in the entry of an order for any such
relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 30 days from the entry thereof; or (d) the Company,
IT or any of their respective Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (a), (b), or (c) above; not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(viii) any order, judgment or decree is entered in any proceedings
against the Company, IT or any of their respective Subsidiary decreeing a
split-up of the Company, IT or any such Subsidiaries which requires the
divestiture of assets representing a substantial part, or the divestiture
of the stock of a Subsidiary whose assets represent a substantial part, of
the assets of the Company, IT or any such Subsidiaries (determined in
accordance with generally accepted accounting principles) or which
requires the divestiture of assets, or stock of a Subsidiary, which shall
have contributed a substantial part of the consolidated net income of the
Company, IT or any such Subsidiaries (determined in accordance with
generally accepted accounting principles) for any of the three fiscal
years then most recently ended, and such order, judgment or decree remains
unstayed and in effect for more than 60 days; or
(ix) any judgment or order, or series of judgments or orders, in
an amount in excess of $250,000 is rendered against the Company, IT or any
of their respective Subsidiaries and either (i) enforcement proceedings
have been commenced by any creditor upon such judgment or order or (ii)
within 60 days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within 60 days after the
expiration of any such stay, such judgment is not discharged; or
(x) the Company, IT or any of their respective ERISA Affiliates,
in its capacity as an employer under a Multiemployer Plan, makes a
complete or partial withdrawal from such Multiemployer Plan resulting in
the incurrence by such withdrawing employer of a withdrawal liability in
an amount exceeding $250,000;
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(xi) (a) any Note Purchase Document entered into on or after the
Date of the Closing shall cease, for any reason, to be in full force and
effect or the Company, IT or any Subsidiary Party shall assert that any
such Note Purchase Document has ceased to be in full force and effect, (b)
the Liens created by any 1997 Security Document shall cease, for any
reason other than a release executed and delivered by each holder of the
Notes, to be enforceable and of the same effect and first priority
purported to be created thereby, or (c) any breach, other default or event
of default occurs under any Note Purchase Document, and the same is not
remedied within the applicable period of grace (if any) provided in such
Note Purchase Document;
(xii) to the Knowledge of the Company or IT, the aggregate number
of basic cable subscribers serviced by the Cable Operators shall be fewer
than 5,000,000 (the amount by which such aggregate number of cable
subscribers is fewer than 5,000,000 being called a "Shortfall"), and
neither the Company nor IT shall have entered into one or more Carriage
Agreements covering such number of basic cable subscribers as is equal to
or greater than the Shortfall within 135 days after (a) the date of
occurrence of the Shortfall if the Shortfall is caused by the cancellation
or termination of an existing Carriage Agreement, or (b) the end of the
month in which the Shortfall occurred if the Shortfall is caused by the
sale of transfer of basic cable subscribers serviced by any of the Cable
Operators;
(xiii) the occurrence of a Change of Control; and
(xiv) any one or more Persons whose name appears on Schedule A to
the Lock-Up and Voting Agreement shall fail to perform or observe any
term, covenant or agreement contained therein;
then (a) if such event is not an Event of Default specified in clause (vii),
(viii) or (xiii) of this paragraph 7A the Required Holder(s) may at its or their
option, by notice in writing to the Company and IT, declare all of the Notes to
be, and all of the Notes shall thereupon be and become, immediately due and
payable at par together with accrued and unpaid interest thereon, if any, with
respect to each Note, (b) if such event is an Event of Default specified in
clause (vii) or (viii) of this paragraph 7A, all of the Notes at the time
outstanding shall automatically become immediately due and payable at par
together with accrued and unpaid interest thereon and (c) if such event is an
Event of Default specified in clause (xiii) of this paragraph 7A the Required
Holder(s) may at its or their option, by notice in writing to the Company and
IT, declare all of the Notes to be, and all of the Notes shall thereupon be and
become, immediately due and payable at the then applicable prepayment price set
forth in clause (i) of paragraph 4B hereof, together with accrued and unpaid
interest thereon, if any, with respect to each Note, without, in each of clauses
(a) through (c) of this paragraph 7A, presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company and IT.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes
shall have been declared immediately due and payable pursuant to paragraph 7A,
the Required Holder(s) may, by notice in writing to the Company and IT, rescind
and annul such declaration and its consequences if (i) the Company or IT shall
have paid all overdue interest on the Notes, the principal of any Notes which
have become due otherwise than by reason of such declaration, and
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interest on such overdue interest and overdue principal at the rate specified in
the Notes, (ii) the Company and IT shall not have paid any amounts which have
become due solely by reason of such declaration, (iii) all Events of Default and
Defaults, other than non-payment of amounts which have become due solely by
reason of such declaration, shall have been cured or waived pursuant to
paragraph 11C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due pursuant to the Notes or this Agreement. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company and IT shall forthwith give written notice thereof to the holder of each
Note at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its rights
under this Agreement and such Note by exercising such remedies as are available
to such holder in respect thereof under applicable law, either by suit in equity
or by action at law, or both, whether for specific performance of any covenant
or other agreement contained in this Agreement or in aid of the exercise of any
power granted in this Agreement. No remedy conferred in this Agreement upon the
holder of any Note is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
PARAGRAPH 8. REPRESENTATIONS, COVENANTS AND WARRANTIES.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. Each of the Company and IT
represents, covenants and warrants, jointly and severally to each of you, as
follows:
8A. ORGANIZATION, ETC. Each of the Company, IT and their respective
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) has the
corporate power and authority, and the legal right, to own and operate its
properties, to lease the properties it operates under lease as lessee and to
conduct the business in which it is currently engaged and in which it proposes
to engage and (iii) is duly qualified and licensed as a foreign corporation, and
is in good standing, under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
licensing or qualification. The execution, delivery and performance by each of
the Company, IT and each Subsidiary Party of this Agreement, the Notes, the
Warrants, the Amended and Restated Registration Rights Agreement and each 1997
Security Document to which it is a party are within the Company's, IT's and such
Subsidiary Party's corporate powers and have been duly authorized by all
necessary corporate action.
Each of this Agreement, the Notes, the Warrants, the Amended and Restated
Registration Rights Agreement and the 1997 Security Documents has been duly
executed and delivered by the Company, IT and the Subsidiary Parties that are
parties thereto. Each of this Agreement, the Notes, the Warrants, the Amended
and Restated Registration Rights Agreement and the 1997 Security Documents
constitute the legal, valid and binding obligation of the Company, IT and
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the Subsidiary Party that is party thereto, and is enforceable against the
Company, IT and each such Subsidiary Party in accordance with its terms.
8B. FINANCIAL STATEMENTS. The Company has furnished each of you with the
following financial statements, certified by a principal financial officer of
the Company: a consolidated balance sheet of the Company and its Subsidiaries as
at December 31 in each of the years 1993 to 1996, inclusive, and consolidated
statements of income, stockholders' equity and cash flows of the Company and its
Subsidiaries for each such year, all reported on by Ernst & Young LLP. Such
financial statements (including any related schedules and/or notes) are true and
correct in all material respects, have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods involved and show all liabilities, direct and contingent, of the Company
and its Subsidiaries required to be shown in accordance with such principles.
The balance sheets fairly present the consolidated condition of the Company and
its Subsidiaries as at the dates thereof, and the statements of income,
stockholders' equity and cash flows fairly present the consolidated results of
the operations of the Company and its Subsidiaries and their cash flows for the
periods indicated. There has been no material adverse change in the business,
condition (financial or otherwise) or operations of the Company, IT and their
respective Subsidiaries taken as a whole since December 31, 1996.
8C. ACTIONS PENDING. Except as set forth on Schedule 6, there is no
action, suit, investigation or proceeding pending or, to the Knowledge of the
Company or IT, threatened against the Company, IT or any of their respective
Subsidiaries, or any properties or rights of the Company, IT any of their
respective Subsidiaries by or before any court, arbitrator or administrative or
governmental body which might result in a material adverse change in the
business, condition (financial or otherwise) or operations of the Company, IT
and their respective Subsidiaries taken as a whole. There is no action, suit,
investigation or proceeding pending or threatened against the Company, IT or any
of their respective Subsidiaries which purports to affect the validity or
enforceability of this Agreement, any Note, any Warrant, the Amended and
Restated Registration Rights Agreement or any 1997 Security Document.
8D. OUTSTANDING DEBT. Neither the Company, IT nor any of their respective
Subsidiaries has outstanding any Indebtedness except as permitted by paragraph
6C. There exists no default (or any event which, with the giving of notice or
the passage of time, could constitute a default) under the provisions of any
instrument evidencing such Indebtedness or of any agreement relating thereto.
8E. TITLE TO PROPERTIES. Each of the Company, IT and their respective
Subsidiaries has good title to all of its respective properties and assets,
including the properties and assets reflected in the balance sheet as at
December 31, 1996 referred to in paragraph 8B (other than properties and assets
disposed of in the ordinary course of business), subject to no Lien of any kind
except Liens permitted by paragraph 6D. Set forth in Schedule 7 hereto, is a
description of all leases necessary in any material respect for the conduct of
the respective businesses of the Company, IT and their respective Subsidiaries
and all such leases are valid and subsisting and are in full force and effect.
8F. TAXES. Each of the Company, IT and their respective Subsidiaries has
filed all domestic and foreign income tax returns that are required to be filed,
and each has paid all taxes
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as shown on such returns, on all assessments received by it and all other taxes,
fees or other charges imposed by any governmental authority on it or on any of
its properties to the extent that have become due, except such taxes as are
being contested in good faith by appropriate proceedings and for which adequate
reserves have been established in accordance with generally accepted
accounting principles. No tax Lien has been filed with respect to any said tax,
fee or other charge and, to the Knowledge of the Company, IT and each of their
respective Subsidiaries, no claim is being asserted with respect to any such
tax, fee and other charge.
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company, IT nor
any of their respective Subsidiaries is a party to any contract or agreement or
subject to any charter or other corporate restriction which materially and
adversely affects its business, property or assets, or financial condition.
Neither the execution nor delivery of this Agreement, the Notes, the Warrants,
the Amended and Restated Registration Rights Agreement or the 1997 Security
Documents, nor the offering, issuance and sale of the Notes or the Warrants, nor
fulfillment of nor compliance with the terms and provisions hereof and of the
Notes, the Warrant, the Amended and Restated Registration Rights Agreement and
the 1997 Security Documents will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any Lien upon any of the
properties or assets of the Company, IT or any of their respective Subsidiaries
pursuant to, the charter or by-laws of the Company, IT or any of their
respective Subsidiaries, any award of any arbitrator or any agreement (including
any agreement with stockholders), instrument, order, judgment, decree, statute,
law, rule or regulation to which the Company, IT or any of their respective
Subsidiaries is subject. Neither the Company , IT nor any of their respective
Subsidiaries is a party to, or otherwise subject to any provision contained in,
any instrument evidencing Indebtedness of the Company, IT or such Subsidiaries,
any agreement relating thereto or any other contract or agreement (including its
charter) which limits the amount of, or otherwise imposes restrictions on the
incurring of, Debt of the Company or IT of the type to be evidenced by the
Notes.
8H. OFFERING OF NOTES. Neither the Company, IT nor any agent acting on
their behalf has, directly or indirectly, offered the Notes, the Warrants or any
similar security of the Company for sale to, or solicited any offers to buy the
Notes, the Warrants or any similar security of the Company or IT from, or
otherwise approached or negotiated with respect thereto with, any Person other
than accredited investors, and neither the Company, IT nor any agent acting on
their behalf has taken or will take any action which would subject the issuance
or sale of the Notes or the Warrants to the provisions of section 5 of the
Securities Act or to the provisions of any securities or Blue Sky law of any
applicable jurisdiction.
8I. USE OF PROCEEDS. The proceeds of sale of the Notes will be used for
the purposes and substantially in the manner set forth in Schedule 8 hereto.
None of such proceeds will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying (nor does
the Company, IT, nor any of their respective Subsidiaries own or have any
present intention of acquiring) any "margin stock" (as defined in Regulation G
(12 CFR Part 207) of the Board of Governors of the Federal Reserve System), or
for the purpose of maintaining, reducing or retiring any Indebtedness which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of such Regulation G. Neither
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the Company, IT nor any agent acting on their behalf has taken or will take any
action which might cause this Agreement or the Notes to violate Regulation G,
Regulation T or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Exchange Act, in each case as in effect now or
as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, exists with respect
to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been
or is expected by the Company, IT or any of their respective Subsidiaries or
ERISA Affiliates to be incurred with respect to any Plan (other than a
Multiemployer Plan) by the Company, IT or their respective Subsidiaries or ERISA
Affiliates which is or would be materially adverse to the business, condition
(financial or otherwise) or operations of the Company, IT and their respective
Subsidiaries taken as a whole. Neither the Company, IT nor any of their
respective Subsidiaries or any ERISA Affiliates has incurred or presently
expects to incur any withdrawal liability under Title IV of ERISA with respect
to any Multiemployer Plan which is or would be materially adverse to the
business, condition (financial or otherwise) or operations of the Company, IT
and their respective Subsidiaries taken as a whole. The execution and delivery
of this Agreement and the issuance and sale of the Notes will be exempt from, or
will not involve any transaction which is subject to, the prohibitions of
section 406 of ERISA and will not involve any transaction in connection with
which a penalty could be imposed under section 502(i) of ERISA or a tax could be
imposed pursuant to section 4975 of the Code. The representation by the Company
and IT in the next preceding sentence is made in reliance upon and subject to
the accuracy of your representation in paragraph 9B. As of the Date of the
Initial Closing, neither the Company, IT nor any or their respective
Subsidiaries or ERISA Affiliates has established any Multiemployer Plan.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company, IT or any of
their respective Subsidiaries nor any of their respective businesses or
properties, nor any relationship between the Company, IT or any such
Subsidiaries and any other Person, nor any circumstance in connection with the
offering, issuance, sale or delivery of the Notes is such as to require any
authorization, consent, approval, exemption or other action by or notice to or
filing with any court or administrative or governmental or regulatory body
(other than routine filings after the Date of the Closing with the Securities
and Exchange Commission and/or state Blue Sky authorities) in connection with
the execution and delivery of this Agreement, the Notes, the Warrants, the
Amended and Restated Registration Rights Agreement, the 1997 Security Documents,
the offering, issuance, sale or delivery of the Notes or the Warrants or
fulfillment of or compliance with the terms and provisions hereof or of the
Notes or the Warrants.
8L. ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule 9 hereto,
the properties owned by the Company, IT and their respective Subsidiaries do not
contain any gasoline, petroleum or petroleum products, or any hazardous or toxic
materials, substances or waters, defined and regulated as such under any
Environmental Laws, in amounts or concentrations which could reasonably be
expected to give rise to liability under any Environmental Laws. The Company, IT
and their respective Subsidiaries, and all of their respective properties and
facilities, have complied at all times and in all respects with all foreign and
domestic statutes, laws, ordinances and judicial or administrative orders,
judgments, rulings and regulations relating to protection of the environment
except, in any such case, where failure
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to comply would not result in a material adverse effect on the business,
condition (financial or otherwise) or operations of the Company, IT and their
respective Subsidiaries taken as a whole.
8M. DISCLOSURE. Neither this Agreement nor any other document, certificate
or statement furnished to either of you by or on behalf of the Company or IT in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact peculiar to the Company, IT or any
of their respective Subsidiaries which materially adversely affects or in the
future may (so far as the Company or IT can now foresee) materially adversely
affect the business, property or assets, or financial condition of the Company,
IT or any of their respective Subsidiaries and which has not been set forth in
this Agreement or in the other documents, certificates and statements furnished
to you by or on behalf of the Company or IT prior to the date hereof in
connection with the transactions contemplated hereby.
8N. INTELLECTUAL PROPERTY. (a) Set forth in Schedule 10 is a list and
brief description of all domestic and foreign patents, patent rights, patent
applications, trademark applications, service marks, service mark applications,
copyright registrations and trade names, and all applications for such which are
in the process of being prepared, owned by or registered in the name of the
Company, IT and each of their respective Subsidiaries or of which the Company,
IT or any of their respective Subsidiaries is a licensor or licensee or in which
the Company, IT or any such Subsidiaries has any right, and in each case a brief
description of the nature of such right. The Company, IT and each of their
respective Subsidiaries owns or possesses adequate licenses or other rights to
use all material patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names, copyrights,
manufacturing processes, formulae, trade secrets, customer lists and know how
(collectively, "Intellectual Property") necessary to the conduct of its business
as now conducted and as proposed to be conducted, and, except as set forth in
Schedule 10, no claim is pending or, to the Company's or IT's Knowledge,
threatened to the effect that the operations of the Company, or IT or any of
their respective Subsidiaries infringe upon or conflict with the asserted rights
of any other person under any Intellectual Property, and, to the Company's or
IT's Knowledge, there is no basis for any such claim (whether or not pending or
threatened). Except as set forth in Schedule 10, the Company, IT and each of
their respective Subsidiaries owns or has rights in its Intellectual Property
free and clear of any Liens (other than Liens granted to Northstar in connection
with the transactions contemplated by the Original Note Agreement), except minor
imperfections of title and encumbrances, if any, which are not substantial in
amount, do not materially detract from the value of the Intellectual Property
subject thereto and do not impair the operations of the Company, IT or any such
Subsidiary. No claim is pending or, to the Company's or IT's Knowledge,
threatened to the effect that any such Intellectual Property owned or licensed
by the Company, IT or any of their respective Subsidiaries, or which the
Company, IT or any such Subsidiary otherwise has the right to use, is invalid or
unenforceable by the Company, IT or any such Subsidiary, and to the Company's or
IT's Knowledge, there is no basis for any such claim (whether or not pending or
threatened). To the Company's or IT's Knowledge, no other person or entity
(including, without limitation, any prior employer of any employee of the
Company) has any right to or interest in any inventions, improvements,
discoveries or other confidential information utilized by the Company, IT or any
of their respective Subsidiaries in its business, other than inventions,
improvements, discoveries or confidential information which are commercially
available or on reasonable terms.
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(b) All grants, registrations and applications for Intellectual
Property that are used in the conduct of the business of the Company, IT or any
of their respective Subsidiaries (i) are valid, subsisting, in proper form and
enforceable, and have been duly maintained, including the submission of all
necessary filings and fees in accordance with the legal and administrative
requirements of the appropriate jurisdictions and (ii) have not lapsed, expired
or been abandoned, and no application or registration therefor is the subject of
any pending or, to the Company's or IT's Knowledge, threatened legal or
governmental proceeding before any registration authority in any jurisdiction.
(c) Except as set forth on Schedule 10 and other than commercially
available Computer Software for which the Company, IT and each of their
respective Subsidiaries have obtained a license, the Company, IT and each such
Subsidiary solely owns or has the exclusive right to use all of the Intellectual
Property and Computer Software used by it or held for use by it in connection
with its business. To the Knowledge of the Company and IT, there are no
conflicts with or infringements of any such Intellectual Property or Computer
Software by any third party. The conduct of the business of the Company, IT and
each of their respective Subsidiaries as currently conducted does not conflict
with or infringe in any way any proprietary right of any third party, which
conflict or infringement would have a material adverse effect on the business,
operations or financial condition of the Company, IT and such Subsidiaries and
there is no claim, suit, action or proceeding pending or, to the Knowledge of
the Company or IT, threatened against the Company, IT or any such Subsidiary (i)
alleging any such conflict or infringement with any third party's proprietary
rights, (ii) challenging the ownership, use, right, validity or enforceability
of the Intellectual Property or Computer Software, or (iii) making any other
claim with respect to such Intellectual Property or Computer Software or any
license thereof, which, if adversely determined, would have a material adverse
effect on the business, operations or financial conditions of the Company, IT or
any such Subsidiary.
(d) The Computer Software used by the Company, IT and each of their
respective Subsidiaries, in the conduct of their business, other than
commercially available Computer Software for which the Company, IT or such
Subsidiaries have obtained a license, is either: (i) owned by the Company, IT or
such Subsidiary as a result of internal development by an employee of the
Company, IT or such Subsidiary, (ii) developed on behalf of the Company, IT or
such Subsidiary by a consultant or contractor and all ownership rights therein
have been assigned or otherwise transferred to or vested in the Company, IT or
such Subsidiary, or (iii) licensed or acquired from a third party pursuant to a
written license, assignment, contract, agreement or other instrument set forth
on Schedule 10 which is in full force and effect and of which the Company, IT or
such Subsidiary is not in material breach.
(e) For purposes of this Agreement, the term "Computer Software"
shall mean (i) any and all computer programs consisting of sets of statements
and instructions to be used directly or indirectly in computer software or
firmware, (ii) databases and compilations, including without limitation any and
all data and collections of data, whether machine readable or otherwise, (iii)
all versions of the foregoing (x) including without limitation all screen
displays and designs thereof, and all component modules of source code or object
code or natural language code therefor, and (y) whether recorded on papers,
magnetic media or other electronic or non-electronic device, (iv) all
descriptions, flow-charts and other work products used to
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design, plan, organize and develop any of the foregoing, and (v) all
documentation, including without limitation all technical and user manuals and
training materials, relating to the foregoing.
8O. SUBSIDIARIES. The Persons listed on Schedule 5 hereto constitute all
the Subsidiaries of the Company or IT and any Subsidiary of the Company or IT as
of the Date of Closing. Schedule 5 hereto also sets forth for each Person listed
thereon (i) the authorized capital stock of such Person, (ii) the number of
shares of such Person's capital stock that is outstanding, and (iii) the name of
each Person who owns of record and beneficially such outstanding shares of
capital stock and the number of such shares so owned by such Person.
8P. CAPITALIZATION; ETC. (i) The authorized capital stock of the Company
consists of (A) 50,000,000 shares of Common Stock, of which 11,335,418 shares
are validly issued and outstanding, fully paid and nonassessable and (B)
1,000,000 shares of preferred stock, $.001 par value, of which there are no
shares issued and outstanding. None of the outstanding capital stock of the
Company, IT and each of their respective Subsidiaries is subject to, nor was it
issued in violation of, any preemptive rights of stockholders or any right of
first refusal or other similar right in favor of any person. Except as set forth
in Schedule 11 hereto and except for the Warrants, (1) no subscription, warrant,
option, convertible security or other right (contingent or other) to purchase
any shares of capital stock of the Company, IT or any of their respective
Subsidiaries is authorized or outstanding, (2) there is not any commitment to
issue any shares, warrants, options or other such rights or to distribute to
holders of any class of capital stock of the Company, IT or any of their
respective Subsidiaries, in respect thereof, any evidences of indebtedness or
assets and (3) neither the Company, IT nor any of their respective Subsidiaries
has any obligation (contingent or other) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
(ii) The shares of Common Stock issuable upon exercise of the Warrants
have been duly authorized and reserved for issuance and, when issued and
delivered in accordance with the Warrants, will be validly issued and
outstanding, fully paid and nonassessable shares of Common Stock.
8Q. SECURITIES LAWS FILINGS. Except as set forth in Schedule 12, each
report, statement and other filing made or required to be made by the Company
under the Securities Act or the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, has been timely made, is
complete and otherwise in compliance in all material respects with such Acts and
such rules and regulations and does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein not misleading.
8R. CERTAIN MATTERS PERTAINING TO THE COMPANY, THE CANADIAN SUBSIDIARY AND
ICT. The Company owns no property or assets other than capital stock of IT and
ICT. The Canadian Subsidiary owns no property or assets other than capital stock
of ICT and has no liabilities. Each of ICT and the Canadian Subsidiary is, and
on the Date of the Closing the Barbco Subsidiary shall be, solvent for all
purposes under applicable Canadian law.
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8S. CERTAIN MATTERS PERTAINING TO CERTAIN ICT SUBSIDIARIES. After giving
effect to the the transfers referred to in clauses (xxii) and (xxiv) of
paragraph 3 hereof, each of Barbco and Cableshare BV (i) will own no property or
assets (except, in the case of Barbco, the shares of capital stock of the Barbco
Subsidiary owned by it), (ii) will have no outstanding liabilities (except, in
the case of Barbco, its obligations under the Note Purchase Documents to which
it is a party and the Barbco Note) and (iii) will not be conducting any
business. Cableshare US does not (a) own any properties, (b) have any
liabilities or (c) conduct any business, other than activities relating directly
to the enforcement of its rights and the performance of its obligations under
the License Agreement, the US Agreement and the Company/IT License Agreements to
which it is a party.
8T. CARRIAGE AGREEMENTS. Each of the existing Carriage Agreements with
Cablevision Systems Corporation, Century Communications Corporation and Marcus
Cable is in full force and effect and no party thereto is in material default in
the performance, observance or fulfillment of any of its obligations thereunder.
8U. RIGHTS TO TECHNOLOGY. Pursuant to an agreement dated June 11, 1992
(the "1992 AGREEMENT") between IT and ICT, IT was granted the non-exclusive
right to use ICT technology, existing at such time, including three United
States Patents and the then existing software operating system (the "OLD
TECHNOLOGY"), in the United States until the later to occur of 17 years from the
date of the 1992 Agreement and the expiration of the last valid ICT patent
subject to the 1992 Agreement. Effective April 1, 1995, the Company, IT and ICT
entered into an agreement (the "1995 AGREEMENT; and, together with the 1992
Agreement, the "COMPANY/IT LICENSE AGREEMENTS") pursuant to which IT and the
Company were granted the exclusive, worldwide right to use the Old Technology
and technology developed by ICT since the date of the 1992 Agreement, including
certain technology developed specifically for IT and the Company (the "NEW
TECHNOLOGY"). Prior to its stated December 31, 1996 expiration date, the 1995
Agreement was renewed by agreement of both parties until March 31, 1997. The
1995 Agreement was subsequently amended by a Second Amendment to Development and
Licensing Agreement dated as of March 17, 1997 (the "1997 AMENDMENT"), among the
Company, IT, ICT, Barbco and Cableshare US (a copy of which is attached hereto
as Exhibit H), to provide, among other things, that the term of the 1995
Agreement will continue until June 1, 2002. If the 1995 Agreement (as amended by
the 1997 Amendment) is terminated or not further renewed, IT will retain its
right to the Old Technology under the 1992 Agreement. Such termination or
failure to renew will not affect whatever rights the Company and IT have to
technology included in the New Technology developed specifically for the Company
and IT (such technology being that defined in the 1995 Agreement, a true and
complete copy of which has been delivered to Purchaser, as Headend Server
Software and ASICS (as defined in the 1995 Agreement)). The rights granted to
the Company and IT under both the 1992 Agreement and the 1995 Agreement are
subject to rights granted to Penney under a 1986 agreement (the "Penney
Agreement"). Pursuant to the Penney Agreement, Penney has the non-exclusive
right to use the Old Technology in home shopping and business-to-business
applications.
Each of the Company and IT hereby agree that neither party will
further amend the 1995 Agreement without the prior written consent of the
Required Holders.
PARAGRAPH 9. REPRESENTATIONS OF EACH PURCHASER.
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9A. NATURE OF PURCHASE. Each of you represents, severally and not
jointly, that you are not acquiring the Notes or the Warrants with a view to or
for sale in connection with any distribution thereof within the meaning of the
Securities Act, provided that the disposition of your property shall at all
times be and remain within your control.
PARAGRAPH 10. DEFINITIONS.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined in
the introductory paragraphs and in the foregoing paragraphs hereof shall have
the respective meanings specified therein, and the following terms shall have
the meanings specified with respect thereto below (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
10A. TERMS.
"ADJUSTED DEBT" shall mean, with respect to any period, the
consolidated Debt of the Company and its Subsidiaries, minus Unrestricted Cash.
The term "Unrestricted Cash" shall mean the sum of Available Cash Balances plus
Ledger Cash Balances minus Restricted Cash.
"ADJUSTED DEBT TO EBITDA RATIO" shall mean, at any time, the ratio
of (a) Adjusted Debt on the consolidated balance sheet of the Company and its
Subsidiaries as of the last day of the month most recently ended on, or most
recently prior to, such time to (b) EBITDA for the six-full consecutive calendar
months ending on, or most recently ended prior to, such time multiplied by two.
"AFFILIATE" shall mean any Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with, the
Company or IT, except a Subsidiary. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise, provided that in no event will you be deemed an Affiliate.
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii)
of paragraph 7A
"BARBCO" shall mean Cable Share International Inc., a corporation
organized under the laws of Barbados.
"BARBCO SUBSIDIARY" shall mean 1229501 Ontario Inc. a corporation
organized under the laws of Ontario, Canada and to be wholly-owned by Barbco.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in New York, Texas or Connecticut are
authorized or required by law to close.
"CABLESHARE BV" shall mean Cableshare B.V., a Netherlands
corporation.
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"CABLE OPERATORS" shall have the meaning specified in paragraph 5K.
"CABLESHARE US" shall mean Cableshare (U.S.) Limited, an Illinois
corporation.
"CANADIAN SUBSIDIARY" shall mean 997758 Ontario Inc., an Ontario,
Canada corporation.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation
which, under generally accepted accounting principles, would be required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance
with such principles.
"CARRIAGE AGREEMENTS" shall mean the Company's and IT's contracts
with Cable Operators governing the terms on which such operators may use the
products and services of the Company, IT and such Subsidiaries and Affiliates.
"CHANGE OF CONTROL" shall mean the occurrence of any of the
following: (i) the adoption of a plan relating to the liquidation or dissolution
of the Company, IT or any of their respective Subsidiaries (except any
liquidation or dissolution of any such Subsidiary into the Company, IT or any
other such Subsidiary), (ii) except as otherwise permitted herein, the sale,
lease or transfer, in one or a series of related transactions, of all or
substantially all of the assets of the Company, IT or any of their respective
Subsidiaries to any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act), (iii) except as otherwise permitted herein, the acquisition
by any Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) of a direct or indirect interest in more than 25% of the voting power of
the capital stock of the Company, IT or any of their respective Subsidiaries (by
way of purchase, merger or consolidation or otherwise), (iv) the first day on
which a majority of the members of the Board of Directors of the Company, IT or
ICT are not Continuing Directors or (v) the consummation of any transaction the
result of which is that the Company owns (other than solely by virtue of the
ownership by Maureen Pocock of all of the authorized, issued and outstanding
shares of Class Y Non-Voting Stock of the Canadian Subsidiary), directly or
through its Subsidiaries, less than 100% of the outstanding capital stock of any
of its Subsidiaries.
"CLOSING" or "DATE OF THE CLOSING" shall have the meaning specified
in paragraph 2A.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations from time to time in effect adopted pursuant thereto.
"COMPANY/IT LICENSE AGREEMENTS" shall have the meaning specified in
paragraph 6G.
"CONTINUING DIRECTORS" shall mean, as of any date of determination,
any member of the Board of Directors of the Company or any of its Subsidiaries
who (i) was a member of such Board of Directors on the date hereof or (ii) was
nominated for election or elected to such Board of Directors with the
affirmative vote of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election.
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"CONSOLIDATED TANGIBLE NET BOOK VALUE" shall mean, as at any date of
determination, the excess of tangible assets over liabilities as shown on the
consolidated balance sheet of the Company and its Subsidiaries at such date
determined in accordance with generally accepted accounting principles.
Notwithstanding generally accepted accounting principles, for purposes of this
definition, the term "tangible assets" shall include the cost of any copyrights,
patents or other Intellectual Property reflected on such balance sheet.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or by the
terms of any instrument or agreement relating thereto matures on demand or
within one year from the date of the creation thereof and is not directly or
indirectly renewable or extendible at the option of the debtor to a date more
than one year from the date of the creation thereof, provided that Indebtedness
for borrowed money outstanding under a revolving credit or similar agreement
which obligates the lender or lenders to extend credit over a period of more
than one year shall constitute Funded Debt and not Current Debt, even though
such Indebtedness by its terms matures on demand or within one year from the
date of the creation thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"EBITDA" shall mean, with reference to any period, consolidated net
income of the Company and its Subsidiaries before extraordinary items plus
consolidated interest, taxes, depreciation and amortization of the Company and
its Subsidiaries, as determined in accordance with generally accepted accounting
principles consistently applied.
"ENVIRONMENTAL LAWS" shall have the meaning specified in paragraph
5D.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of
the same controlled group of corporations as the Company within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "DEFAULT" shall mean
any of such events, when none of such requirements has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FUNDED DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person which by its terms or by the terms of any instrument
or agreement relating thereto matures, or which is otherwise payable or unpaid,
more than one year from, or is directly or indirectly renewable or extendible at
the option of the debtor to a date more than one year (including an option of
the debtor under a revolving credit or similar agreement obligating the
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lender or lenders to extend credit over a period of more than one year) from,
the date of the creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
"ICT" shall mean Interactive Channel Technologies Inc., an Ontario,
Canada corporation formerly known as Cableshare Inc.
"ICT GROUP" shall mean, collectively, ICT and the ICT Subsidiaries.
"ICT SUBSIDIARIES" shall mean, collectively, Barbco, Cableshare US,
Cableshare BV and the Barbco Subsidiary.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items (excluding items of contingency reserves or of
reserves for deferred income taxes) which in accordance with generally accepted
accounting principles would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as of the date on
which Indebtedness is to be determined (whether or not for borrowed money or for
the deferred purchase price of property or services and whether or not evidenced
by a note, bond, debenture or similar instrument), (ii) all indebtedness secured
by any Lien on any property or asset owned or held by such Person subject
thereto, whether or not the indebtedness secured thereby shall have been
assumed, (iii) all indebtedness of others with respect to which such Person has
become liable by way of a Guarantee, (iv) all Lease Financings, (v) all
obligations of such Person in respect of acceptances issued or created for the
account of such Person or in respect of unreimbursed drawings under letters of
credit issued for the account of such Person, and (vi) all obligations of such
Person to refund any deposit made by any client or customer of such Person with
respect to services to be performed or goods sold by such Person.
"INTERCREDITOR AGREEMENT" shall have the meaning specified in para-
graph 3A(xx).
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"INTEREST CHARGES" shall mean, with respect to any period, the sum
(without duplication) of the following: (a) all amounts which, on a consolidated
basis in accordance with generally accepted accounting principles, would be
deducted as interest on Debt in determining the consolidated net income (or
loss) of the Company and its Subsidiaries for such period (including, without
limitation, the interest component of payments made under any Lease Financings),
and (b) all debt discount and expense amortized or required to be amortized in
accordance with generally accepted accounting principles in the determination of
the consolidated net income (or loss) of the Company and its Subsidiaries for
such period, in all cases whether or not payable in cash.
"INTEREST CHARGES COVERAGE RATIO" shall mean, at any time, the ratio
of (a) EBITDA for the six-full consecutive calendar months ending on, or most
recently ended prior to, such time to (b) Interest Charges for such period.
"KNOWLEDGE" shall mean (i) that a person or entity has actual
knowledge of a fact or (ii) knowledge of a fact that, from all facts and
circumstances that would otherwise be known to a person or entity who at the
time in question is acting with due diligence, such person or entity has reason
to know. Knowledge of a particular fact shall be attributed to an entity when
any person employed by such entity has actual knowledge of such fact or when, in
the exercise of due diligence by such person, such person has reason to know of
the existence of such fact, provided, such person is involved in an activity to
which such fact is material.
"LEASE FINANCINGS" shall mean all obligations of any Person under
any lease of property, real or personal, which are required in accordance with
generally accepted accounting principles to be capitalized on the balance sheet
of the lessee.
"LIEN" shall mean any mortgage, pledge, priority, security interest,
encumbrance, contractual deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, of protecting a
creditor against loss or securing the payment or performance of an obligation.
"LOCK-UP AND VOTING AGREEMENT" shall have the meaning specified in
paragraph 3A(xix) hereof.
"MINIMUM OPERATING CASH RESERVES" shall have the meaning specified
in paragraph 5L hereof.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"1997 SECURITY DOCUMENTS" shall mean all instruments listed in
Schedule 2 hereto and all other security agreements, deeds of trust, mortgages,
pledges, guaranties, financing statements, continuation statements and other
agreements or instruments now, heretofore or hereafter delivered to holders in
connection with this Agreement to secure or guarantee the
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payment of any part of the Notes or the performance of the Company or any other
Person's other duties and obligations under the Note Purchase Documents.
"NOTE PURCHASE DOCUMENTS" shall mean this Agreement, the Notes, the
Warrants, the Amended and Restated Registration Rights Agreement, the 1997
Security Documents, the Intercreditor Agreement and all other agreements,
certificates, documents, instruments and writings at any time delivered in
connection herewith or therewith.
"NOTES" shall have the meaning specified in paragraph 1.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name
of the Company or IT, as the case may be, by its President, one of its Vice
Presidents or its Treasurer.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"PERSON" shall mean and include an individual, a partnership, a
limited liability company, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"PLAN" shall mean any "employee pension benefit plan" (as such term
is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any ERISA Affiliate.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or IT, as the case may be.
"RESTRICTED CASH" shall mean the aggregate sum of (a) Minimum
Operating Cash Reserves, (b) to the extent greater than zero, current
liabilities of the Company and its Subsidiaries on a consolidated basis as of
the end of the most recently completed calendar month minus Eligible
Receivables, (c) cash reserves established for any reason by the Company or any
of its Subsidiaries and (d) any cash of the Company or its Subsidiaries the use
of which is otherwise restricted for any reasons to one or more specific uses.
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least
66.667% of the aggregate principal amount of the Notes from time to time
outstanding.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SIGNIFICANT HOLDER" shall mean (i) each of you, so long as you
shall hold any Note, or (ii) any other holder of at least 5% of the aggregate
principal amount of the Notes from time to time outstanding.
"SUBSIDIARY" shall mean as to any Person, a corporation, partnership
or other entity of which shares of stock or other ownership interests having
ordinary voting power to
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elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly, through one
or more intermediaries, or both, by such Person; it being understood and agreed
that ICT and each other member of the ICT Group shall be deemed to be a
"Subsidiary" of each of the Company and IT for all purposes of this Agreement.
"SUBSIDIARY PARTY" shall have the meaning specified in clause (vii)
of paragraph 3A.
"TAX CREDITS" shall have the meaning specified in paragraph 5J.
"TRANSFEREE" shall have the meaning specified in paragraph 11D.
"VOTING STOCK" shall mean, with respect to any corporation, any
shares of stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
"WARRANTS" shall have the meaning specified in paragraph 2C.
10B. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references in
this Agreement to "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall be deemed to
refer to generally accepted accounting principles in effect in the United States
at the time of application thereof.
PARAGRAPH 11. MISCELLANEOUS.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. So long as you shall hold any Notes, the Company and
IT will make payments of principal of and interest on payable with respect to
such Note, which comply with the terms of this Agreement, (i) in the case of
cash payments, by wire transfer of immediately available funds for credit (not
later than 12:00 noon, New York City time, on the date due) to your account or
accounts as specified in the Purchaser Schedule attached hereto, or such other
account or accounts in the United States as you may designate in writing, and
(ii) in the case of payments in securities of the Company and IT, by physical
delivery of such securities (not later than 12:00 noon, New York City time, on
the date due) to you, your agent or custodian as specified in the Purchaser
Schedule attached hereto, or such other Person designated by you in writing, in
each such case notwithstanding any contrary provision herein or in any Note with
respect to the place of payment. You agree that, before disposing of any Note,
you will make a notation thereon (or on a schedule attached thereto) of all
principal payments previously made thereon and of the date to which interest
thereon has been paid. Each of the Company and IT agrees to afford the benefits
of this paragraph 11A to any Transferee which shall have made the same agreement
as you have made in this paragraph 11A.
11B. EXPENSES. Each of the Company and IT agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay each of you and
your Transferees, and save
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<PAGE> 49
each of you and any of your Transferees harmless against liability for the
payment of, all out-of-pocket expenses arising in connection with such
transactions, including, without limitation, (i) the costs and expenses for your
and any of your Transferees' attorneys and the costs and expenses of such
attorneys (including, without limitation, all document production and
duplication charges and the fees and expenses of any special counsel engaged by
either of you or such Transferees) in connection with this Agreement, the
transactions contemplated hereby, any subsequent proposed modification of, or
proposed consent under, this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted, and in connection
with the preparation, negotiation and execution of any subordination agreement
or other intercreditor agreement in connection with the incurrence of Debt
permitted by paragraph 6C(viii) hereby, and (ii) the costs and expenses,
including attorneys' fees, incurred by either of you or any such Transferees in
enforcing (or determining whether or how to enforce) any rights under this
Agreement or the Notes or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement or the
transactions contemplated hereby or by reason of your or such Transferee's
having acquired any Note, including, without limitation, costs and expenses
incurred in any bankruptcy case and (iii) any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever arising out of or in
any way in connection with any claim (whether or not asserted in a legal
proceeding), litigation, investigation, arbitration or proceeding relating to,
or any restructuring of the obligations of the Company. IT and their respective
Subsidiaries under, this Agreement, the Notes, the Warrants, the Amended and
Restated Registration Rights Agreement and the 1997 Security Documents;
provided, that neither the Company nor IT shall have any obligation under this
clause (iii) with respect to the indemnification of any Person in respect of
liabilities arising from such Person's gross negligence or willful misconduct.
The obligations of the Company and IT under this paragraph 11B shall survive the
transfer of any Note or portion thereof or interest therein by you or any
Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the Company
and IT may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company and IT shall obtain the prior
written consent to such amendment, action or omission to act, of the Required
Holder(s) except that, without the prior written consent of the holder or
holders of all Notes at the time outstanding, no amendment to this Agreement
shall change the maturity of any Note, or change the principal of, or the rate
or time of payment of interest on any Note, or affect the time, amount or
allocation of any prepayments, change the proportion of the principal amount of
the Notes required with respect to any consent, amendment, waiver or
declaration, amend, modify or waive any provision of this paragraph 11C, reduce
the percentage specified in the definition of Required Holders or consent to the
assignment or transfer by the Company, IT or any of their respective
Subsidiaries of their respective rights and obligations under this Agreement,
the Notes, the Warrants, the Amended and Restated Registration Rights Agreement
or the 1997 Security Documents. Each holder of any Note at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 11C, whether or not such Note shall have been marked to indicate such
consent, but any Notes issued thereafter may bear a notation referring to any
such consent. No course of dealing between the Company and IT, on the one hand,
and any holder of any Note, on the other hand, nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note. This Agreement may not be
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<PAGE> 50
changed orally, but (subject to the provisions of paragraph 11C) only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought. Any waiver delivered in connection
herewith shall be in writing and shall be effective only in the specific
instance and for the specific purpose for which it is given. As used herein and
in the Notes, the term "this Agreement" and references thereto shall mean this
Amended and Restated Note Agreement, as now in effect and as it may at any time
and from time to time hereafter be amended, supplemented or modified.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The
Notes are issuable as registered notes without coupons in denominations of at
least $1,000,000, except as may be necessary to reflect any principal amount not
evenly divisible by $1,000,000. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of Notes and of
transfers of Notes. Each of you shall have the right to transfer any Note to any
other Person (each such other Person is herein called a "TRANSFEREE"). Upon
surrender for registration of transfer of any Note at the principal office of
the Company or to its agent, the Company and IT shall, at their expense, execute
and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such Transferee or Transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company or to its agent. Whenever any Notes are so surrendered for exchange,
the Company and IT shall, at their expense, execute and deliver the Notes which
the holder making the exchange is entitled to receive. Every Note surrendered
for registration of transfer or exchange shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by the holder of
such Note or such holder's attorney duly authorized in writing. Any Note or
Notes issued in exchange for any Note or upon transfer thereof shall carry the
rights to unpaid interest and interest to accrue which were carried by the Note
so exchanged or transferred, so that neither gain nor loss of interest shall
result from any such transfer or exchange. Upon receipt of written notice from
the holder of any Note of the loss, theft, destruction or mutilation of such
Note and, in the case of any such loss, theft or destruction, upon receipt of
such holder's unsecured indemnity agreement, or in the case of any such
mutilation upon surrender and cancellation of such Note, the Company and IT will
make and deliver a new Note, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the Company and IT may treat the Person in whose name
any Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and interest on such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the Company
and IT shall not be affected by notice to the contrary. Subject to the preceding
sentence, the holder of any Note may from time to time grant participations in
such Note to any Person on such terms and conditions as may be determined by
such holder in its sole and absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained in the Original Note Agreement or made
in writing by or on behalf of the Company and IT in connection therewith shall
for the benefit of Northstar survive the execution and delivery of this
Agreement and the Notes. Further, all representa-
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<PAGE> 51
tions and warranties contained herein or made in writing by or on behalf of the
Company and IT in connection herewith shall survive the execution and delivery
of this Agreement and the Notes, the transfer by either or both of you of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of you or any Transferee. Subject to the preceding
sentences, this Agreement and the Notes embody the entire agreement and
understanding between each of you and the Company and IT and supersede all prior
agreements and understandings relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement contained by or on behalf of either of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not. Notwithstanding the foregoing, neither the Company, IT nor any of their
respective Subsidiaries shall assign or transfer any of their respective rights
and obligations under this Agreement, the Notes, the Warrants, the Amended and
Restated Registration Rights Agreement or the 1997 Security Documents.
11H. DISCLOSURE TO OTHER PERSONS. Each of the Company and IT acknowledges
that the holder of any Note may deliver copies of any financial statements and
other documents delivered to such holder, and disclose any other information
disclosed to such holder, by or on behalf of the Company or any Subsidiary in
connection with or pursuant to this Agreement to (i) such holder's directors,
officers, employees, agents and professional consultants, (ii) any other holder
of any Note, (iii) any Person to which such holder offers to sell such Note or
any part thereof, (iv) any Person to which such holder sells or offers to sell a
participation in all or any part of such Note, (v) any Person from which such
holder offers to purchase any security of the Company, (vi) any federal or state
regulatory authority having jurisdiction over such holder, or (vii) any other
Person to which such delivery or disclosure may be necessary or appropriate (a)
in compliance with any law, rule, regulation or order applicable to such holder,
(b) in response to any subpoena or other legal process or informal investigative
demand or (c) in connection with any litigation to which such holder is a party.
11I. NOTICES. All notices or other communications provided for hereunder
(except for the telephonic notice required by paragraph 4C) shall be in writing
and sent by first class mail or nationwide overnight delivery service (with
charges prepaid) and (i) if to you, addressed to you at the address specified
for such communications in the Purchaser Schedule attached hereto, or at such
other address as you shall have specified to the Company and IT in writing, (ii)
if to any other holder of any Note, addressed to such other holder at such
address as such other holder shall have specified to the Company in writing or,
if any such other holder shall not have so specified an address to the Company,
then addressed to such other holder in care of the last holder of such Note
which shall have so specified an address to the Company, and (iii) if to the
Company or IT, addressed to it at 8140 Walnut Hill Lane, Suite 1000, Dallas,
Texas 75231, Attention: Michael G. Pate, or at such other address as the Company
shall have specified to the holder of each Note in writing with a copy to
Thompson & Knight, P.C., 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201,
Attention: Michael L. Bengtson.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or interest
on any Note that is due
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<PAGE> 52
on a date other than a Business Day shall be made on the next succeeding
Business Day. If the date for any payment is extended to the next succeeding
Business Day by reason of the preceding sentence, the period of such extension
shall be included in the computation of the interest payable on such Business
Day.
11K. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to either or both you or to the Required Holder(s),
the determination of such satisfaction shall be made by either or both of you,
as the case may be, or the Required Holder(s), as the case may be, in the sole
and exclusive judgment (exercised in good faith) of the Person or Persons making
such determination.
11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED STATES OF
AMERICA, (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT
EXCLUDING ALL OTHER PRINCIPLES OF CONFLICTS OF LAW).
11M. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
11N. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by each of the other
parties hereto.
11P. LIMITATION ON INTEREST. The Company, IT and each holder of a Note
intends to contract in strict compliance with applicable usury law from time to
time in effect. In furtherance thereof such Persons stipulate and agree that
none of the terms and provision contained herein or in the Notes shall ever be
construed to provide for interest in excess of the maximum amount of interest
permitted to be charged by applicable law form time to time in effect. Neither
the Company, IT nor any of their respective Subsidiaries nor any present or
future guarantors, endorsers, or other Persons hereafter becoming liable for
payment of any obligations hereunder or under the Notes shall be required to pay
interest thereon in excess of the maximum amount that may be lawfully charged
under applicable law from time to time in effect, and the provisions of this
paragraph shall control over all other provisions herein or in the Notes which
may be in conflict or apparent conflict herewith.
11Q. SUBMISSION OF JURISDICTION; WAIVERS. (a) Each of the Company and IT
on behalf of itself and each of its respective Subsidiaries hereby irrevocably
and unconditionally:
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<PAGE> 53
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement, the Notes, the Warrants, the
Amended and Restated Registration Rights Agreement, the 1997 Security
Documents and the other documents executed and delivered in connection
herewith to which it is a party, or for recognition and enforcement of any
judgement in respect thereof, to the exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts from
any thereof;
(ii) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to it at its address set forth in or determined pursuant to
paragraph 11I or at such other address of which the holders of the Notes
shall have been notified pursuant thereto;
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(v) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this paragraph 11Q any punitive or exemplary damages and any damages
which are not proximately caused by or the reasonably foreseeable result
of the breach which is the subject of such action or proceeding.
11R. ACKNOWLEDGMENTS. Each of the Company and IT hereby acknowledges that:
(i) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement, the Notes, the Warrants, the Amended and
Restated Registration Rights Agreement, the 1997 Security Documents and
the other documents related hereto;
(ii) neither of you has any fiduciary relationship with or duty to
the Company or IT arising out of or in connection with this Agreement, the
Notes, the Warrants, the Amended and Restated Registration Rights
Agreement, the 1997 Security Documents or any other documents related
hereto, and the relationship between each of you, on one hand, and the
Company and IT, on the other hand, in connection herewith or therewith is
solely that of creditor and debtor; and
(iii) no joint venture exists between either of you, on the one
hand, and the Company and IT and on the other hand.
11S. WAIVERS OF JURY TRIAL. THE COMPANY, IT AND EACH SUBSIDIARY OF THE
COMPANY OR IT AND EACH HOLDER OF NOTES HEREBY
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<PAGE> 54
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES, THE WARRANTS, THE AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT OR ANY 1997 SECURITY DOCUMENTS AND FOR
ANY COUNTERCLAIM THEREIN.
11T. ACCOUNTING TERMS AND DEFINITIONS. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles, applied on a basis consistent with the
most recent audited consolidated financial statements of the Company and its
Subsidiaries delivered pursuant to clause (iii) of paragraph 5A or, if no such
statements have been so delivered, the most recent audited financial statements
referred to in paragraph 8B.
11U. LEGENDS ON NOTES. Each of the Company and IT acknowledges and agrees
that any Purchaser may, at the time it initially transfers any of the Notes held
by it, affix thereto the following legend; it being further agreed that the
"issue price" and "OID" called for by such legend shall be inserted into a
completed legend in accordance with paragraph 2A hereof and that the "per annum
yield to maturity" shall be calculated in a manner consistent with the "issue
price" and "OID" referred to above:
"THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID")
AS DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING
REQUIREMENTS SET FORTH IN TREASURY REGULATION SECTION 1.1275-3.
THE ISSUE PRICE OF THIS DEBT INSTRUMENT IS $[ ]
THE AMOUNT OF OID ON THIS DEBT INSTRUMENT IS $[ ]
THE ISSUE DATE OF THIS DEBT INSTRUMENT IS APRIL 9, 1997
THE PER ANNUM YIELD TO MATURITY OF THIS DEBT INSTRUMENT
IS [ ]% COMPOUNDED QUARTERLY."
THIS WRITTEN AGREEMENT, THE NOTES AND THE OTHER NOTE PURCHASE DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
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<PAGE> 55
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this Agreement and return the same to
the Company and IT, whereupon this Agreement, subject to paragraph 11O, shall
become a binding agreement between the Company, IT and each of you.
Very truly yours,
SOURCE MEDIA, INC.
By:________________________
Michael G. Pate
Chief Financial Officer
and Treasurer
IT NETWORK, INC.
By:_________________________
Michael G. Pate
Chief Financial Officer
and Treasurer
The foregoing Agreement is
hereby accepted as of the
date first above written.
NORTHSTAR HIGH TOTAL RETURN FUND
By:_________________________
Thomas Ole Dial
Vice President
DELAWARE STATE EMPLOYEES' RETIREMENT FUND
By: Pecks Management Partners Ltd.,
its Investment Advisor
By:_________________________
Robert J. Cresci
Managing Director
<PAGE> 56
DECLARATION OF TRUST FOR DEFINED BENEFIT
PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.,
its Investment Advisor
By:_________________________
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED BENEFIT
PLAN OF ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.,
its Investment Advisor
By:_________________________
Robert J. Cresci
Managing Director
THE J.W. MCCONNELL FAMILY FOUNDATION
By: Pecks Management Partners Ltd.,
its Investment Advisor
By:_________________________
Robert J. Cresci
Managing Director
<PAGE> 57
AGREEMENT OF GUARANTORS
Each of the undersigned agrees to be bound by all of the covenants and
agreements set forth in paragraphs 5 and 6 of the foregoing Amended and Restated
Note Agreement, to the extent that such covenants and agreements by their terms
refer to obligations of the undersigned by name or obligations applicable to a
Subsidiary or Subsidiaries of the Company and IT.
CABLE SHARE INTERNATIONAL INC.
By:________________________
Michael G. Pate
Director
By:________________________
Maryann Walsh
Director and Secretary
CABLESHARE (U.S.) LIMITED
By:________________________
Michael G. Pate
Director
<PAGE> 58
SCHEDULE 1
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
1997 Notes 1997
to be Note Denom-
Purchased ination(s)
---------- -----------
<S> <C> <C>
NORTHSTAR HIGH TOTAL RETURN FUND $5,000,000 $5,000,000
</TABLE>
(1) Securities to be registered in the name of:
Northstar High Total Return Fund
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No.: 5089-8493
State Street Bank and Trust Co.
Boston, Massachusetts
ABA No.: 011000028 (BNF# WJ18 - Northstar High Total Return Fund)
Each such wire transfer shall set forth the name
of the Company, a reference to "Senior Notes
due 3/31/02", and the due date and application
(as among principal and interest of the payment being made).
(3) Address for all notices relating to payments or otherwise:
Northstar Investment Management
Two Pickwick Plaza
Greenwich, Connecticut 06830
(4) Recipient of telephonic prepayment notices:
Name: Mr. Thomas Ole Dial
Number: (203) 863-6220
(5) Tax Identification No.: 061382579
<PAGE> 59
(6) Physical delivery of securities:
Chemical Bank
4 New York Plaza
Ground Floor Window
Attn: Outsourcing Department
New York, New York 10004
Ref. Fund #: WJ18 - Northstar High Total Return Fund
<PAGE> 60
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
1997 Notes 1997
to be Note Denom-
Purchased ination(s)
---------- -----------
<S> <C> <C>
DELAWARE STATE EMPLOYEES' RETIREMENT FUND $6,200,000 $6,200,000
</TABLE>
(1) Securities to be registered in the name of:
Nap & Company
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No.: 3380805
Mercantile Safe Deposit & Trust Company
2 Hopkins Plaza
Baltimore, Maryland 21201
Attn: Ms. Isabelle Corbett
ABA No.: 052-000618 for State of Delaware account
Each such wire transfer shall set forth the name
of the Company, a reference to "Senior Notes
due 3/31/02", and the due date and application
(as among principal and interest of the payment being made).
(3) Address for all notices relating to payments or otherwise:
c/o Pecks Management Partners, Ltd.
One Rockefeller Plaza, Suite 900
New York, New York 10020
(4) Recipient of telephonic prepayment notices:
Name: Mr. Robert J. Cresci
Number: (212) 332-1333
(5) Tax Identification No.: 51-6000279
<PAGE> 61
(6) Physical delivery of securities:
Mercantile Safe Deposit & Trust Company
2 Hopkins Plaza
Baltimore, Maryland 21201
Attn: Ms. Connie Philpot - Incoming Securities
<PAGE> 62
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
1997 Notes 1997
to be Note Denom-
Purchased ination(s)
---------- -----------
<S> <C> <C>
DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN $1,200,000 $1,200,000
OF ZENECA HOLDINGS INC.
</TABLE>
(1) Securities to be registered in the name of:
Fuelship & Company
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No.: JG10 (DDA: 34758508)
State Street Bank & Trust Company
One Enterprise Drive
Solomon Willard Building, 4A
North Quincy, Massachusetts 02171
ABA No.: 0110-00028 for Master Trust/State Street Bank
& Trust Company, Boston, Massachusetts 02101,
BNF Zeneca Holdings
Each such wire transfer shall set forth the name
of the Company, a reference to "Senior Notes
due 3/31/02", and the due date and application
(as among principal and interest of the payment being made).
(3) Address for all notices relating to payments or otherwise:
c/o Pecks Management Partners, Ltd.
One Rockefeller Plaza, Suite 900
New York, New York 10020
(4) Recipient of telephonic prepayment notices:
Name: Mr. Robert J. Cresci
Number: (212) 332-1333
(5) Tax Identification No.: 042-809861
<PAGE> 63
(6) Physical delivery of securities:
State Street Bank & Trust Company
225 Franklin Street
Incoming Securities, Concourse Level
Boston, Massachusetts 02101
Attn: Mr. David Kay
Account: Zeneca Holdings
Account No.: JG10
<PAGE> 64
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
1997 Notes 1997
to be Note Denom-
Purchased ination(s)
---------- -----------
<S> <C> <C>
DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN $1,800,000 $1,800,000
OF ICI AMERICAN HOLDINGS INC.
</TABLE>
(1) Securities to be registered in the name of:
Northman & Co
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No.: I510 (DDA: 34758649)
State Street Bank & Trust Company
One Enterprise Drive
Solomon Willard Building, 4A
North Quincy, Massachusetts 02171
ABA No.: 0110-00028 for Master Trust/State Street Bank
& Trust Company, Boston, Massachusetts 02101,
BNF ICI Americas
Each such wire transfer shall set forth the name
of the Company, a reference to "Senior Notes
due 3/31/02", and the due date and application
(as among principal and interest of the payment being made).
(3) Address for all notices relating to payments:
c/o Pecks Management Partners, Ltd.
One Rockefeller Plaza, Suite 900
New York, New York 10020
(4) Recipient of telephonic prepayment notices:
Name: Mr. Robert J. Cresci
Number: (212) 332-1333
(5) Tax Identification No.: 043-171-204
<PAGE> 65
(6) Physical delivery of securities:
State Street Bank & Trust Company
225 Franklin Street
Incoming Securities, Concourse Level
Boston, Massachusetts 02101
Attn: Mr. David Kay
Account: ICI Americas
Account No.: I510
<PAGE> 66
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
1997 Notes 1997
to be Note Denom-
Purchased ination(s)
---------- -----------
<S> <C> <C>
THE J.W. MCCONNELL FAMILY FOUNDATION $800,000 $800,000
</TABLE>
(1) Securities to be registered in the name of:
Royal Trust Corporation of Canada
fbo/J.W. McConnell Family Foundation
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No.: 298324
Account Name: Royal Trust (40-7000/1.20)
Royal Trust Corporation of Canada
Group Retirement Savings
P.O. Box 285, T-D Centre
Toronto, Ontario M5K 1K5
Canada
ABA No.: 021000018 (Bank of New York)
Each such wire transfer shall set forth the name
of the Company, a reference to "Senior Notes
due 3/31/02", and the due date and application
(as among principal and interest of the payment being made).
(3) Address for all notices relating to payments:
c/o Pecks Management Partners, Ltd.
One Rockefeller Plaza, Suite 900
New York, New York 10020
(4) Recipient of telephonic prepayment notices:
Name: Mr. Robert J. Cresci
Number: (212) 332-1333
(5) Tax Identification No.: Non-taxable
<PAGE> 67
(6) Physical delivery of securities:
The Bank of New York
1 Wall Street, 5th Floor
New York, New York 10286
Attn: Special Processing Department
Re: ACCOUNT 298324
<PAGE> 1
EXHIBIT 10.23
SOURCE MEDIA, INC.
IT NETWORK, INC.
AMENDED AND RESTATED
SENIOR SECURED NOTE DUE MARCH 31, 2002
No. NS-05 New York, New York
$5,676,895.06 April 3, 1997
1. FOR VALUE RECEIVED, each of the undersigned, Source Media,
Inc. (the "COMPANY"), a corporation organized and existing under the laws of
the State of Delaware, and IT Network, Inc., a corporation organized and
existing under the laws of the State of Texas ("IT," and, together with the
Company, individually, an "OBLIGOR" and collectively, the "OBLIGORS"), hereby
promises, jointly and severally, to pay to Northstar High Total Return Fund, or
registered successors or assigns, the principal sum of FIVE MILLION SIX HUNDRED
AND SEVENTY-SIX THOUSAND EIGHT HUNDRED NINETY-FIVE DOLLARS AND SIX CENTS
($5,676,895.06) on March 31, 2002, with interest (computed on the basis of the
actual number of days and a 360-day year) on the unpaid balance thereof:
(i) from the date hereof until and including March 31,
1999, at the election of the Obligors: (a) at the rate of twelve
percent (12%) per annum, payable in cash or (b) at the rate of
thirteen percent (13%) per annum, payable in units consisting of
(x) an additional joint and several promissory note of the
Obligors, substantially in the form hereof, and in principal
amount equal to the amount of interest due and payable and (y)
warrants, substantially in the form of Exhibit A hereto, to
purchase such number of duly authorized, validly issued, fully
paid and nonassessable shares of common stock, $.001 par value
("COMMON STOCK"), of the Company (rounded to the nearest whole
share) as is equal to .125 share of Common Stock per dollar of
the entire principal amount of such additional joint and several
promissory note as of the date of the issuance thereof; and
(ii) thereafter, but subject to the election of the holder
hereof as set forth in the paragraph 2 hereof, twelve percent
(12%) per annum , payable in cash.
<PAGE> 2
Interest hereunder shall be payable (A) semiannually on the 31st day of March
and the 30th day of September, beginning on September 30, 1997 and continuing
until March 31, 1999, and (B) quarterly on the 31st day of March, the 30th day
of June, the 30th day of September and the 31st day of December, beginning on
June 30, 1999 and continuing regularly thereafter until the principal amount
hereof is paid in full (each such date being hereinafter referred to as an
"Interest Payment Date").
2. Notwithstanding the foregoing provisions of this Note, in
the event that the Obligors fail to make any payment of interest in cash in
accordance with clause (ii) of paragraph 1 hereof, and such failure to pay in
cash is not remedied within the five (5) calendar day period of grace provided
therefor pursuant to paragraph 7A(ii) of the Note Agreement, then the holder
hereof may (but shall not be required to) elect (in its sole discretion) to
require the Obligors to pay the entire amount of interest not so paid in cash
on such Interest Payment Date to be paid in units consisting of (x) an
additional joint and several promissory note of the Obligors, substantially in
the form hereof, bearing interest at the Default Rate, and in principal amount
equal to the entire amount of interest not so paid in cash on such Interest
Payment Date and (y) warrants, substantially in the form of Exhibit A hereto,
to purchase such number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole share) as is
equal to .125 share of Common Stock per dollar of the entire principal amount
of such additional joint and several promissory note as of the date of the
issuance thereof.
3. Any election by the holder hereof under paragraph 2 of
this Note shall be made by written notice to the Obligors given in accordance
with paragraph 11I of the Note Agreement not later than the fifth calendar day
after the expiration of the five (5) period of grace referred to above. In the
event any such election is made at the discretion of the holder hereof, the
entire amount of interest as to which such election is made shall be due and
payable, in the manner called for by paragraph 2 hereof, not later than the
third calendar day after the date of such holder's notice of election. It is
expressly understood and agreed that no election on any one occasion by the
holder hereof under paragraph 2 of this Note shall operate as or require such
an election on any other occasion.
4. All principal, interest (to the extent permitted by
applicable law) and other amounts due hereunder not paid when due shall bear
interest at a rate (the "DEFAULT RATE") equal to the lesser of 15% per annum
and the maximum rate permitted by applicable law until the same shall be paid.
5. Payments of principal of, and cash payments of interest
on, this Note are to be made in immediately available
<PAGE> 3
funds by wire transfer in accordance with the instructions set forth in the
Note Agreement or at such other place as the holder hereof shall designate to
the Obligors in writing. Payments of interest on this Note in securities of
the Obligors are to be made by physical delivery of such securities in
accordance with the instructions set forth in the Note Agreement or pursuant to
such other instructions as the holder hereof shall designate to the Obligors in
writing.
6. This Note is one of a series of Senior Secured Notes (the
"NOTES") issued pursuant to an Amended and Restated Note Agreement, originally
dated as of March 28, 1996, and amended and restated as of April 9, 1997 (as so
amended and restated as of April 9, 1997, and as same may hereafter be further
amended, modified or supplemented, the "NOTE AGREEMENT"), among the Obligors,
Northstar High Total Return Fund and the Pecks Investors (as defined therein),
and the whole of this Note is governed by and is entitled to all of the
benefits thereof (including, without limitation, any such benefits expressly
stated herein). Further, each and every promissory note issued at any time
pursuant to clause (ii) of paragraph 1 hereof or pursuant to paragraph 2 hereof
shall also be governed by and entitled to all of the benefits of the Note
Agreement as aforesaid.
7. This Note is a registered Note and, as provided in the
Note Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for regis-
tration of transfer, the Obligors may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payment and for
all other purposes, and the Obligors shall not be affected by any notice to the
contrary.
8. Each of the Obligors agrees, jointly and severally, to
make required prepayments of principal on the dates and in the amounts
specified in the Note Agreement. This Note is also subject to optional
prepayment, in whole or from time to time in part, on the terms specified in
the Note Agreement.
<PAGE> 4
9. If an Event of Default, as defined in the Note Agreement,
shall occur and be continuing, the principal of this Note may be declared or
otherwise become immediately due and payable at par together with interest
accrued thereon, if any, in the manner and with the effect provided in the Note
Agreement. Each of the Obligors hereby waives presentment, demand, protest,
notice of protest and all other notices of any kind whatsoever, except as
otherwise expressly provided in the Note Agreement.
10. This Note amends and restates in their entirety (i) the
Senior Secured Note of the Company due March 31, 2001, in the aggregate
principal amount of $5,000,000; (ii) the Senior Secured Note of the Company due
March 31, 2001, in the aggregate principal amount of $326,805.56; and (iii) the
Senior Secured Note of the Company due March 31, 2001, in the aggregate princi-
pal amount of $350,089.50.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
IT NETWORK, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
<PAGE> 1
EXHIBIT 10.24
SOURCE MEDIA, INC.
IT NETWORK, INC.
SENIOR SECURED NOTE DUE MARCH 31, 2002
No. NS-04 New York, New York
$5,000,000 April 9, 1997
1. FOR VALUE RECEIVED, each of the undersigned, Source Media,
Inc. (the "COMPANY"), a corporation organized and existing under the laws of
the State of Delaware, and IT Network, Inc., a corporation organized and
existing under the laws of the State of Texas ("IT," and, together with the
Company, individually, an "OBLIGOR" and collectively, the "OBLIGORS"), hereby
promises, jointly and severally, to pay to Northstar High Total Return Fund, or
registered successors or assigns, the principal sum of FIVE MILLION DOLLARS
($5,000,000) on March 31, 2002, with interest (computed on the basis of the
actual number of days and a 360-day year) on the unpaid balance thereof:
(i) from the date hereof until and including March 31,
1999, at the election of the Obligors: (a) at the rate of twelve
percent (12%) per annum, payable in cash or (b) at the rate of
thirteen percent (13%) per annum, payable in units consisting of
(x) an additional joint and several promissory note of the
Obligors, substantially in the form hereof, and in principal
amount equal to the amount of interest due and payable and (y)
warrants, substantially in the form of Exhibit A hereto, to
purchase such number of duly authorized, validly issued, fully
paid and nonassessable shares of common stock, $.001 par value
("COMMON STOCK"), of the Company (rounded to the nearest whole
share) as is equal to .125 share of Common Stock per dollar of
the entire principal amount of such additional joint and several
promissory note as of the date of the issuance thereof; and
(ii) thereafter, but subject to the election of the holder
hereof as set forth in the paragraph 2 hereof, twelve percent
(12%) per annum , payable in cash.
<PAGE> 2
Interest hereunder shall be payable (A) semiannually on the 31st day of March
and the 30th day of September, beginning on September 30, 1997 and continuing
until March 31, 1999, and (B) quarterly on the 31st day of March, the 30th day
of June, the 30th day of September and the 31st day of December, beginning on
June 30, 1999 and continuing regularly thereafter until the principal amount
hereof is paid in full (each such date being hereinafter referred to as an
"Interest Payment Date").
2. Notwithstanding the foregoing provisions of this Note, in
the event that the Obligors fail to make any payment of interest in cash in
accordance with clause (ii) of paragraph 1 hereof, and such failure to pay in
cash is not remedied within the five (5) calendar day period of grace provided
therefor pursuant to paragraph 7A(ii) of the Note Agreement, then the holder
hereof may (but shall not be required to) elect (in its sole discretion) to
require the Obligors to pay the entire amount of interest not so paid in cash
on such Interest Payment Date to be paid in units consisting of (x) an
additional joint and several promissory note of the Obligors, substantially in
the form hereof, bearing interest at the Default Rate, and in principal amount
equal to the entire amount of interest not so paid in cash on such Interest
Payment Date and (y) warrants, substantially in the form of Exhibit A hereto,
to purchase such number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole share) as is
equal to .125 share of Common Stock per dollar of the entire principal amount
of such additional joint and several promissory note as of the date of the
issuance thereof.
3. Any election by the holder hereof under paragraph 2 of
this Note shall be made by written notice to the Obligors given in accordance
with paragraph 11I of the Note Agreement not later than the fifth calendar day
after the expiration of the five (5) period of grace referred to above. In the
event any such election is made at the discretion of the holder hereof, the
entire amount of interest as to which such election is made shall be due and
payable, in the manner called for by paragraph 2 hereof, not later than the
third calendar day after the date of such holder's notice of election. It is
expressly understood and agreed that no election on any one occasion by the
holder hereof under paragraph 2 of this Note shall operate as or require such
an election on any other occasion.
4. All principal, interest (to the extent permitted by
applicable law) and other amounts due hereunder not paid when due shall bear
interest at a rate (the "DEFAULT RATE") equal to the lesser of 15% per annum
and the maximum rate permitted by applicable law until the same shall be paid.
5. Payments of principal of, and cash payments of interest
on, this Note are to be made in immediately available
<PAGE> 3
funds by wire transfer in accordance with the instructions set forth in the
Note Agreement or at such other place as the holder hereof shall designate to
the Obligors in writing. Payments of interest on this Note in securities of
the Obligors are to be made by physical delivery of such securities in
accordance with the instructions set forth in the Note Agreement or pursuant to
such other instructions as the holder hereof shall designate to the Obligors in
writing.
6. This Note is one of a series of Senior Secured Notes (the
"NOTES") issued pursuant to an Amended and Restated Note Agreement, originally
dated as of March 28, 1996, and amended and restated as of April 9, 1997 (as so
amended and restated as of April 9, 1997, and as same may hereafter be further
amended, modified or supplemented, the "NOTE AGREEMENT"), among the Obligors,
Northstar High Total Return Fund and the Pecks Investors (as defined therein),
and the whole of this Note is governed by and is entitled to all of the
benefits thereof (including, without limitation, any such benefits expressly
stated herein). Further, each and every promissory note issued at any time
pursuant to clause (ii) of paragraph 1 hereof or pursuant to paragraph 2 hereof
shall also be governed by and entitled to all of the benefits of the Note
Agreement as aforesaid.
7. This Note is a registered Note and, as provided in the
Note Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for regis-
tration of transfer, the Obligors may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payment and for
all other purposes, and the Obligors shall not be affected by any notice to the
contrary.
8. Each of the Obligors agrees, jointly and severally, to
make required prepayments of principal on the dates and in the amounts
specified in the Note Agreement. This Note is also subject to optional
prepayment, in whole or from time to time in part, on the terms specified in
the Note Agreement.
<PAGE> 4
9. If an Event of Default, as defined in the Note Agreement,
shall occur and be continuing, the principal of this Note may be declared or
otherwise become immediately due and payable at par together with interest
accrued thereon, if any, in the manner and with the effect provided in the Note
Agreement. Each of the Obligors hereby waives presentment, demand, protest,
notice of protest and all other notices of any kind whatsoever, except as
otherwise expressly provided in the Note Agreement.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
IT NETWORK, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
<PAGE> 1
EXHIBIT 10.25
SOURCE MEDIA, INC.
IT NETWORK, INC.
SENIOR SECURED NOTE DUE MARCH 31, 2002
No. DE-01 New York, New York
$6,200,000 April 9, 1997
1. FOR VALUE RECEIVED, each of the undersigned, Source Media,
Inc. (the "COMPANY"), a corporation organized and existing under the laws of
the State of Delaware, and IT Network, Inc., a corporation organized and
existing under the laws of the State of Texas ("IT," and, together with the
Company, individually, an "OBLIGOR" and collectively, the "OBLIGORS"), hereby
promises, jointly and severally, to pay to Delaware State Employees' Retirement
Fund, or registered successors or assigns, the principal sum of SIX MILLION TWO
HUNDRED THOUSAND DOLLARS ($6,200,000) on March 31, 2002, with interest
(computed on the basis of the actual number of days and a 360-day year) on the
unpaid balance thereof:
(i) from the date hereof until and including March 31,
1999, at the election of the Obligors: (a) at the rate of twelve
percent (12%) per annum, payable in cash or (b) at the rate of
thirteen percent (13%) per annum, payable in units consisting of
(x) an additional joint and several promissory note of the
Obligors, substantially in the form hereof, and in principal
amount equal to the amount of interest due and payable and (y)
warrants, substantially in the form of Exhibit A hereto, to
purchase such number of duly authorized, validly issued, fully
paid and nonassessable shares of common stock, $.001 par value
("COMMON STOCK"), of the Company (rounded to the nearest whole
share) as is equal to .125 share of Common Stock per dollar of
the entire principal amount of such additional joint and several
promissory note as of the date of the issuance thereof; and
(ii) thereafter, but subject to the election of the holder
hereof as set forth in the paragraph 2 hereof, twelve percent
(12%) per annum , payable in cash.
<PAGE> 2
Interest hereunder shall be payable (A) semiannually on the 31st day of March
and the 30th day of September, beginning on September 30, 1997 and continuing
until March 31, 1999, and (B) quarterly on the 31st day of March, the 30th day
of June, the 30th day of September and the 31st day of December, beginning on
June 30, 1999 and continuing regularly thereafter until the principal amount
hereof is paid in full (each such date being hereinafter referred to as an
"Interest Payment Date").
2. Notwithstanding the foregoing provisions of this Note, in
the event that the Obligors fail to make any payment of interest in cash in
accordance with clause (ii) of paragraph 1 hereof, and such failure to pay in
cash is not remedied within the five (5) calendar day period of grace provided
therefor pursuant to paragraph 7A(ii) of the Note Agreement, then the holder
hereof may (but shall not be required to) elect (in its sole discretion) to
require the Obligors to pay the entire amount of interest not so paid in cash
on such Interest Payment Date to be paid in units consisting of (x) an
additional joint and several promissory note of the Obligors, substantially in
the form hereof, bearing interest at the Default Rate, and in principal amount
equal to the entire amount of interest not so paid in cash on such Interest
Payment Date and (y) warrants, substantially in the form of Exhibit A hereto,
to purchase such number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole share) as is
equal to .125 share of Common Stock per dollar of the entire principal amount
of such additional joint and several promissory note as of the date of the
issuance thereof.
3. Any election by the holder hereof under paragraph 2 of
this Note shall be made by written notice to the Obligors given in accordance
with paragraph 11I of the Note Agreement not later than the fifth calendar day
after the expiration of the five (5) period of grace referred to above. In the
event any such election is made at the discretion of the holder hereof, the
entire amount of interest as to which such election is made shall be due and
payable, in the manner called for by paragraph 2 hereof, not later than the
third calendar day after the date of such holder's notice of election. It is
expressly understood and agreed that no election on any one occasion by the
holder hereof under paragraph 2 of this Note shall operate as or require such
an election on any other occasion.
4. All principal, interest (to the extent permitted by
applicable law) and other amounts due hereunder not paid when due shall bear
interest at a rate (the "DEFAULT RATE") equal to the lesser of 15% per annum
and the maximum rate permitted by applicable law until the same shall be paid.
5. Payments of principal of, and cash payments of interest
on, this Note are to be made in immediately available
<PAGE> 3
funds by wire transfer in accordance with the instructions set forth in the
Note Agreement or at such other place as the holder hereof shall designate to
the Obligors in writing. Payments of interest on this Note in securities of
the Obligors are to be made by physical delivery of such securities in
accordance with the instructions set forth in the Note Agreement or pursuant to
such other instructions as the holder hereof shall designate to the Obligors in
writing.
6. This Note is one of a series of Senior Secured Notes (the
"NOTES") issued pursuant to an Amended and Restated Note Agreement, originally
dated as of March 28, 1996, and amended and restated as of April 9, 1997 (as so
amended and restated as of April 9, 1997, and as same may hereafter be further
amended, modified or supplemented, the "NOTE AGREEMENT"), among the Obligors,
Northstar High Total Return Fund and the Pecks Investors (as defined therein),
and the whole of this Note is governed by and is entitled to all of the
benefits thereof (including, without limitation, any such benefits expressly
stated herein). Further, each and every promissory note issued at any time
pursuant to clause (ii) of paragraph 1 hereof or pursuant to paragraph 2 hereof
shall also be governed by and entitled to all of the benefits of the Note
Agreement as aforesaid.
7. This Note is a registered Note and, as provided in the
Note Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for regis-
tration of transfer, the Obligors may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payment and for
all other purposes, and the Obligors shall not be affected by any notice to the
contrary.
8. Each of the Obligors agrees, jointly and severally, to
make required prepayments of principal on the dates and in the amounts
specified in the Note Agreement. This Note is also subject to optional
prepayment, in whole or from time to time in part, on the terms specified in
the Note Agreement.
<PAGE> 4
9. If an Event of Default, as defined in the Note Agreement,
shall occur and be continuing, the principal of this Note may be declared or
otherwise become immediately due and payable at par together with interest
accrued thereon, if any, in the manner and with the effect provided in the Note
Agreement. Each of the Obligors hereby waives presentment, demand, protest,
notice of protest and all other notices of any kind whatsoever, except as
otherwise expressly provided in the Note Agreement.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
IT NETWORK, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
<PAGE> 1
EXHIBIT 10.26
SOURCE MEDIA, INC.
IT NETWORK, INC.
SENIOR SECURED NOTE DUE MARCH 31, 2002
No. ZE-01 New York, New York
$1,200,000 April 9, 1997
1. FOR VALUE RECEIVED, each of the undersigned, Source Media,
Inc. (the "COMPANY"), a corporation organized and existing under the laws of
the State of Delaware, and IT Network, Inc., a corporation organized and
existing under the laws of the State of Texas ("IT," and, together with the
Company, individually, an "OBLIGOR" and collectively, the "OBLIGORS"), hereby
promises, jointly and severally, to pay to Declaration of Trust for Defined
Benefit Plan of Zeneca Holdings Inc., or registered successors or assigns, the
principal sum of ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000) on March
31, 2002, with interest (computed on the basis of the actual number of days and
a 360-day year) on the unpaid balance thereof:
(i) from the date hereof until and including March 31,
1999, at the election of the Obligors: (a) at the rate of twelve
percent (12%) per annum, payable in cash or (b) at the rate of
thirteen percent (13%) per annum, payable in units consisting of
(x) an additional joint and several promissory note of the
Obligors, substantially in the form hereof, and in principal
amount equal to the amount of interest due and payable and (y)
warrants, substantially in the form of Exhibit A hereto, to
purchase such number of duly authorized, validly issued, fully
paid and nonassessable shares of common stock, $.001 par value
("COMMON STOCK"), of the Company (rounded to the nearest whole
share) as is equal to .125 share of Common Stock per dollar of
the entire principal amount of such additional joint and several
promissory note as of the date of the issuance thereof; and
(ii) thereafter, but subject to the election of the holder
hereof as set forth in the paragraph 2 hereof, twelve percent
(12%) per annum, payable in cash.
<PAGE> 2
Interest hereunder shall be payable (A) semiannually on the 31st day of March
and the 30th day of September, beginning on September 30, 1997 and continuing
until March 31, 1999, and (B) quarterly on the 31st day of March, the 30th day
of June, the 30th day of September and the 31st day of December, beginning on
June 30, 1999 and continuing regularly thereafter until the principal amount
hereof is paid in full (each such date being hereinafter referred to as an
"Interest Payment Date").
2. Notwithstanding the foregoing provisions of this Note, in
the event that the Obligors fail to make any payment of interest in cash in
accordance with clause (ii) of paragraph 1 hereof, and such failure to pay in
cash is not remedied within the five (5) calendar day period of grace provided
therefor pursuant to paragraph 7A(ii) of the Note Agreement, then the holder
hereof may (but shall not be required to) elect (in its sole discretion) to
require the Obligors to pay the entire amount of interest not so paid in cash
on such Interest Payment Date to be paid in units consisting of (x) an
additional joint and several promissory note of the Obligors, substantially in
the form hereof, bearing interest at the Default Rate, and in principal amount
equal to the entire amount of interest not so paid in cash on such Interest
Payment Date and (y) warrants, substantially in the form of Exhibit A hereto,
to purchase such number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole share) as is
equal to .125 share of Common Stock per dollar of the entire principal amount
of such additional joint and several promissory note as of the date of the
issuance thereof.
3. Any election by the holder hereof under paragraph 2 of
this Note shall be made by written notice to the Obligors given in accordance
with paragraph 11I of the Note Agreement not later than the fifth calendar day
after the expiration of the five (5) period of grace referred to above. In the
event any such election is made at the discretion of the holder hereof, the
entire amount of interest as to which such election is made shall be due and
payable, in the manner called for by paragraph 2 hereof, not later than the
third calendar day after the date of such holder's notice of election. It is
expressly understood and agreed that no election on any one occasion by the
holder hereof under paragraph 2 of this Note shall operate as or require such
an election on any other occasion.
4. All principal, interest (to the extent permitted by
applicable law) and other amounts due hereunder not paid when due shall bear
interest at a rate (the "DEFAULT RATE") equal to the lesser of 15% per annum
and the maximum rate permitted by applicable law until the same shall be paid.
5. Payments of principal of, and cash payments of interest
on, this Note are to be made in immediately available
<PAGE> 3
funds by wire transfer in accordance with the instructions set forth in the
Note Agreement or at such other place as the holder hereof shall designate to
the Obligors in writing. Payments of interest on this Note in securities of
the Obligors are to be made by physical delivery of such securities in
accordance with the instructions set forth in the Note Agreement or pursuant to
such other instructions as the holder hereof shall designate to the Obligors in
writing.
6. This Note is one of a series of Senior Secured Notes (the
"NOTES") issued pursuant to an Amended and Restated Note Agreement, originally
dated as of March 28, 1996, and amended and restated as of April 9, 1997 (as so
amended and restated as of April 9, 1997, and as same may hereafter be further
amended, modified or supplemented, the "NOTE AGREEMENT"), among the Obligors,
Northstar High Total Return Fund and the Pecks Investors (as defined therein),
and the whole of this Note is governed by and is entitled to all of the
benefits thereof (including, without limitation, any such benefits expressly
stated herein). Further, each and every promissory note issued at any time
pursuant to clause (ii) of paragraph 1 hereof or pursuant to paragraph 2 hereof
shall also be governed by and entitled to all of the benefits of the Note
Agreement as aforesaid.
7. This Note is a registered Note and, as provided in the
Note Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for regis-
tration of transfer, the Obligors may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payment and for
all other purposes, and the Obligors shall not be affected by any notice to the
contrary.
8. Each of the Obligors agrees, jointly and severally, to
make required prepayments of principal on the dates and in the amounts
specified in the Note Agreement. This Note is also subject to optional
prepayment, in whole or from time to time in part, on the terms specified in
the Note Agreement.
<PAGE> 4
9. If an Event of Default, as defined in the Note Agreement,
shall occur and be continuing, the principal of this Note may be declared or
otherwise become immediately due and payable at par together with interest
accrued thereon, if any, in the manner and with the effect provided in the Note
Agreement. Each of the Obligors hereby waives presentment, demand, protest,
notice of protest and all other notices of any kind whatsoever, except as
otherwise expressly provided in the Note Agreement.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
IT NETWORK, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
<PAGE> 1
EXHIBIT 10.27
SOURCE MEDIA, INC.
IT NETWORK, INC.
SENIOR SECURED NOTE DUE MARCH 31, 2002
No. ICI-01 New York, New York
$1,800,000 April 9, 1997
1. FOR VALUE RECEIVED, each of the undersigned, Source Media,
Inc. (the "COMPANY"), a corporation organized and existing under the laws of
the State of Delaware, and IT Network, Inc., a corporation organized and
existing under the laws of the State of Texas ("IT," and, together with the
Company, individually, an "OBLIGOR" and collectively, the "OBLIGORS"), hereby
promises, jointly and severally, to pay to Declaration of Trust for Defined
Benefit Plan of ICI American Holdings Inc., the principal sum of ONE MILLION
EIGHT HUNDRED THOUSAND DOLLARS ($1,800,000) on March 31, 2002, with interest
(computed on the basis of the actual number of days and a 360-day year) on the
unpaid balance thereof:
(i) from the date hereof until and including March 31,
1999, at the election of the Obligors: (a) at the rate of twelve
percent (12%) per annum, payable in cash or (b) at the rate of
thirteen percent (13%) per annum, payable in units consisting of
(x) an additional joint and several promissory note of the
Obligors, substantially in the form hereof, and in principal
amount equal to the amount of interest due and payable and (y)
warrants, substantially in the form of Exhibit A hereto, to
purchase such number of duly authorized, validly issued, fully
paid and nonassessable shares of common stock, $.001 par value
("COMMON STOCK"), of the Company (rounded to the nearest whole
share) as is equal to .125 share of Common Stock per dollar of
the entire principal amount of such additional joint and several
promissory note as of the date of the issuance thereof; and
(ii) thereafter, but subject to the election of the holder
hereof as set forth in the paragraph 2 hereof, twelve percent
(12%) per annum , payable in cash.
<PAGE> 2
Interest hereunder shall be payable (A) semiannually on the 31st day of March
and the 30th day of September, beginning on September 30, 1997 and continuing
until March 31, 1999, and (B) quarterly on the 31st day of March, the 30th day
of June, the 30th day of September and the 31st day of December, beginning on
June 30, 1999 and continuing regularly thereafter until the principal amount
hereof is paid in full (each such date being hereinafter referred to as an
"Interest Payment Date").
2. Notwithstanding the foregoing provisions of this Note, in
the event that the Obligors fail to make any payment of interest in cash in
accordance with clause (ii) of paragraph 1 hereof, and such failure to pay in
cash is not remedied within the five (5) calendar day period of grace provided
therefor pursuant to paragraph 7A(ii) of the Note Agreement, then the holder
hereof may (but shall not be required to) elect (in its sole discretion) to
require the Obligors to pay the entire amount of interest not so paid in cash
on such Interest Payment Date to be paid in units consisting of (x) an
additional joint and several promissory note of the Obligors, substantially in
the form hereof, bearing interest at the Default Rate, and in principal amount
equal to the entire amount of interest not so paid in cash on such Interest
Payment Date and (y) warrants, substantially in the form of Exhibit A hereto,
to purchase such number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole share) as is
equal to .125 share of Common Stock per dollar of the entire principal amount
of such additional joint and several promissory note as of the date of the
issuance thereof.
3. Any election by the holder hereof under paragraph 2 of
this Note shall be made by written notice to the Obligors given in accordance
with paragraph 11I of the Note Agreement not later than the fifth calendar day
after the expiration of the five (5) period of grace referred to above. In the
event any such election is made at the discretion of the holder hereof, the
entire amount of interest as to which such election is made shall be due and
payable, in the manner called for by paragraph 2 hereof, not later than the
third calendar day after the date of such holder's notice of election. It is
expressly understood and agreed that no election on any one occasion by the
holder hereof under paragraph 2 of this Note shall operate as or require such
an election on any other occasion.
4. All principal, interest (to the extent permitted by
applicable law) and other amounts due hereunder not paid when due shall bear
interest at a rate (the "DEFAULT RATE") equal to the lesser of 15% per annum
and the maximum rate permitted by applicable law until the same shall be paid.
5. Payments of principal of, and cash payments of interest
on, this Note are to be made in immediately available
<PAGE> 3
funds by wire transfer in accordance with the instructions set forth in the
Note Agreement or at such other place as the holder hereof shall designate to
the Obligors in writing. Payments of interest on this Note in securities of
the Obligors are to be made by physical delivery of such securities in
accordance with the instructions set forth in the Note Agreement or pursuant to
such other instructions as the holder hereof shall designate to the Obligors in
writing.
6. This Note is one of a series of Senior Secured Notes (the
"NOTES") issued pursuant to an Amended and Restated Note Agreement, originally
dated as of March 28, 1996, and amended and restated as of April 9, 1997 (as so
amended and restated as of April 9, 1997, and as same may hereafter be further
amended, modified or supplemented, the "NOTE AGREEMENT"), among the Obligors,
Northstar High Total Return Fund and the Pecks Investors (as defined therein),
and the whole of this Note is governed by and is entitled to all of the
benefits thereof (including, without limitation, any such benefits expressly
stated herein). Further, each and every promissory note issued at any time
pursuant to clause (ii) of paragraph 1 hereof or pursuant to paragraph 2 hereof
shall also be governed by and entitled to all of the benefits of the Note
Agreement as aforesaid.
7. This Note is a registered Note and, as provided in the
Note Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for regis-
tration of transfer, the Obligors may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payment and for
all other purposes, and the Obligors shall not be affected by any notice to the
contrary.
8. Each of the Obligors agrees, jointly and severally, to
make required prepayments of principal on the dates and in the amounts
specified in the Note Agreement. This Note is also subject to optional
prepayment, in whole or from time to time in part, on the terms specified in
the Note Agreement.
<PAGE> 4
9. If an Event of Default, as defined in the Note Agreement,
shall occur and be continuing, the principal of this Note may be declared or
otherwise become immediately due and payable at par together with interest
accrued thereon, if any, in the manner and with the effect provided in the Note
Agreement. Each of the Obligors hereby waives presentment, demand, protest,
notice of protest and all other notices of any kind whatsoever, except as
otherwise expressly provided in the Note Agreement.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
IT NETWORK, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
<PAGE> 1
EXHIBIT 10.28
SOURCE MEDIA, INC.
IT NETWORK, INC.
SENIOR SECURED NOTE DUE MARCH 31, 2002
No. MC-01 New York, New York
$800,000 April 9, 1997
1. FOR VALUE RECEIVED, each of the undersigned, Source Media,
Inc. (the "COMPANY"), a corporation organized and existing under the laws of
the State of Delaware, and IT Network, Inc., a corporation organized and
existing under the laws of the State of Texas ("IT," and, together with the
Company, individually, an "OBLIGOR" and collectively, the "OBLIGORS"), hereby
promises, jointly and severally, to pay to The J.W. McConnell Family
Foundation, or registered successors or assigns, the principal sum of EIGHT
HUNDRED THOUSAND DOLLARS ($800,000) on March 31, 2002, with interest (computed
on the basis of the actual number of days and a 360-day year) on the unpaid
balance thereof:
(i) from the date hereof until and including March 31,
1999, at the election of the Obligors: (a) at the rate of twelve
percent (12%) per annum, payable in cash or (b) at the rate of
thirteen percent (13%) per annum, payable in units consisting of
(x) an additional joint and several promissory note of the
Obligors, substantially in the form hereof, and in principal
amount equal to the amount of interest due and payable and (y)
warrants, substantially in the form of Exhibit A hereto, to
purchase such number of duly authorized, validly issued, fully
paid and nonassessable shares of common stock, $.001 par value
("COMMON STOCK"), of the Company (rounded to the nearest whole
share) as is equal to .125 share of Common Stock per dollar of
the entire principal amount of such additional joint and several
promissory note as of the date of the issuance thereof; and
(ii) thereafter, but subject to the election of the holder
hereof as set forth in the paragraph 2 hereof, twelve percent
(12%) per annum , payable in cash.
<PAGE> 2
Interest hereunder shall be payable (A) semiannually on the 31st day of March
and the 30th day of September, beginning on September 30, 1997 and continuing
until March 31, 1999, and (B) quarterly on the 31st day of March, the 30th day
of June, the 30th day of September and the 31st day of December, beginning on
June 30, 1999 and continuing regularly thereafter until the principal amount
hereof is paid in full (each such date being hereinafter referred to as an
"Interest Payment Date").
2. Notwithstanding the foregoing provisions of this Note, in
the event that the Obligors fail to make any payment of interest in cash in
accordance with clause (ii) of paragraph 1 hereof, and such failure to pay in
cash is not remedied within the five (5) calendar day period of grace provided
therefor pursuant to paragraph 7A(ii) of the Note Agreement, then the holder
hereof may (but shall not be required to) elect (in its sole discretion) to
require the Obligors to pay the entire amount of interest not so paid in cash
on such Interest Payment Date to be paid in units consisting of (x) an
additional joint and several promissory note of the Obligors, substantially in
the form hereof, bearing interest at the Default Rate, and in principal amount
equal to the entire amount of interest not so paid in cash on such Interest
Payment Date and (y) warrants, substantially in the form of Exhibit A hereto,
to purchase such number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole share) as is
equal to .125 share of Common Stock per dollar of the entire principal amount
of such additional joint and several promissory note as of the date of the
issuance thereof.
3. Any election by the holder hereof under paragraph 2 of
this Note shall be made by written notice to the Obligors given in accordance
with paragraph 11I of the Note Agreement not later than the fifth calendar day
after the expiration of the five (5) period of grace referred to above. In the
event any such election is made at the discretion of the holder hereof, the
entire amount of interest as to which such election is made shall be due and
payable, in the manner called for by paragraph 2 hereof, not later than the
third calendar day after the date of such holder's notice of election. It is
expressly understood and agreed that no election on any one occasion by the
holder hereof under paragraph 2 of this Note shall operate as or require such
an election on any other occasion.
4. All principal, interest (to the extent permitted by
applicable law) and other amounts due hereunder not paid when due shall bear
interest at a rate (the "DEFAULT RATE") equal to the lesser of 15% per annum
and the maximum rate permitted by applicable law until the same shall be paid.
5. Payments of principal of, and cash payments of interest
on, this Note are to be made in immediately available
<PAGE> 3
funds by wire transfer in accordance with the instructions set forth in the
Note Agreement or at such other place as the holder hereof shall designate to
the Obligors in writing. Payments of interest on this Note in securities of
the Obligors are to be made by physical delivery of such securities in
accordance with the instructions set forth in the Note Agreement or pursuant to
such other instructions as the holder hereof shall designate to the Obligors in
writing.
6. This Note is one of a series of Senior Secured Notes (the
"NOTES") issued pursuant to an Amended and Restated Note Agreement, originally
dated as of March 28, 1996, and amended and restated as of April 9, 1997 (as so
amended and restated as of April 9, 1997, and as same may hereafter be further
amended, modified or supplemented, the "NOTE AGREEMENT"), among the Obligors,
Northstar High Total Return Fund and the Pecks Investors (as defined therein),
and the whole of this Note is governed by and is entitled to all of the
benefits thereof (including, without limitation, any such benefits expressly
stated herein). Further, each and every promissory note issued at any time
pursuant to clause (ii) of paragraph 1 hereof or pursuant to paragraph 2 hereof
shall also be governed by and entitled to all of the benefits of the Note
Agreement as aforesaid.
7. This Note is a registered Note and, as provided in the
Note Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for regis-
tration of transfer, the Obligors may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payment and for
all other purposes, and the Obligors shall not be affected by any notice to the
contrary.
8. Each of the Obligors agrees, jointly and severally, to
make required prepayments of principal on the dates and in the amounts
specified in the Note Agreement. This Note is also subject to optional
prepayment, in whole or from time to time in part, on the terms specified in
the Note Agreement.
<PAGE> 4
9. If an Event of Default, as defined in the Note Agreement,
shall occur and be continuing, the principal of this Note may be declared or
otherwise become immediately due and payable at par together with interest
accrued thereon, if any, in the manner and with the effect provided in the Note
Agreement. Each of the Obligors hereby waives presentment, demand, protest,
notice of protest and all other notices of any kind whatsoever, except as
otherwise expressly provided in the Note Agreement.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
IT NETWORK, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
<PAGE> 1
EXHIBIT 10.29
Execution Copy
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
STOCK PURCHASE WARRANT
ISSUED TO
NORTHSTAR HIGH TOTAL RETURN FUND
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Manner of Exercise; Issuance of Certificates; Payment for Shares . . . . . . . . . . . . . . . . . . . . . . 1
2. Period of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Call Option of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Repurchase Obligation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Certain Agreements of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Shares to be Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Listing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Certain Actions Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Antidilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Treatment of Options and Convertible Securities; Computation of Consideration . . . . . . . . . . . 5
(c) Subdivisions and Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Extraordinary Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(e) Computation of Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(f) Record Date Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(g) Minimum Adjustment of Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(h) Reorganization, Reclassification, Consolidation, Merger, or Sale . . . . . . . . . . . . . . . . . . 11
(i) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(j) Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. No Rights or Liabilities as a Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Transfer, Exchange, and Replacement of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Warrant Not Transferable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Replacement of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Exercise or Transfer Without Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(e) Expenses of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. NS-02 Right to Purchase 750,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Northstar High Total Return
Fund (the "Original Holder"), or registered successors or assigns, is entitled
to purchase from Source Media, Inc., a Delaware corporation (the "Company"), at
any time or from time to time during the period specified in Paragraph 2
hereof, 750,000 fully paid and nonassessable shares of the Company's Common
Stock, par value $.001 per share (the "Common Stock"), at an exercise price per
share of $6.00 (the "Exercise Price"). The term "Warrant Shares", as used
herein, refers to the shares of Common Stock purchasable hereunder. The
Warrant Shares and the Exercise Price are subject to adjustment as provided in
Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for
Shares. Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part (but not as to a fractional Warrant Share),
by the surrender of this Warrant, together with a completed Exercise Agreement
in the form attached hereto, to the Company during normal business hours on any
business day at the Company's principal office at 8140 Walnut Hill Lane, Suite
1000, Dallas, Texas 75231 (or such other office or agency of the Company as it
may designate by notice to the holder hereof), and upon payment to the Company
of the Exercise Price for the Warrant Shares specified in said Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or its designee as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement delivered, and payment made for
such shares as aforesaid. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares
<PAGE> 4
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of said holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of said certificates, deliver to said holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised. The Company shall pay all taxes and other
expenses and charges payable in connection with the preparation, execution, and
delivery of stock certificates (and any new Warrants) pursuant to this
Paragraph 1 except that, in case such stock certificates shall be registered in
a name or names other than the holder of this Warrant, funds sufficient to pay
all stock transfer taxes which shall be payable in connection with the
execution and delivery of such stock certificates shall be paid by the holder
hereof to the Company at the time of the delivery of such stock certificates by
the Company as mentioned above.
Payment of the Exercise Price may be made by either of the following
methods:
(i) Cash Exercise. By payment to the Company of the
Exercise Price in cash or by certified or official bank check, for
each share being purchased;
(ii) Surrender of Notes. By surrender to the Company for
cancellation of any Note or Notes (as such terms are defined in that
certain Amended and Restated Note Agreement, dated as of March 31,
1997 (the "Amended and Restated Note Agreement"), among the Company,
IT Network, Inc., the Original Holder and the other Purchasers named
therein), or any portion of a Note, for which credit shall be given
toward the Exercise Price on a dollar-for-dollar basis with reference
to the principal amount and accrued but unpaid interest cancelled;
(iii) Net Issue Exercise. By an election to receive shares
the aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event the Company, upon
receipt of notice of such election, shall issue to the holder hereof a
number of shares of Common Stock equal to (A) the number of shares of
Common Stock acquirable upon exercise of all or any portion of this
Warrant being exercised, as at such date, multiplied by (B) the
balance remaining after deducting (x) the Exercise Price, as in effect
on such date, from (y) the market price of one share of Common Stock
as at such date (determined as provided in Paragraph 4(e) hereof) and
dividing the result by (C) such market price; provided, however, that
payment of the Exercise Price pursuant to this method may be made only
to the extent that the aggregate outstanding principal amount of the
Notes held by the holder of this Warrant on the date of such election
has been paid in full; or
-2-
<PAGE> 5
(iv) Combined Payment Method. By satisfaction of the
Exercise Price for such shares acquired in combination of the methods
described in clauses (i), (ii) or (iii).
2. Period of Exercise. Subject to the provisions of Paragraphs
2(a) and (b) below, this Warrant is exercisable at any time after the date
hereof, and before 5:00 p.m., Dallas time, on March 31, 2004.
(a) Call Option of the Company.
(i) Subject to the satisfaction in full of the
conditions set forth in subparagraph (ii) below, at any time
after the second anniversary of the date hereof, the Company
may, by written notice to the holder of this Warrant (the
"Call Notice"), elect to purchase this Warrant (or any new
Warrant then held by such holder representing the number of
shares with respect to which this Warrant shall not have been
exercised), in whole, on the Effective Date of Call (as
defined below), at a cash price for this Warrant equal to the
product of (x) $.01 multiplied by (y) the number of shares
with respect to which this Warrant shall not have been
exercised on such date. As used in this Paragraph 2(a), the
term "Effective Date of Call" shall mean the later of (x) 60
days from the date of the Call Notice or (y) 60 days from the
date a registration statement covering the Warrant Shares
shall have become effective, which registration statement was
filed by the Company upon the receipt of requests made
(including a request made by the holder of this Warrant) prior
to the Effective Date of Call and pursuant to the Amended and
Restated Registration Rights Agreement dated as of the date
hereof, among the Company, the Original Holder and the other
persons named therein.
(ii) The Company's right to exercise the purchase
option referred to in subparagraph (i) above is conditional
upon the last reported sales price of the Common Stock
(determined as provided in Paragraph 4(e) hereof) having being
equal to at least 200% of the Exercise Price then in effect
for 30 of the 40 consecutive Trading Days (as defined below)
immediately prior to the date of the Call Notice.
(iii) If the conditions referred to above have been
satisfied in full (including, without limitation, the giving
of a Call Notice), the holder shall present this Warrant to
the Company at its office referred to in Paragraph 1 hereof on
the Effective Date of Call, and upon surrender thereof shall
be entitled to receive the cash price to which such holder is
entitled, by wire transfer of immediately available funds to
an account designated by the holder hereof or by delivery to
such holder of a certified or official bank check in New York
Clearing House Funds payable to the order of such
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<PAGE> 6
holder. Notwithstanding anything to the contrary implied in
this Paragraph 2(a), until the Effective Date of Call the
holder of this Warrant shall continue to be entitled to
exercise any and all of the rights granted to it herein.
(b) Repurchase Obligation of the Company. If at any time
there occurs a Change of Control (as defined in the Amended and
Restated Note Agreement), then the Company shall give to the holder of
this Warrant notice of such Change of Control within 5 days of its
occurrence. Not later than 60 days (the "Put Election Period") after
such notice by the Company, the holder of this Warrant (or any new
Warrant then held by such holder representing the number of shares
with respect to which this Warrant shall not have been exercised) may,
by written notice to the Company, elect to sell to the Company, and
the Company shall purchase from such holder, this Warrant, in whole,
at an aggregate cash price (the "Put Price") equal to the greater of
(x) the Net Warrant Market Price (as defined below) and (y)
$1,500,000. The holder shall present this Warrant to the Company at
its office referred to in Paragraph 1 hereof on or before the 30th day
following the expiration of the Put Election Period, and upon
surrender thereof shall be entitled to receive the cash price to which
such holder is entitled, by wire transfer of immediately available
funds to an account designated by the holder hereof or by delivery to
such holder of a certified or official bank check in New York Clearing
House Funds payable to the order of such holder. As used in this
Paragraph 2(b), the term "Net Warrant Market Price" shall mean an
amount equal to the product of (x) the number of shares with respect
to which this Warrant shall not have been exercised, multiplied by (y)
the difference between the market price per Warrant Share (determined
as provided in Paragraph 4(e) hereof) on the date of the Put Notice
and the Exercise Price then in effect.
3. Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will,
upon issuance, be validly issued, fully paid, and nonassessable.
(b) Reservation of Shares. During the period within
which this Warrant may be exercised, the Company will at all times
have authorized, and reserved for the purpose of issue upon exercise
of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing of Shares. If the issuance of any Warrant
Shares required to be reserved for purposes of exercise of this
Warrant requires listing on any national securities exchange before
such shares may be issued upon exercise of this Warrant, the Company
will, at its expense, use its best efforts to cause such shares to be
listed on the relevant national securities exchange at such time, so
that such shares may be issued in accordance with the terms hereof.
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<PAGE> 7
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder
of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment,
consistent with the tenor and purpose of this Warrant.
4. Antidilution Provisions. The Exercise Price shall be subject
to adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "Capital Stock", as used herein,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation which may
be authorized in the future by an amendment to the Company's charter, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, or shares resulting from any subdivision or combination of the
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(i)
hereof, the stock or other securities or property provided for in said
Paragraph.
(a) Issuance of Capital Stock. If and whenever the
Company shall issue or sell any shares of Capital Stock without
consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Exercise Price shall be
reduced to a price (calculated to the nearest cent) determined by
dividing (x) an amount equal to the aggregate consideration received
by the Company upon such issue or sale, by (y) the total number of
shares of Capital Stock so issued or sold.
(b) Treatment of Options and Convertible Securities;
Computation of Consideration. For the purposes of Paragraph 4(a)
hereof the following provisions shall also be applicable:
(i) If at any time the Company shall grant any
rights to subscribe for or purchase, or any options for the
purchase of, Capital Stock or
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<PAGE> 8
securities convertible into or exchangeable for Capital Stock
(such rights and options being herein called "Options" and
such convertible or exchangeable securities being herein
called "Convertible Securities"), whether or not such Options
or the rights to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities shall be less than the Exercise Price
in effect immediately prior to the time of the granting of
such Options, then the total maximum number of shares of
Capital Stock issuable upon the exercise of such Options or
upon the conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such
Options shall (as of the date of granting of such Options) be
deemed to be outstanding and to have been issued and sold for
such price per share. For purposes of this paragraph 4(b)(i)
the price per share for which such Capital Stock is issuable
shall be determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such Options, plus, in the case of any such
Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, other
than such Convertible Securities, payable to the Company upon
the conversion or exchange of such Convertible Securities, by
(y) the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. Except as
provided in Paragraph 4(b)(vi) hereof, no further adjustments
of the Exercise Price shall be made upon the actual issue of
such Capital Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issue of such
Capital Stock upon the conversion or exchange of such
Convertible Securities.
(ii) If at any time the Company shall issue or
sell Convertible Securities, whether or not the rights to
convert or exchange such Convertible Securities are
immediately exercisable, and the price per share for which
Capital Stock is issuable upon the conversion or exchange of
such Convertible Securities shall be less than the Exercise
Price in effect immediately prior to the time of the issue or
sale of such Convertible Securities, then the total maximum
number of shares of Capital Stock issuable upon the conversion
or exchange of all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued and sold
for such price per share, provided that (a) except as provided
in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual
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<PAGE> 9
issue of such Capital Stock upon the conversion or exchange of
such Convertible Securities, and (b) if any such issue or sale
of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Exercise Price have been
or are to be made pursuant to other provisions of this
Paragraph 4(b), no further adjustment of the Exercise Price
shall be made by reason of such issue or sale. For purposes
of this Paragraph 4(b)(ii), the price per share for which
Capital Stock is issuable shall be determined by dividing (x)
the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities,
payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Capital
Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(iii) If at any time the Company shall pay a
dividend or make any other distribution upon the Capital Stock
payable in Capital Stock or Convertible Securities, any
Capital Stock or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be
deemed to have been issued without consideration, and the
Exercise Price shall be reduced as if the Company had
subdivided the outstanding shares of Capital Stock into a
greater number of shares as provided in Paragraph 4(c) hereof.
(iv) If at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the
amount received by the Company therefor, without deduction
therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. If any Capital Stock, Convertible
Securities, or Options shall be issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Company therefor shall be
deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the
Company, except where such consideration consists of
securities, in which case the amount of consideration received
by the Company shall be the market price thereof (determined
as provided in Paragraph 4(e) hereof) as of the date of
receipt, but in each such case without deduction therefrom of
any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith. In computing the market price of a note or other
obligation that is not listed or admitted to trading on any
securities exchange or quoted in the Nasdaq Stock Market or
reported by the National Quotation Bureau, Inc. or a similar
reporting organization, the total consideration to be received
by the Company thereunder (including interest) shall
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<PAGE> 10
be discounted to present value at the prime rate announced or
published in The Wall Street Journal under the caption "Money
Rate" in effect at the time the note or obligation is deemed
to have been issued. If any Capital Stock, Convertible
Securities, or Options shall be issued in connection with any
merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the
Company of such portion of the assets of such merged
corporation as the Board shall determine to be attributable to
such Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a
record of the holders of Capital Stock for the purpose of
entitling them (a) to receive a dividend or other distribution
payable in Capital Stock or Convertible Securities, or (b) to
subscribe for or purchase Capital Stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of such Capital Stock or Convertible
Securities.
(vi) If the purchase price provided for in any
Option referred to in Paragraph 4(b)(i) hereof, or the price
at which any Convertible Securities referred to in Paragraph
4(b)(i) or (ii) hereof are convertible into or exchangeable
for Capital Stock, shall change at any time (whether by reason
of provisions designed to protect against dilution or
otherwise), the Exercise Price then in effect hereunder shall
forthwith be increased or decreased to such Exercise Price as
would have obtained had the adjustments made upon the issuance
of such Options or Convertible Securities been made upon the
basis of (a) the issuance of the number of shares of Capital
Stock theretofore actually delivered upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities, and the total consideration received
therefor, and (b) the number of shares of Capital Stock to be
issued for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed
price.
(vii) If any adjustment has been made in the
Exercise Price because of the issuance of Options or
Convertible Securities and if any of such Options or rights to
convert or exchange such Convertible Securities expire or
otherwise terminate, then the Exercise Price shall be
readjusted to eliminate the adjustments previously made in
connection with the Options or rights to convert or exchange
Convertible Securities which have expired or terminated.
(viii) The number of shares of Capital Stock
outstanding at any given time shall not include shares owned
or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or
sale of Capital Stock.
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<PAGE> 11
(ix) Anything in Paragraph 4(a) or (b) hereof to
the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Exercise Price in the
case of (a) the issuance of the Warrants or any other warrant
issued to the holder hereof, (b) the issuance of shares of
Common Stock upon exercise of the Warrants or any other
warrant issued to the holder hereof, (c) the granting of stock
options by the Company to employees or directors of the
Company or any of its subsidiaries in connection with their
employment or service as directors to purchase Capital Stock,
provided that the exercise price of such stock options is at
least equal to the market price of such shares of Capital
Stock on the date such stock options are granted and the total
number of such options granted after the date hereof does not
exceed the sum of (X) ten percent of the outstanding Common
Stock of the Company and (Y) the number of such employee or
director options outstanding on the date hereof that, on the
date in question, have expired or been cancelled, (d) the
issuance of shares of Capital Stock upon the exercise of the
stock options referred to in clause (c) above, and (e) the
issuance of shares of Capital Stock upon the exercise,
conversion, or exchange of any securities issued prior to or
simultaneously with the date of the original issue of this
Warrant.
(c) Subdivisions and Combinations. In case at any time
the Company shall subdivide the outstanding shares of Capital Stock
into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Capital
Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be
proportionately increased. An adjustment made pursuant to this
Paragraph 4(c) shall become effective immediately after the effective
date of such subdivision or combination.
(d) Extraordinary Dividends and Distributions. If at any
time the Company shall pay a dividend or make a distribution to all
holders of Capital Stock, as such, which dividend or distribution is
payable otherwise than in cash out of earnings or earned surplus and
otherwise than in Capital Stock, Convertible Securities, or Options,
then thereafter the holder of this Warrant, upon the exercise of this
Warrant, shall be entitled to receive the number of shares of Common
Stock being purchased upon such exercise and, in addition thereto and
without further payment, the stock and other securities and property
(including cash) which such holder would have received by way of
dividends or distributions (otherwise than in cash out of earnings or
earned surplus or in Capital Stock, Convertible Securities, or
Options) as if continuously, since the date of the original issue of
this Warrant, such holder (i) had been the record holder of the number
of shares of Common Stock then being purchased, and (ii) had retained
all dividends and distributions in stock or other securities (other
than Capital Stock, Convertible Securities, or Options) which would
have been paid in respect of such Common Stock or in respect of any
stock or other securities which would have been paid as dividends or
distributions on such Common Stock.
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<PAGE> 12
(e) Computation of Market Price. For the purpose of any
computation under Paragraphs 2(a), 2(b) and 4(b) hereof, the market
price of the security in question on any day shall be deemed to be the
average of the last reported sale prices for the security for the 20
consecutive Trading Days beginning 30 Trading Days before the day in
question. The last reported sale price for each day shall be (i) the
last reported sale price of the security on the Nasdaq Stock Market's
National Market, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or
(ii) if not quoted as described in clause (i) above, the mean between
the high bid and low asked quotations for the security as reported by
the National Quotation Bureau, Inc. if at least two securities dealers
have inserted both bid and asked quotations for such security on at
least 10 of such 20 consecutive Trading Days, or (iii) if the security
is listed or admitted for trading on any national securities exchange,
the last sale price, or the closing bid price if no sale occurred, of
such class of security on the principal securities exchange on which
such class of security is listed or admitted to trading. If the
security is quoted on a national securities or central market system,
in lieu of a market or quotation system described above, the last
reported sale price shall be determined in the manner set forth in
clause (ii) of the preceding sentence if bid and asked quotations are
reported but actual transactions are not, and in the manner set forth
in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the last
reported sale price of the security on any day or the average of such
last reported sale prices for any period shall be the fair market
value of such security as determined by a member firm of the New York
Stock Exchange, Inc. selected by the Company. The term "Trading
Days", as used herein, means (i) if the security is quoted on the
Nasdaq Stock Market's National Market, or any similar system of
automated dissemination of quotations of securities prices, days on
which trades may be made on such system or (ii) if the security is
listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business.
(f) Record Date Adjustments. In any case in which this
Paragraph 4 requires that a downward adjustment of the Exercise Price
shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (A) issuing
to the holder of this Warrant exercised after such record date and
before the occurrence of such event the additional Warrant Shares
issuable upon such exercise by reason of the adjustment required by
such event over and above the Warrant Shares issuable upon such
exercise before giving effect to such adjustment and (B) paying to
such holder any amount in cash in lieu of a fractional share pursuant
to Paragraph 4(i) hereof.
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<PAGE> 13
(g) Minimum Adjustment of Exercise Price. No adjustment
of the Exercise Price shall be made in an amount less than $.10 per
share in effect at the time such adjustment is otherwise required to
be made, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward,
shall amount to not less than $.10 per share. In case at any time the
Company shall issue Capital Stock by way of dividend on Capital Stock
or subdivide or combine the outstanding shares of Capital Stock, said
amount of $.10 per share (as theretofore increased or decreased, if
the said amount shall have been adjusted in accordance with the
provisions of this Paragraph 4(g)) shall forthwith be proportionately
increased in the case of such a combination or decreased in the case
of such a subdivision or stock dividend so as appropriately to reflect
the same.
(h) Reorganization, Reclassification, Consolidation,
Merger, or Sale. If any capital reorganization of the Company, or any
reclassification of the Capital Stock, or any consolidation or merger
of the Company with or into another corporation or entity, or any sale
of all or substantially all the assets of the Company to another
corporation or entity, shall be effected in such a way that the
holders of Common Stock (or any other securities of the Company then
issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with
respect to or in exchange for Common Stock (or such other securities),
then lawful and adequate provision shall be made whereby the holder of
this Warrant shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this
Warrant, and in lieu of the shares of Common Stock (or such other
securities) immediately theretofore purchasable and receivable upon
the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in
exchange for a number of outstanding shares of Common Stock (or such
other securities) equal to the number of shares of Common Stock (or
such other securities) immediately theretofore purchasable and
receivable upon the exercise of this Warrant, had such reorganization,
reclassification, consolidation, merger, or sale not taken place. In
any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, the provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as
nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise
hereof. In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater
or lesser number of shares of common stock of the surviving
corporation or entity are issuable to holders of Capital Stock in
respect of the number of shares of Capital Stock outstanding
immediately prior to such consolidation or merger, then the Exercise
Price in effect immediately prior to such consolidation or merger
shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Capital Stock.
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<PAGE> 14
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the
Company shall pay a cash adjustment in respect of any fractional share
which would otherwise be issuable in an amount equal to the same
fraction of the current market value of a share of Common Stock, which
current market value shall be the last reported sale price (determined
as provided in Paragraph 4(e) hereof) on the Trading Day immediately
preceding the date of the exercise.
(j) Other Notices. If at any time:
(i) the Company shall declare any dividend upon
the Capital Stock payable in shares of stock of any class or
make any other distribution (other than dividends or
distributions payable in cash out of earnings or earned
surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Capital Stock any additional shares
of stock of any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Capital Stock, or
consolidation or merger of the Company with or into, or sale
of all or substantially all its assets to, another corporation
or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company;
then, in each such case, the Company shall promptly give to the holder
of this Warrant (a) notice of the date on which the books of the
Company shall close or a record shall be taken for determining the
holders of Capital Stock entitled to receive any such dividend,
distribution, or subscription rights or for determining the holders of
Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up, notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice shall also specify the
date on which the holders of Capital Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to
exchange their Capital Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may
be. Failure
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<PAGE> 15
to give any such notice or any defect therein shall not affect the
validity of the proceeding referred to in clauses (i), (ii), (iii),
and (iv) above.
5. No Rights or Liabilities as a Shareholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
6. Transfer, Exchange, and Replacement of Warrant.
(a) Warrant Not Transferable. You agree that this
Warrant may not be transferred, sold, assigned or hypothecated, except
to (i) your wholly-owned subsidiaries or affiliates (as defined by the
Securities Exchange Act of 1934); (ii) the respective successors to
you in a merger or consolidation; (iii) the respective purchasers of
all or substantially all of your assets; (iv) your respective
shareholders in the event you are liquidated or dissolved; (v) any one
or more financial institutions (including, without limitation, any
banks, investment banking firms, investment funds and insurance
companies); or (vi) any other person or entity with respect to whom
you have received the prior written consent of the Company. It is not
a condition to the transfer of this Warrant that it be transferred in
connection with a transfer of a Note. Until due presentment for
registration of a permitted transfer on the Company's books, the
Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any
notice to the contrary.
(b) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any
such loss, theft, or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company,
or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
(c) Register. The Company shall maintain, at its
principal office at 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas
75231 (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this
Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name
and address of each permitted transferee and each prior owner of this
Warrant.
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<PAGE> 16
(d) Exercise or Transfer Without Registration. Anything
in this Warrant to the contrary notwithstanding, if, at the time of
the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant shall not be
registered under the Securities Act of 1933, as amended, and under
applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, that
the holder of this Warrant execute and deliver to the Company a
seller's Rule 144 representation letter in form and substance
reasonably acceptable to the Company. The first holder of this
Warrant, by taking and holding the same, represents to the Company
that such holder is acquiring this Warrant for investment and not with
a view to the distribution thereof.
(e) Expenses of Transfer. The Company shall pay all
taxes (other than those imposed on or in respect of income), other
expenses and charges payable in connection with the preparation,
execution, and delivery of any Warrants issued or prepared by the
Company in connection with this Paragraph 6.
7. Notices. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed, to such
holder at the address shown for such holder on the books of the Company, or at
such other address as shall have been furnished to the Company by notice from
such holder. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the Company shall be in
writing, and shall be personally delivered, or shall be sent by certified or
registered mail, postage prepaid and addressed, to the office of the Company at
8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231, Attention: President,
or at such other address as shall have been furnished to the holder of this
Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by telegram or telex, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 7, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the
case may be.
8. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
-14-
<PAGE> 17
9. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof
may not be changed, waived, discharged, or terminated orally, but only
by an instrument in writing signed by the party (or any predecessor in
interest thereof) against which enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of
the several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
(c) Successors and Assigns. This Warrant shall be
binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the
Company's assets.
-15-
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on this 9th day of April, 1997.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
-----------------------------
Michael G. Pate
Chief Financial Officer
and Treasurer
<PAGE> 19
FORM OF EXERCISE AGREEMENT
Dated: ________________, 19__.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ____________________ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in the amount of $__________________.
Please issue a certificate or certificates for such shares of Common Stock in
the name of and pay any cash for any fractional share to:
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Note: The above signature should correspond exactly with the name on
the face of the within Warrant or with the name of the
assignee appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE> 20
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints ____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ____________________, 19__.
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Address:
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
<PAGE> 1
EXHIBIT 10.30
Execution Copy
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
AMENDED AND RESTATED
STOCK PURCHASE WARRANT
ISSUED TO
NORTHSTAR HIGH TOTAL RETURN FUND
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Manner of Exercise; Issuance of Certificates; Payment for Shares . 1
2. Period of Exercise . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Call Option of the Company . . . . . . . . . . . . . . . . . 3
(b) Repurchase Obligation of the Company . . . . . . . . . . . . 4
3. Certain Agreements of the Company . . . . . . . . . . . . . . . . . 4
(a) Shares to be Fully Paid . . . . . . . . . . . . . . . . . . 4
(b) Reservation of Shares . . . . . . . . . . . . . . . . . . . 4
(c) Listing of Shares . . . . . . . . . . . . . . . . . . . . . 4
(d) Certain Actions Prohibited . . . . . . . . . . . . . . . . . 5
4. Antidilution Provisions . . . . . . . . . . . . . . . . . . . . . . 5
(a) Issuance of Capital Stock . . . . . . . . . . . . . . . . . 5
(b) Treatment of Options and Convertible Securities;
Computation of Consideration . . . . . . . . . . . . . . . . 5
(c) Subdivisions and Combinations . . . . . . . . . . . . . . . 9
(d) Extraordinary Dividends and Distributions . . . . . . . . . . 9
(e) Computation of Market Price . . . . . . . . . . . . . . . . 10
(f) Record Date Adjustments . . . . . . . . . . . . . . . . . . 10
(g) Minimum Adjustment of Exercise Price . . . . . . . . . . . . 11
(h) Reorganization, Reclassification, Consolidation,
Merger, or Sale . . . . . . . . . . . . . . . . . . . . . . 11
(i) No Fractional Shares . . . . . . . . . . . . . . . . . . . . 12
(j) Other Notices . . . . . . . . . . . . . . . . . . . . . . . 12
5. No Rights or Liabilities as a Shareholder . . . . . . . . . . . . . 13
6. Transfer, Exchange, and Replacement of Warrant . . . . . . . . . . 13
(a) Warrant Not Transferable . . . . . . . . . . . . . . . . . . 13
(b) Replacement of Warrant . . . . . . . . . . . . . . . . . . . 13
(c) Register . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Exercise or Transfer Without Registration . . . . . . . . . 14
(e) Expenses of Transfer . . . . . . . . . . . . . . . . . . . . 14
7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Descriptive Headings . . . . . . . . . . . . . . . . . . . . 15
(c) Successors and Assigns . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. NS-03 Right to Purchase 500,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Northstar High Total Return
Fund (the "Original Holder"), or registered successors or assigns, is entitled
to purchase from Source Media, Inc., a Delaware corporation (the "Company"), at
any time or from time to time during the period specified in Paragraph 2
hereof, 500,000 fully paid and nonassessable shares of the Company's Common
Stock, par value $.001 per share (the "Common Stock"), at an exercise price per
share of $6.00 (the "Exercise Price"). The term "Warrant Shares", as used
herein, refers to the shares of Common Stock purchasable hereunder. The
Warrant Shares and the Exercise Price are subject to adjustment as provided in
Paragraph 4 hereof. This Amended and Restated Stock Purchase Warrant amends
and restates in its entirety that certain Stock Purchase Warrant, dated April
3, 1996, issued to the Original Holder.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part (but not as to a fractional Warrant Share), by the
surrender of this Warrant, together with a completed Exercise Agreement in the
form attached hereto, to the Company during normal business hours on any
business day at the Company's principal office at 8140 Walnut Hill Lane, Suite
1000, Dallas, Texas 75231 (or such other office or agency of the Company as it
may designate by notice to the holder hereof), and upon payment to the Company
of the Exercise Price for the Warrant Shares specified in said Exercise Agree-
ment. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or its designee as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered, the completed
<PAGE> 4
Exercise Agreement delivered, and payment made for such shares as aforesaid.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in said Exercise Agreement, shall be delivered to
the holder hereof within a reasonable time, not exceeding seven business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of said holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of said certificates, deliver to
said holder a new Warrant representing the number of shares with respect to
which this Warrant shall not then have been exercised. The Company shall pay
all taxes and other expenses and charges payable in connection with the prepa-
ration, execution, and delivery of stock certificates (and any new Warrants)
pursuant to this Paragraph 1 except that, in case such stock certificates shall
be registered in a name or names other than the holder of this Warrant, funds
sufficient to pay all stock transfer taxes which shall be payable in connection
with the execution and delivery of such stock certificates shall be paid by the
holder hereof to the Company at the time of the delivery of such stock
certificates by the Company as mentioned above.
Payment of the Exercise Price may be made by either of the following
methods:
(i) Cash Exercise. By payment to the Company of the Exercise
Price in cash or by certified or official bank check, for each share
being purchased;
(ii) Surrender of Notes. By surrender to the Company for
cancellation of any Note or Notes (as such terms are defined in that
certain Amended and Restated Note Agreement, dated as of March 31, 1997
(the "Amended and Restated Note Agreement"), among the Company, IT
Network, Inc., the Original Holder and the other Purchasers named
therein), or any portion of a Note, for which credit shall be given
toward the Exercise Price on a dollar-for-dollar basis with reference to
the principal amount and accrued but unpaid interest cancelled;
(iii) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is equal
to the fair market value of this Warrant (or the portion thereof being
exercised) on such date, in which event the Company, upon receipt of
notice of such election, shall issue to the holder hereof a number of
shares of Common Stock equal to (A) the number of shares of Common Stock
acquirable upon exercise of all or any portion of this Warrant being
exercised, as at such date, multiplied by (B) the balance remaining
after deducting (x) the Exercise Price, as in effect on such date, from
(y) the market price of one share of Common Stock as at such date
(determined as provided in Paragraph 4(e) hereof) and dividing the
result by (C) such market price; provided, however, that payment of the
Exercise Price pursuant to this method may be made only to the extent
that the aggregate outstanding principal
-2-
<PAGE> 5
amount of the Notes held by the holder of this Warrant on the date of
such election has been paid in full; or
(iv) Combined Payment Method. By satisfaction of the Exercise
Price for such shares acquired in combination of the methods described
in clauses (i), (ii) or (iii).
2. Period of Exercise. Subject to the provisions of Paragraphs 2(a)
and (b) below, this Warrant is exercisable at any time after the date hereof,
and before 5:00 p.m., Dallas time, on March 31, 2004.
(a) Call Option of the Company.
(i) Subject to the satisfaction in full of the
conditions set forth in subparagraph (ii) below, at any time
after the second anniversary of the date hereof, the Company may,
by written notice to the holder of this Warrant (the "Call
Notice"), elect to purchase this Warrant (or any new Warrant then
held by such holder representing the number of shares with
respect to which this Warrant shall not have been exercised), in
whole, on the Effective Date of Call (as defined below), at a
cash price for this Warrant equal to the product of (x) $.01
multiplied by (y) the number of shares with respect to which this
Warrant shall not have been exercised on such date. As used in
this Paragraph 2(a), the term "Effective Date of Call" shall mean
the later of (x) 60 days from the date of the Call Notice or (y)
60 days from the date a registration statement covering the
Warrant Shares shall have become effective, which registration
statement was filed by the Company upon the receipt of requests
made (including a request made by the holder of this Warrant)
prior to the Effective Date of Call and pursuant to the Amended
and Restated Registration Rights Agreement dated as of the date
hereof, among the Company, the Original Holder and the other
persons named therein.
(ii) The Company's right to exercise the purchase option
referred to in subparagraph (i) above is conditional upon the
last reported sales price of the Common Stock (determined as
provided in Paragraph 4(e) hereof) having being equal to at least
200% of the Exercise Price then in effect for 30 of the 40
consecutive Trading Days (as defined below) immediately prior to
the date of the Call Notice.
(iii) If the conditions referred to above have been
satisfied in full (including, without limitation, the giving of a
Call Notice), the holder shall present this Warrant to the
Company at its office referred to in Paragraph 1 hereof on the
Effective Date of Call, and upon surrender thereof shall be
entitled to receive the cash price to which such holder is
entitled, by wire
-3-
<PAGE> 6
transfer of immediately available funds to an account designated
by the holder hereof or by delivery to such holder of a certified
or official bank check in New York Clearing House Funds payable
to the order of such holder. Notwithstanding anything to the
contrary implied in this Paragraph 2(a), until the Effective Date
of Call the holder of this Warrant shall continue to be entitled
to exercise any and all of the rights granted to it herein.
(b) Repurchase Obligation of the Company. If at any time
there occurs a Change of Control (as defined in the Amended and Restated
Note Agreement), then the Company shall give to the holder of this
Warrant notice of such Change of Control within 5 days of its
occurrence. Not later than 60 days (the "Put Election Period") after
such notice by the Company, the holder of this Warrant (or any new
Warrant then held by such holder representing the number of shares with
respect to which this Warrant shall not have been exercised) may, by
written notice to the Company, elect to sell to the Company, and the
Company shall purchase from such holder, this Warrant, in whole, at an
aggregate cash price (the "Put Price") equal to the greater of (x) the
Net Warrant Market Price (as defined below) and (y) $1,500,000. The
holder shall present this Warrant to the Company at its office referred
to in Paragraph 1 hereof on or before the 30th day following the
expiration of the Put Election Period, and upon surrender thereof shall
be entitled to receive the cash price to which such holder is entitled,
by wire transfer of immediately available funds to an account designated
by the holder hereof or by delivery to such holder of a certified or
official bank check in New York Clearing House Funds payable to the
order of such holder. As used in this Paragraph 2(b), the term "Net
Warrant Market Price" shall mean an amount equal to the product of (x)
the number of shares with respect to which this Warrant shall not have
been exercised, multiplied by (y) the difference between the market
price per Warrant Share (determined as provided in Paragraph 4(e)
hereof) on the date of the Put Notice and the Exercise Price then in
effect.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance, be validly issued, fully paid, and nonassessable.
(b) Reservation of Shares. During the period within which
this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of issue upon exercise of this
Warrant, a sufficient number of shares of Common Stock to provide for
the exercise of this Warrant.
(c) Listing of Shares. If the issuance of any Warrant Shares
required to be reserved for purposes of exercise of this Warrant
requires listing on any
-4-
<PAGE> 7
national securities exchange before such shares may be issued upon
exercise of this Warrant, the Company will, at its expense, use its best
efforts to cause such shares to be listed on the relevant national
securities exchange at such time, so that such shares may be issued in
accordance with the terms hereof.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities,
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying
out of all the provisions of this Warrant and in the taking of all such
action as may reasonably be requested by the holder of this Warrant in
order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.
4. Antidilution Provisions. The Exercise Price shall be subject to
adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "Capital Stock", as used herein,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation which may
be authorized in the future by an amendment to the Company's charter, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, or shares resulting from any subdivision or combination of the
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(i)
hereof, the stock or other securities or property provided for in said
Paragraph.
(a) Issuance of Capital Stock. If and whenever the Company
shall issue or sell any shares of Capital Stock without consideration or
for a consideration per share less than the Exercise Price in effect
immediately prior to the time of such issue or sale, then, forthwith
upon such issue or sale, the Exercise Price shall be reduced to a price
(calculated to the nearest cent) determined by dividing (x) an amount
equal to the aggregate consideration received by the Company upon such
issue or sale, by (y) the total number of shares of Capital Stock so
issued or sold.
(b) Treatment of Options and Convertible Securities;
Computation of Consideration. For the purposes of Paragraph 4(a) hereof
the following provisions shall also be applicable:
-5-
<PAGE> 8
(i) If at any time the Company shall grant any rights
to subscribe for or purchase, or any options for the purchase of,
Capital Stock or securities convertible into or exchangeable for
Capital Stock (such rights and options being herein called
"Options" and such convertible or exchangeable securities being
herein called "Convertible Securities"), whether or not such
Options or the rights to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share
for which Capital Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible
Securities shall be less than the Exercise Price in effect
immediately prior to the time of the granting of such Options,
then the total maximum number of shares of Capital Stock issuable
upon the exercise of such Options or upon the conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall (as
of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold for such price per
share. For purposes of this paragraph 4(b)(i) the price per
share for which such Capital Stock is issuable shall be
determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the granting of
such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such
Options, plus, in the case of any such Options which relate to
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable to the Company upon the conversion or
exchange of such Convertible Securities, by (y) the total maximum
number of shares of Capital Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. Except as provided in Paragraph 4(b)(vi) hereof, no
further adjustments of the Exercise Price shall be made upon the
actual issue of such Capital Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issue of such Capital Stock upon the conversion or exchange of
such Convertible Securities.
(ii) If at any time the Company shall issue or sell
Convertible Securities, whether or not the rights to convert or
exchange such Convertible Securities are immediately exercisable,
and the price per share for which Capital Stock is issuable upon
the conversion or exchange of such Convertible Securities shall
be less than the Exercise Price in effect immediately prior to
the time of the issue or sale of such Convertible Securities,
then the total maximum number of shares of Capital Stock issuable
upon the conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have
been issued and sold for such price per share,
-6-
<PAGE> 9
provided that (a) except as provided in Paragraph 4(b)(vi)
hereof, no further adjustments of the Exercise Price shall be
made upon the actual issue of such Capital Stock upon the
conversion or exchange of such Convertible Securities, and (b) if
any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to other
provisions of this Paragraph 4(b), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
For purposes of this Paragraph 4(b)(ii), the price per share for
which Capital Stock is issuable shall be determined by dividing
(x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities,
payable to the Company upon the conversion or exchange thereof,
by (y) the total maximum number of shares of Capital Stock
issuable upon the conversion or exchange of all such Convertible
Securities.
(iii) If at any time the Company shall pay a dividend or
make any other distribution upon the Capital Stock payable in
Capital Stock or Convertible Securities, any Capital Stock or
Convertible Securities, as the case may be, issuable in payment
of such dividend or distribution shall be deemed to have been
issued without consideration, and the Exercise Price shall be
reduced as if the Company had subdivided the outstanding shares
of Capital Stock into a greater number of shares as provided in
Paragraph 4(c) hereof.
(iv) If at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of
any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith. If any Capital Stock, Convertible Securities, or Op-
tions shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by
the Company therefor shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of
Directors of the Company, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company shall be the market price thereof
(determined as provided in Paragraph 4(e) hereof) as of the date
of receipt, but in each such case without deduction therefrom of
any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith. In computing the market price of a note or other
obligation that is not listed or admitted to trading on any
securities exchange or quoted in the Nasdaq Stock Market or
reported by the National
-7-
<PAGE> 10
Quotation Bureau, Inc. or a similar reporting organization, the
total consideration to be received by the Company thereunder
(including interest) shall be discounted to present value at the
prime rate announced or published in The Wall Street Journal
under the caption "Money Rate" in effect at the time the note or
obligation is deemed to have been issued. If any Capital Stock,
Convertible Securities, or Options shall be issued in connection
with any merger of another corporation into the Company, the
amount of consideration therefor shall be deemed to be the fair
value as determined in good faith by the Board of Directors of
the Company of such portion of the assets of such merged corpo-
ration as the Board shall determine to be attributable to such
Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a record
of the holders of Capital Stock for the purpose of entitling them
(a) to receive a dividend or other distribution payable in
Capital Stock or Convertible Securities, or (b) to subscribe for
or purchase Capital Stock or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale
of such Capital Stock or Convertible Securities.
(vi) If the purchase price provided for in any Option
referred to in Paragraph 4(b)(i) hereof, or the price at which
any Convertible Securities referred to in Paragraph 4(b)(i) or
(ii) hereof are convertible into or exchangeable for Capital
Stock, shall change at any time (whether by reason of provisions
designed to protect against dilution or otherwise), the Exercise
Price then in effect hereunder shall forthwith be increased or
decreased to such Exercise Price as would have obtained had the
adjustments made upon the issuance of such Options or Convertible
Securities been made upon the basis of (a) the issuance of the
number of shares of Capital Stock theretofore actually delivered
upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities, and the total
consideration received therefor, and (b) the number of shares of
Capital Stock to be issued for the consideration, if any,
received by the Company therefor and to be received on the basis
of such changed price.
(vii) If any adjustment has been made in the Exercise
Price because of the issuance of Options or Convertible
Securities and if any of such Options or rights to convert or
exchange such Convertible Securities expire or otherwise
terminate, then the Exercise Price shall be readjusted to
eliminate the adjustments previously made in connection with the
Options or rights to convert or exchange Convertible Securities
which have expired or terminated.
(viii) The number of shares of Capital Stock outstanding
at any given time shall not include shares owned or held by or
for the account of
-8-
<PAGE> 11
the Company, and the disposition of any such shares shall be
considered an issue or sale of Capital Stock.
(ix) Anything in Paragraph 4(a) or (b) hereof to the
contrary notwithstanding, the Company shall not be required to
make any adjustment of the Exercise Price in the case of (a) the
issuance of the Warrants or any other warrant issued to the
holder hereof, (b) the issuance of shares of Common Stock upon
exercise of the Warrants or any other warrant issued to the
holder hereof, (c) the granting of stock options by the Company
to employees or directors of the Company or any of its
subsidiaries in connection with their employment or service as
directors to purchase Capital Stock, provided that the exercise
price of such stock options is at least equal to the market price
of such shares of Capital Stock on the date such stock options
are granted and the total number of such options granted after
the date hereof does not exceed the sum of (X) ten percent of the
outstanding Common Stock of the Company and (Y) the number of
such employee or director options outstanding on the date hereof
that, on the date in question, have expired or been cancelled,
(d) the issuance of shares of Capital Stock upon the exercise of
the stock options referred to in clause (c) above, and (e) the
issuance of shares of Capital Stock upon the exercise,
conversion, or exchange of any securities issued prior to or
simultaneously with the date of the original issue of this
Warrant.
(c) Subdivisions and Combinations. In case at any time the
Company shall subdivide the outstanding shares of Capital Stock into a
greater number of shares, the Exercise Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Capital Stock shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior
to such combination shall be proportionately increased. An adjustment
made pursuant to this Paragraph 4(c) shall become effective immediately
after the effective date of such subdivision or combination.
(d) Extraordinary Dividends and Distributions. If at any time
the Company shall pay a dividend or make a distribution to all holders
of Capital Stock, as such, which dividend or distribution is payable
otherwise than in cash out of earnings or earned surplus and otherwise
than in Capital Stock, Convertible Securities, or Options, then
thereafter the holder of this Warrant, upon the exercise of this
Warrant, shall be entitled to receive the number of shares of Common
Stock being purchased upon such exercise and, in addition thereto and
without further payment, the stock and other securities and property
(including cash) which such holder would have received by way of
dividends or distributions (otherwise than in cash out of earnings or
earned surplus or in Capital Stock, Convertible Securities, or Options)
as if continuously, since the date of the original issue of this
Warrant, such holder (i) had been the record holder of the number of
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<PAGE> 12
shares of Common Stock then being purchased, and (ii) had retained all
dividends and distributions in stock or other securities (other than
Capital Stock, Convertible Securities, or Options) which would have been
paid in respect of such Common Stock or in respect of any stock or other
securities which would have been paid as dividends or distributions on
such Common Stock.
(e) Computation of Market Price. For the purpose of any
computation under Paragraphs 2(a), 2(b) and 4(b) hereof, the market
price of the security in question on any day shall be deemed to be the
average of the last reported sale prices for the security for the 20
consecutive Trading Days beginning 30 Trading Days before the day in
question. The last reported sale price for each day shall be (i) the
last reported sale price of the security on the Nasdaq Stock Market's
National Market, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or
(ii) if not quoted as described in clause (i) above, the mean between
the high bid and low asked quotations for the security as reported by
the National Quotation Bureau, Inc. if at least two securities dealers
have inserted both bid and asked quotations for such security on at
least 10 of such 20 consecutive Trading Days, or (iii) if the security
is listed or admitted for trading on any national securities exchange,
the last sale price, or the closing bid price if no sale occurred, of
such class of security on the principal securities exchange on which
such class of security is listed or admitted to trading. If the
security is quoted on a national securities or central market system, in
lieu of a market or quotation system described above, the last reported
sale price shall be determined in the manner set forth in clause (ii) of
the preceding sentence if bid and asked quotations are reported but
actual transactions are not, and in the manner set forth in clause (iii)
of the preceding sentence if actual transactions are reported. If none
of the conditions set forth above is met, the last reported sale price
of the security on any day or the average of such last reported sale
prices for any period shall be the fair market value of such security as
determined by a member firm of the New York Stock Exchange, Inc.
selected by the Company. The term "Trading Days", as used herein, means
(i) if the security is quoted on the Nasdaq Stock Market's National
Market, or any similar system of automated dissemination of quotations
of securities prices, days on which trades may be made on such system or
(ii) if the security is listed or admitted for trading on any national
securities exchange, days on which such national securities exchange is
open for business.
(f) Record Date Adjustments. In any case in which this
Paragraph 4 requires that a downward adjustment of the Exercise Price
shall become effective immediately after a record date for an event, the
Company may defer until the occurrence of such event (A) issuing to the
holder of this Warrant exercised after such record date and before the
occurrence of such event the additional Warrant Shares issuable upon
such exercise by reason of the adjustment required by such event over
and above the Warrant Shares issuable upon such exercise before
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<PAGE> 13
giving effect to such adjustment and (B) paying to such holder any
amount in cash in lieu of a fractional share pursuant to Paragraph 4(i)
hereof.
(g) Minimum Adjustment of Exercise Price. No adjustment of
the Exercise Price shall be made in an amount less than $.10 per share
in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not
less than $.10 per share. In case at any time the Company shall issue
Capital Stock by way of dividend on Capital Stock or subdivide or
combine the outstanding shares of Capital Stock, said amount of $.10 per
share (as theretofore increased or decreased, if the said amount shall
have been adjusted in accordance with the provisions of this Paragraph
4(g)) shall forthwith be proportionately increased in the case of such a
combination or decreased in the case of such a subdivision or stock
dividend so as appropriately to reflect the same.
(h) Reorganization, Reclassification, Consolidation, Merger,
or Sale. If any capital reorganization of the Company, or any
reclassification of the Capital Stock, or any consolidation or merger of
the Company with or into another corporation or entity, or any sale of
all or substantially all the assets of the Company to another corpora-
tion or entity, shall be effected in such a way that the holders of
Common Stock (or any other securities of the Company then issuable upon
the exercise of this Warrant) shall be entitled to receive stock or
other securities or property (including cash) with respect to or in
exchange for Common Stock (or such other securities), then lawful and
adequate provision shall be made whereby the holder of this Warrant
shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant, and in lieu
of the shares of Common Stock (or such other securities) immediately
theretofore purchasable and receivable upon the exercise hereof, such
stock or other securities or property (including cash) as may be
issuable or payable with respect to or in exchange for a number of
outstanding shares of Common Stock (or such other securities) equal to
the number of shares of Common Stock (or such other securities)
immediately theretofore purchasable and receivable upon the exercise of
this Warrant, had such reorganization, reclassification, consolidation,
merger, or sale not taken place. In any such case appropriate provision
shall be made with respect to the rights and interests of the holder of
this Warrant to the end that the provisions hereof (including, without
limitation, the provisions for adjustments of the Exercise Price and of
the number of Warrant Shares purchasable upon exercise hereof) shall
thereafter be applicable, as nearly as reasonably may be, in relation to
the stock or other securities or property thereafter deliverable upon
the exercise hereof. In the event of a consolidation or merger of the
Company with or into another corporation or entity as a result of which
a greater or lesser number of shares of common stock of the surviving
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<PAGE> 14
corporation or entity are issuable to holders of Capital Stock in
respect of the number of shares of Capital Stock outstanding immediately
prior to such consolidation or merger, then the Exercise Price in effect
immediately prior to such consolidation or merger shall be adjusted in
the same manner as though there were a subdivision or combination of the
outstanding shares of Capital Stock.
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the
Company shall pay a cash adjustment in respect of any fractional share
which would otherwise be issuable in an amount equal to the same
fraction of the current market value of a share of Common Stock, which
current market value shall be the last reported sale price (determined
as provided in Paragraph 4(e) hereof) on the Trading Day immediately
preceding the date of the exercise.
(j) Other Notices. If at any time:
(i) the Company shall declare any dividend upon the
Capital Stock payable in shares of stock of any class or make any
other distribution (other than dividends or distributions payable
in cash out of earnings or earned surplus) to the holders of the
Capital Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Capital Stock any additional shares of
stock of any class or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Capital Stock, or
consolidation or merger of the Company with or into, or sale of
all or substantially all its assets to, another corporation or
entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company;
then, in each such case, the Company shall promptly give to the holder
of this Warrant (a) notice of the date on which the books of the Company
shall close or a record shall be taken for determining the holders of
Capital Stock entitled to receive any such dividend, distribution, or
subscription rights or for determining the holders of Capital Stock
entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
or winding-up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
or winding-up, notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place.
Such notice shall also specify the date on which the holders of Capital
Stock shall be entitled to receive such dividend, distribution, or
subscrip-
-12-
<PAGE> 15
tion rights or to exchange their Capital Stock for stock or other
securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
or winding-up, as the case may be. Failure to give any such notice or
any defect therein shall not affect the validity of the proceeding
referred to in clauses (i), (ii), (iii), and (iv) above.
5. No Rights or Liabilities as a Shareholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
6. Transfer, Exchange, and Replacement of Warrant.
(a) Warrant Not Transferable. You agree that this Warrant may
not be transferred, sold, assigned or hypothecated, except to (i) your
wholly-owned subsidiaries or affiliates (as defined by the Securities
Exchange Act of 1934); (ii) the respective successors to you in a merger
or consolidation; (iii) the respective purchasers of all or
substantially all of your assets; (iv) your respective shareholders in
the event you are liquidated or dissolved; (v) any one or more financial
institutions (including, without limitation, any banks, investment
banking firms, investment funds and insurance companies); or (vi) any
other person or entity with respect to whom you have received the prior
written consent of the Company. It is not a condition to the transfer
of this Warrant that it be transferred in connection with a transfer of
a Note. Until due presentment for registration of a permitted transfer
on the Company's books, the Company may treat the registered holder
hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary.
(b) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft,
or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
(c) Register. The Company shall maintain, at its principal
office at 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231 (or
such other office or agency of the Company as it may designate by notice
to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the
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<PAGE> 16
person in whose name this Warrant has been issued, as well as the name
and address of each permitted transferee and each prior owner of this
Warrant.
(d) Exercise or Transfer Without Registration. Anything in
this Warrant to the contrary notwithstanding, if, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant shall not be registered under the
Securities Act of 1933, as amended, and under applicable state securi-
ties or blue sky laws, the Company may require, as a condition of
allowing such exercise, transfer, or exchange, that the holder of this
Warrant execute and deliver to the Company a seller's Rule 144
representation letter in form and substance reasonably acceptable to the
Company. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this
Warrant for investment and not with a view to the distribution thereof.
(e) Expenses of Transfer. The Company shall pay all taxes
(other than those imposed on or in respect of income), other expenses
and charges payable in connection with the preparation, execution, and
delivery of any Warrants issued or prepared by the Company in connection
with this Paragraph 6.
7. Notices. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed, to such
holder at the address shown for such holder on the books of the Company, or at
such other address as shall have been furnished to the Company by notice from
such holder. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the Company shall be in
writing, and shall be personally delivered, or shall be sent by certified or
registered mail, postage prepaid and addressed, to the office of the Company at
8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231, Attention: President,
or at such other address as shall have been furnished to the holder of this
Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by telegram or telex, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 7, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the
case may be.
8. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 17
9. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may not
be changed, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party (or any predecessor in
interest thereof) against which enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of any
of the provisions hereof.
(c) Successors and Assigns. This Warrant shall be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
-15-
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer on this 9th day of April, 1997.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
---------------------------------------
Michael G. Pate,
Chief Financial Officer
and Treasurer
<PAGE> 19
FORM OF EXERCISE AGREEMENT
Dated: ________________, 19__.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ____________________ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in the amount of
$____________________. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Note: The above signature should correspond exactly with the name on
the face of the within Warrant or with the name of the assignee
appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE> 20
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
<TABLE>
<CAPTION>
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
<S> <C> <C>
</TABLE>
, and hereby irrevocably constitutes and appoints _____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ____________________, 19__.
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Address:
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
<PAGE> 1
EXHIBIT 10.31
Execution Copy
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
STOCK PURCHASE WARRANT
ISSUED TO
DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN
OF ZENECA HOLDINGS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Manner of Exercise; Issuance of Certificates; Payment for Shares........ 1
2. Period of Exercise...................................................... 3
(a) Call Option of the Company......................................... 3
(b) Repurchase Obligation of the Company............................... 4
3. Certain Agreements of the Company....................................... 4
(a) Shares to be Fully Paid............................................ 4
(b) Reservation of Shares.............................................. 4
(c) Listing of Shares.................................................. 4
(d) Certain Actions Prohibited......................................... 5
4. Antidilution Provisions................................................. 5
(a) Issuance of Capital Stock.......................................... 5
(b) Treatment of Options and Convertible Securities; Computation
of Consideration................................................... 5
(c) Subdivisions and Combinations...................................... 9
(d) Extraordinary Dividends and Distributions.......................... 9
(e) Computation of Market Price........................................10
(f) Record Date Adjustments............................................10
(g) Minimum Adjustment of Exercise Price...............................11
(h) Reorganization, Reclassification, Consolidation, Merger, or Sale...11
(i) No Fractional Shares...............................................12
(j) Other Notices......................................................12
5. No Rights or Liabilities as a Shareholder...............................13
6. Transfer, Exchange, and Replacement of Warrant..........................13
(a) Warrant Not Transferable...........................................13
(b) Replacement of Warrant.............................................13
(c) Register...........................................................13
(d) Exercise or Transfer Without Registration..........................14
(e) Expenses of Transfer...............................................14
7. Notices.................................................................14
8. GOVERNING LAW...........................................................14
9. Miscellaneous...........................................................15
(a) Amendments.........................................................15
(b) Descriptive Headings...............................................15
(c) Successors and Assigns.............................................15
</TABLE>
<PAGE> 3
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. ZE-01 Right to Purchase 150,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Declaration of Trust for
Defined Benefit Plan of Zeneca Holdings, Inc. (the "Original Holder"), or
registered successors or assigns, is entitled to purchase from Source Media,
Inc., a Delaware corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, 150,000 fully paid and
nonassessable shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock"), at an exercise price per share of $6.00 (the "Exercise
Price"). The term "Warrant Shares", as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part (but not as to a fractional Warrant Share), by the
surrender of this Warrant, together with a completed Exercise Agreement in the
form attached hereto, to the Company during normal business hours on any
business day at the Company's principal office at 8140 Walnut Hill Lane, Suite
1000, Dallas, Texas 75231 (or such other office or agency of the Company as it
may designate by notice to the holder hereof), and upon payment to the Company
of the Exercise Price for the Warrant Shares specified in said Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or its designee as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement delivered, and payment made for
such shares as aforesaid. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares
<PAGE> 4
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of said holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of said certificates, deliver to said holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised. The Company shall pay all taxes and other
expenses and charges payable in connection with the preparation, execution, and
delivery of stock certificates (and any new Warrants) pursuant to this
Paragraph 1 except that, in case such stock certificates shall be registered in
a name or names other than the holder of this Warrant, funds sufficient to pay
all stock transfer taxes which shall be payable in connection with the
execution and delivery of such stock certificates shall be paid by the holder
hereof to the Company at the time of the delivery of such stock certificates by
the Company as mentioned above.
Payment of the Exercise Price may be made by either of the following
methods:
(i) Cash Exercise. By payment to the Company of the Exercise
Price in cash or by certified or official bank check, for each share
being purchased;
(ii) Surrender of Notes. By surrender to the Company for
cancellation of any Note or Notes (as such terms are defined in that
certain Amended and Restated Note Agreement, dated as of March 31, 1997
(the "Amended and Restated Note Agreement"), among the Company, IT
Network, Inc., the Original Holder and the other Purchasers named
therein), or any portion of a Note, for which credit shall be given
toward the Exercise Price on a dollar-for-dollar basis with reference
to the principal amount and accrued but unpaid interest cancelled;
(iii) Net Issue Exercise. By an election to receive shares the
aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event the Company, upon receipt
of notice of such election, shall issue to the holder hereof a number
of shares of Common Stock equal to (A) the number of shares of Common
Stock acquirable upon exercise of all or any portion of this Warrant
being exercised, as at such date, multiplied by (B) the balance
remaining after deducting (x) the Exercise Price, as in effect on such
date, from (y) the market price of one share of Common Stock as at such
date (determined as provided in Paragraph 4(e) hereof) and dividing
the result by (C) such market price; provided, however, that payment of
the Exercise Price pursuant to this method may be made only to the
extent that the aggregate outstanding principal amount of the Notes
held by the holder of this Warrant on the date of such election has
been paid in full; or
-2-
<PAGE> 5
(iv) Combined Payment Method. By satisfaction of the Exercise
Price for such shares acquired in combination of the methods described
in clauses (i), (ii) or (iii).
2. Period of Exercise. Subject to the provisions of Paragraphs
2(a) and (b) below, this Warrant is exercisable at any time after the date
hereof, and before 5:00 p.m., Dallas time, on March 31, 2004.
(a) Call Option of the Company.
(i) Subject to the satisfaction in full of the
conditions set forth in subparagraph (ii) below, at any time
after the second anniversary of the date hereof, the Company
may, by written notice to the holder of this Warrant (the "Call
Notice"), elect to purchase this Warrant (or any new Warrant
then held by such holder representing the number of shares with
respect to which this Warrant shall not have been exercised), in
whole, on the Effective Date of Call (as defined below), at a
cash price for this Warrant equal to the product of (x) $.01
multiplied by (y) the number of shares with respect to which
this Warrant shall not have been exercised on such date. As used
in this Paragraph 2(a), the term "Effective Date of Call" shall
mean the later of (x) 60 days from the date of the Call Notice
or (y) 60 days from the date a registration statement covering
the Warrant Shares shall have become effective, which
registration statement was filed by the Company upon the receipt
of requests made (including a request made by the holder of this
Warrant) prior to the Effective Date of Call and pursuant to the
Amended and Restated Registration Rights Agreement dated as of
the date hereof, among the Company, the Original Holder and the
other persons named therein.
(ii) The Company's right to exercise the purchase
option referred to in subparagraph (i) above is conditional upon
the last reported sales price of the Common Stock (determined as
provided in Paragraph 4(e) hereof) having been equal to at least
200% of the Exercise Price then in effect for 30 of the 40
consecutive Trading Days (as defined below) immediately prior to
the date of the Call Notice.
(iii) If the conditions referred to above have been
satisfied in full (including, without limitation, the giving of
a Call Notice), the holder shall present this Warrant to the
Company at its office referred to in Paragraph 1 hereof on the
Effective Date of Call, and upon surrender thereof shall be
entitled to receive the cash price to which such holder is
entitled, by wire transfer of immediately available funds to an
account designated by the holder hereof or by delivery to such
holder of a certified or official bank check in New York
Clearing House Funds payable to the order of such
-3-
<PAGE> 6
holder. Notwithstanding anything to the contrary implied in this
Paragraph 2(a), until the Effective Date of Call the holder of
this Warrant shall continue to be entitled to exercise any and
all of the rights granted to it herein.
(b) Repurchase Obligation of the Company. If at any time there
occurs a Change of Control (as defined in the Amended and Restated Note
Agreement), then the Company shall give to the holder of this Warrant
notice of such Change of Control within 5 days of its occurrence. Not
later than 60 days (the "Put Election Period") after such notice by the
Company, the holder of this Warrant (or any new Warrant then held by
such holder representing the number of shares with respect to which this
Warrant shall not have been exercised) may, be written notice to the
Company, elect to sell to the Company, and the Company shall purchase
from such holder, this Warrant, in whole, at an aggregate cash price
(the "Put Price") equal to the greater of (x) the Net Warrant Market
Price (as defined below) and (y) $360,000. The holder shall present this
Warrant to the Company at its office referred to in Paragraph 1 hereof
on or before the 30th day following the expiration of the Put Election
Period, and upon surrender thereof shall be entitled to receive the cash
price to which such holder is entitled, by wire transfer of immediately
available funds to an account designated by the holder hereof or by
delivery to such holder of a certified or official bank check in New
York Clearing House Funds payable to the order of such holder. As used
in this Paragraph 2(b), the term "Net Warrant Market Price" shall mean
an amount equal to the product of (x) the number of shares with respect
to which this Warrant shall not have been exercised, multiplied by (y)
the difference between the market price per Warrant Share (determined as
provided in Paragraph 4(e) hereof) on the date of the Put Notice and the
Exercise Price then in effect.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrants Shares will, upon
issuance, be validly issued, fully paid, and nonassessable.
(b) Reservation of Shares. During the period within which this
Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issue exercise of this Warrant, a
sufficient number of shares of Common Stock to provide for the exercise
of this Warrant.
(c) Listing of Shares. If the issuance of any Warrant Shares
required to be reserved for purposes of exercise of this Warrant
requires listing on any national securities exchange before such shares
may be issued upon exercise of this Warrant, the Company will, at its
expense, use its best efforts to cause such
- 4 -
<PAGE> 7
shares to be listed on the relevant national securities exchange at
such time, so that such shares may be issued in accordance with the
terms hereof.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or 99
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.
4. Antidilution Provisions. The Exercise Price shall be subject to
adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "Capital Stock", as used herein,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation which may
be authorized in the future by an amendment to the Company's charter, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, or shares resulting from any subdivision or combination of the
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(i)
hereof, the stock or other securities or property provided for in said
Paragraph.
(a) Issuance of Capital Stock. If and whenever the Company
shall issue or sell any shares of Capital Stock without consideration
or for a consideration per share less than the Exercise Price in effect
immediately prior to the time of such issue or sale, then, forthwith
upon such issue or sale, the Exercise Price shall be reduced to a
price (calculated to the nearest cent) determined by dividing (x) an
amount equal to the aggregate consideration received by the Company
upon such issue or sale, by (y) the total number of shares of Capital
Stock so issued or sold.
(b) Treatment of Options and Convertible Securities;
Computation of Consideration. For the purposes of Paragraph 4(a)
hereof the following provisions shall also be applicable:
(i) If at any time the Company shall grant any rights to
subscribe for or purchase, or any options for the purchase of,
Capital Stock or
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<PAGE> 8
securities convertible into or exchangeable for Capital Stock
(such rights and options being herein called "Options" and such
convertible or exchangeable securities being herein called
"Convertible Securities"), whether or not such Options or the
rights to convert or exchange any such Convertible Securities
are immediately exercisable, and the price per share for which
Capital Stock is issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities
shall be less than the Exercise Price in effect immediately
prior to the time of the granting of such Options, then the
total maximum number of shares of Capital Stock issuable upon
the exercise of such Options or upon the conversion or exchange
of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall (as of the date
of granting of such Options) be deemed to be outstanding and to
have been issued and sold for such price per share. For purposes
of this paragraph 4(b)(i) the price per share for which such
Capital Stock is issuable shall be determined by dividing (x)
the total amount, if any, received or receivable by the Company
as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to
the Company upon the exercise of such Options, plus, in the case
of any such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable to the Company
upon the conversion or exchange of such Convertible Securities,
by (y) the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. Except as provided
in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual issue of such
Capital Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issue of such
Capital Stock upon the conversion or exchange of such
Convertible Securities.
(ii) If at any time the company shall issue or sell
Convertible Securities, whether or not the rights to convert or
exchange such Convertible Securities are immediately
exercisable, and the price per share for which Capital Stock is
issuable upon the conversion or exchange of such Convertible
Securities shall be less than the Exercise Price in effect
immediately prior to the time of the issue or sale of such
Convertible Securities, then the total maximum number of shares
of Capital Stock issuable upon the conversion or exchange of all
such Convertible Securities shall (as of the date of the issue
or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued and sold for such price per
share, provided that (a) except as provided in Paragraph
4(b)(vi) hereof, no further adjustments of the Exercise Price
shall be made upon the actual
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<PAGE> 9
issue of such Capital Stock upon the conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustments of the Exercise Price
have been or are to be made pursuant to other provisions of this Paragraph
4(b), no further adjustment of the Exercise Price shall be made by reason of
such issue or sale. For purposes of this Paragraph 4(b)(ii), the price per
share for which Capital Stock is issuable shall be determined by dividing (x)
the total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, other than such Convertible Securities,
payable to the Company upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Capital Stock issuable upon the conversion or
exchange of all such Convertible Securities.
(iii) If at any time the Company shall pay a dividend or make any
other distribution upon the Capital Stock payable in Capital Stock or
Convertible Securities, any Capital Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued without consideration, and the Exercise Price shall
be reduced as if the Company had subdivided the outstanding shares of Capital
Stock into a greater number of shares as provided in Paragraph 4(c) hereof.
(iv) If at any time any Capital Stock, Convertible Securities, or
Options shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Company therefor, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith. If any
Capital Stock, Convertible Securities, or Options shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company therefor shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of Directors of the
Company, except where such consideration consists of securities, in which case
the amount of consideration received by the Company shall be the market price
thereof (determined as provided in Paragraph 4(e) hereof) as of the date of
receipt, but in each such case without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In computing the market price of a note or
other obligation that is not listed or admitted to trading on any securities
exchange or quoted in the Nasdaq Stock Market or reported by the National
Quotation Bureau, Inc. or a similar reporting organization, the total
consideration to be received by the Company thereunder (including interest)
shall
-7-
<PAGE> 10
be discounted to present value at the prime rate announced or published
in The Wall Street Journal under the caption "Money Rate" in effect at
the time the note or obligation is deemed to have been issued. If any
Capital Stock, Convertible Securities, or Options shall be issued in
connection with any merger of another corporation into the Company, the
amount of consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the Company of
such portion of the assets of such merged corporation as the Board shall
determine to be attributable to such Capital Stock, Convertible
Securities, or Options.
(v) In case at any time the Company shall take a record of
the holders of Capital Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Capital Stock or
Convertible Securities, or (b) to subscribe for or purchase Capital
Stock or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of such Capital Stock or Convertible
Securities.
(vi) If the purchase price provided for any Option referred
to in Paragraph 4(b)(i) hereof, or the price at which any Convertible
Securities referred to in Paragraph 4(b)(i) or (ii) hereof are
convertible into or exchangeable for Capital Stock, shall change at any
time (whether by reason of provisions designed to protect against
dilution or otherwise), the Exercise Price then in effect hereunder
shall forthwith be increased or decreased to such Exercise Price as
would have obtained had the adjustment made upon the issuance of such
Options or Convertible Securities been made upon the basis of (a) the
issuance of the number of shares of Capital Stock theretofore actually
delivered upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities, and the total consideration
received therefor, and (b) the number of shares of Capital Stock to be
issued for the consideration, if any, received by the Company therefor
and to be received on the basis of such changed price.
(vii) If any adjustment has been made in the Exercise Price
because of the issuance of Options or Convertible Securities and if any
of such Options or rights to convert or exchange such Convertible
Securities expire or otherwise terminate, then the Exercise Price shall
be readjusted to eliminate the adjustments previously made in connection
with the Options or rights to convert or exchange Convertible Securities
which have expired or terminated.
(viii) The number of shares of Capital Stock outstanding at
any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall
be considered an issue or sale of Capital Stock.
-8-
<PAGE> 11
(ix) Anything in Paragraph 4(a) or (b) hereof to the contrary
notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price in the case of (a) the issuance of the
Warrants or any other warrant issued to the holder hereof, (b) the
issuance of shares of Common Stock upon exercise of the Warrants or any
other warrant issued to the holder hereof, (c) the granting of stock
options by the Company to employees or directors of the Company or any
of its subsidiaries in connection with their employment or service as
directors to purchase Capital Stock, provided that the exercise price of
such stock options is at least equal to the market price of such shares
of Capital Stock on the date such stock options are granted and the
total number of such options granted after the date hereof does not
exceed the sum of (X) ten percent of the outstanding Common Stock of the
Company and (Y) the number of such employee or director options
outstanding on the date hereof that, on the date in question, have
expired or been cancelled, (d) the issuance of shares of Capital Stock
upon the exercise of the stock options referred to in clause (c) above,
and (e) the issuance of shares of Capital Stock upon the exercise,
conversion, or exchange of any securities issued prior to or
simultaneously with the date of the original issue of this Warrant.
(c) Subdivisions and Combinations. In case at any time the Company
shall subdivide the outstanding shares of Capital Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding
shares of Capital Stock shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased. An adjustment made pursuant to this Paragraph 4(c)
shall become effective immediately after the effective date of such subdivision
or combination.
(d) Extraordinary Dividends and Distributions. If at any time the
Company shall pay a dividend or make a distribution to all holders of Capital
Stock, as such, which dividend or distribution is payable otherwise than in
cash out of earnings or earned surplus and otherwise than in Capital Stock,
Convertible Securities, or Options, then thereafter the holder of this Warrant,
upon the exercise of this Warrant, shall be entitled to receive the number of
shares of Common Stock being purchased upon such exercise and, in addition
thereto and without further payment, the stock and other securities and
property (including cash) which such holder would have received by way of
dividends or distributions (otherwise than in cash out of earnings or earned
surplus or in Capital Stock, Convertible Securities, or Options) as if
continuously, since the date of the original issue of this Warrant, such holder
(i) had been the record holder of the number of shares of Common Stock then
being purchased, and (ii) had retained all dividends and distributions in stock
or other securities (other than Capital Stock, Convertible Securities, or
Options) which would have been paid in respect of such Common
- 9 -
<PAGE> 12
Stock or in respect of any stock or other securities which would have
been paid as dividends or distributions on such Common Stock.
(e) Computation of Market Price. For the purpose of any
computation under Paragraphs 2(a), 2(b) and 4(b) hereof, the market
price of the security in question on any day shall be deemed to be the
average of the last reported sale prices for the security for the 20
consecutive Trading Days beginning 30 Trading Days before the day in
question. The last reported sale price for each day shall be (i) the
last reported sale price of the security on the Nasdaq Stock Market's
National Market, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or
(ii) if not quoted as described in clause (i) above, the mean between
the high bid and asked quotations for such security as reported by the
National Quotation Bureau, Inc. if at least two securities dealers have
inserted both bid and asked quotations for such security on at least
10 of such 20 consecutive Trading Days, or (iii) if the security is
listed or admitted for trading on any national securities exchange, the
last sale price, or the closing bid price if no sale occurred, of such
class of security on the principal securities exchange on which such
class of security is listed or admitted to trading. If the security is
quoted on a national securities or central market system, in lieu of a
market or quotation system described above, the last reported sale price
shall be determined in the manner set forth in clause (ii) of the
preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (iii) of the
preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the
security on any day or the average of such last reported sale prices for
any period shall be the fair market value of such security as determined
by a member firm of the New York Stock Exchange, Inc. selected by the
Company. The term "Trading Days", as used herein means (i) if the
security is quoted on the Nasdaq Stock Market's National Market, or any
similar system of automated dissemination of quotations of securities
prices, days on which trades may be made on such system or (ii) if the
security is listed or admitted for trading on any national securities
exchange, days on which such national securities exchange is open for
business.
(f) Record Date Adjustments. In any case in which this
Paragraph 4 requires that a downward adjustment of the Exercise Price
shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (A) issuing
to the holder of this Warrant exercised after such record date and
before the occurrence of such event the additional Warrant Shares
issuable upon such exercise by reason of the adjustment required by
such event over and above the Warrant Shares issuable upon such
exercise before giving effect to such adjustment and (B) paying to
such holder any amount in cash in lieu of a fractional share pursuant
to Paragraph 4(i) hereof.
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<PAGE> 13
(g) Minimum Adjustment of Exercise Price. No adjustment of
the Exercise Price shall be made in an amount less than $.10 per share
in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not
less than $.10 per share. In case at any time the Company shall issue
Capital Stock by way of dividend on Capital Stock or subdivide or
combine the outstanding shares of Capital Stock, said amount of $.10 per
share (as theretofore increased or decreased, if the said amount shall
been adjusted in accordance with the provisions of this Paragraph 4(g))
shall forthwith be proportionately increased in the case of such a
combination or decreased in the case of such a subdivision or stock
dividend so as appropriately to reflect the same.
(h) Reorganization, Reclassification, Consolidation, Merger,
or Sale. If any capital reorganization of the Company, or any
reclassification of the Capital Stock, or any consolidation or merger of
the Company with or into another corporation or entity, or any sale of
all or substantially all the assets of the Company to another
corporation or entity, shall be effected in such a way that the holders
of Common Stock (or any other securities of the Company then issuable
upon the exercise of this Warrant) shall be entitled to receive stock or
other securities or property (including cash) with respect to or in
exchange for Common Stock (or such other securities), then lawful and
adequate provision shall be made whereby the holder of this Warrant
shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant, and in lieu
of the shares of Common Stock (or such other securities) immediately
theretofore purchasable and receivable upon the exercise hereof, such
stock or other securities or property (including cash) as may be
issuable or payable with respect to or in exchange for a number of
outstanding shares of Common Stock (or such other securities) equal to
the number of shares of Common Stock (or such other securities)
immediately theretofore purchasable and receivable upon the exercise of
this Warrant, had such reorganization, reclassification, consolidation,
merger, or sale not taken place. In any such case appropriate provision
shall be made with respect to the rights and interests of the holder of
this Warrant to the end that the provisions hereof (including, without
limitation, the provisions for adjustments of the Exercise Price and of
the number of Warrant Shares purchasable upon exercise hereof) shall
thereafter be applicable, as nearly as reasonably may be, in relation to
the stock or other securities or property thereafter deliverable upon
the exercise hereof. In the event of a consolidation or merger of the
company with or into another corporation or entity as a result of which
a greater or lesser number of shares of common stock of the surviving
corporation or entity are issuable to holders of Capital Stock in
respect of the number of shares of Capital Stock outstanding immediately
prior to such consolidation or merger, then the Exercise Price in effect
immediately prior to such
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<PAGE> 14
consolidation or merger shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Capital stock.
(i) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the current market value of a share
of Common Stock, which current market value shall be the last reported sale
price (determined as provided in Paragraph 4(e) hereof) on the Trading Day
immediately preceding the date of the exercise.
(j) Other Notices. If at any time:
(i) the Company shall declare any dividend upon the Capital
Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash
out of earnings or earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Capital Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Capital Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in each such case, the Company shall promptly give to the holder of this
Warrant (a) notice of the date on which the books of the Company shall close or
a record shall be taken for determining the holders of Capital Stock entitled
to receive any such dividend, distribution, or subscription rights or for
determining the holders of Capital Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take
place. Such notice shall also specify the date on which the holders of Capital
Stock shall be entitled to receive such dividend, distribution, or subscription
rights or to exchange their Capital Stock for stock or other securities or
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may be.
Failure
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<PAGE> 15
to give any such notice or any defect therein shall not affect the
validity of the proceeding referred to in clauses (i), (ii), (iii),
and (iv) above.
5. No Rights or Liabilities as a Shareholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
6. Transfer, Exchange, and Replacement of Warrant.
(a) Warrant Not Transferable. You agree that this Warrant may
not be transferred, sold, assigned or hypothecated, except to (i) your
wholly-owned subsidiaries or affiliates (as defined by the Securities
Exchange Act of 1934); (ii) the respective successors to you in a merger
or consolidation; (iii) the respective purchasers of all or
substantially all of your assets; (iv) your respective shareholders in
the event you are liquidated or dissolved; (v) any one or more financial
institutions (including, without limitation, any banks, investment
banking firms, investment funds and insurance companies); or (vi) any
other person or entity with respect to whom you have received the prior
written consent of the Company. It is not a condition to the transfer of
this Warrant that it be transferred in connection with a transfer of a
Note. Until due presentment for registration of a permitted transfer on
the Company's books, the Company may treat the registered holder hereof
as the owner and holder hereof for all purposes, and the Company shall
not be affected by any notice to the contrary.
(b) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft,
or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
(c) Register. The Company shall maintain, at its principal
office at 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231 (or
such other office or agency of the Company as it may designate by notice
to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each
permitted transferee and each prior owner of this Warrant.
- 13 -
<PAGE> 16
(d) Exercise or Transfer Without Registration. Anything in
this Warrant to the contrary notwithstanding, if, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant shall not be registered under the
Securities Act of 1933, as amended, and under applicable state
securities or blue sky laws, the Company may require, as a condition of
allowing such exercise, transfer, or exchange, that the holder of this
Warrant execute and deliver to the Company a seller's Rule 144
representation letter in form and substance reasonably acceptable to the
Company. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this
Warrant for investment and not with a view to the distribution thereof.
(e) Expenses of Transfer. The Company shall pay all taxes
(other than those imposed on or in respect of income), other expenses
and charges payable in connection with the preparation, execution, and
delivery of any Warrants issued or prepared by the Company in connection
with this Paragraph 6.
7. Notices. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed, to such
holder at the address shown for such holder on the books of the Company, or at
such other address as shall have been furnished to the Company by notice from
such holder. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the Company shall be in
writing, and shall be personally delivered, or shall be sent by certified or
registered mail, postage prepaid and addressed, to the office of the Company at
8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231, Attention: President,
or at such other address as shall have been furnished to the holder of this
Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by telegram or telex, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 7, or, if mailed, at the completion of the third full
day following the time of such mailing thereof to such address, as the case
may be.
8. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 17
9. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may not
be changed, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party (or any predecessor in
interest thereof) against which enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of any
of the provisions hereof.
(c) Successors and Assigns. This Warrant shall be binding upon
any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
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<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer on this 9th day of April, 1997.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
-----------------------------
Michael G. Pate
Chief Financial Officer
and Treasurer
<PAGE> 19
FORM OF EXERCISE AGREEMENT
Dated: ______________, 19__.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase _________________ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in the amount of $______________.
Please issue a certificate or certificates for such shares of Common Stock in
the name of and pay any cash for any fractional share to:
Name:
Signature:
Title of Signing Officer or Agent
(if any):
Note: The above signature should correspond exactly with the name on
the face of the within Warrant or with the name of the assignee
appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the
name of said undersigned covering the balance of the shares purchasable
thereunder less any fraction of a share paid in cash.
<PAGE> 20
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all
the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
<TABLE>
<CAPTION>
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
<S> <C> <C>
</TABLE>
, and hereby irrevocably constitutes and appoints ____________________ as agent
and attorney-in-fact to transfer said Warrant on the books of the within-named
corporation, with full power of substitution in the premises.
Dated: ______________, 19__.
In the presence of
Name:
Signature:
Title of Signing Officer or Agent
(if any):
Address:
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
<PAGE> 1
EXHIBIT 10.32
Execution Copy
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
STOCK PURCHASE WARRANT
ISSUED TO
DELAWARE STATE EMPLOYEES' RETIREMENT FUND
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Manner of Exercise; Issuance of Certificates; Payment for Shares . . . . . . . . . . . . . . . . . . . . . . 1
2. Period of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Call Option of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Repurchase Obligation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Certain Agreements of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Shares to be Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Listing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Certain Actions Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Antidilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Treatment of Options and Convertible Securities; Computation of Consideration . . . . . . . . . . . 5
(c) Subdivisions and Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Extraordinary Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(e) Computation of Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(f) Record Date Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(g) Minimum Adjustment of Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(h) Reorganization, Reclassification, Consolidation, Merger, or Sale . . . . . . . . . . . . . . . . . . 11
(i) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(j) Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. No Rights or Liabilities as a Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Transfer, Exchange, and Replacement of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Warrant Not Transferable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Replacement of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Exercise or Transfer Without Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(e) Expenses of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. DE-01 Right to Purchase 775,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Delaware State Employees'
Retirement Fund (the "Original Holder"), or registered successors or assigns,
is entitled to purchase from Source Media, Inc., a Delaware corporation (the
"Company"), at any time or from time to time during the period specified in
Paragraph 2 hereof, 775,000 fully paid and nonassessable shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock"), at an
exercise price per share of $6.00 (the "Exercise Price"). The term "Warrant
Shares", as used herein, refers to the shares of Common Stock purchasable
hereunder. The Warrant Shares and the Exercise Price are subject to adjustment
as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for
Shares. Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part (but not as to a fractional Warrant Share),
by the surrender of this Warrant, together with a completed Exercise Agreement
in the form attached hereto, to the Company during normal business hours on any
business day at the Company's principal office at 8140 Walnut Hill Lane, Suite
1000, Dallas, Texas 75231 (or such other office or agency of the Company as it
may designate by notice to the holder hereof), and upon payment to the Company
of the Exercise Price for the Warrant Shares specified in said Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or its designee as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement delivered, and payment made for
such shares as aforesaid. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares
<PAGE> 4
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of said holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of said certificates, deliver to said holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised. The Company shall pay all taxes and other
expenses and charges payable in connection with the preparation, execution, and
delivery of stock certificates (and any new Warrants) pursuant to this
Paragraph 1 except that, in case such stock certificates shall be registered in
a name or names other than the holder of this Warrant, funds sufficient to pay
all stock transfer taxes which shall be payable in connection with the
execution and delivery of such stock certificates shall be paid by the holder
hereof to the Company at the time of the delivery of such stock certificates by
the Company as mentioned above.
Payment of the Exercise Price may be made by either of the following
methods:
(i) Cash Exercise. By payment to the Company of the
Exercise Price in cash or by certified or official bank check, for
each share being purchased;
(ii) Surrender of Notes. By surrender to the Company for
cancellation of any Note or Notes (as such terms are defined in that
certain Amended and Restated Note Agreement, dated as of March 31,
1997 (the "Amended and Restated Note Agreement"), among the Company,
IT Network, Inc., the Original Holder and the other Purchasers named
therein), or any portion of a Note, for which credit shall be given
toward the Exercise Price on a dollar-for-dollar basis with reference
to the principal amount and accrued but unpaid interest cancelled;
(iii) Net Issue Exercise. By an election to receive shares
the aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event the Company, upon
receipt of notice of such election, shall issue to the holder hereof a
number of shares of Common Stock equal to (A) the number of shares of
Common Stock acquirable upon exercise of all or any portion of this
Warrant being exercised, as at such date, multiplied by (B) the
balance remaining after deducting (x) the Exercise Price, as in effect
on such date, from (y) the market price of one share of Common Stock
as at such date (determined as provided in Paragraph 4(e) hereof) and
dividing the result by (C) such market price; provided, however, that
payment of the Exercise Price pursuant to this method may be made only
to the extent that the aggregate outstanding principal amount of the
Notes held by the holder of this Warrant on the date of such election
has been paid in full; or
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<PAGE> 5
(iv) Combined Payment Method. By satisfaction of the
Exercise Price for such shares acquired in combination of the methods
described in clauses (i), (ii) or (iii).
2. Period of Exercise. Subject to the provisions of Paragraphs
2(a) and (b) below, this Warrant is exercisable at any time after the date
hereof, and before 5:00 p.m., Dallas time, on March 31, 2004.
(a) Call Option of the Company .
(i) Subject to the satisfaction in full of the
conditions set forth in subparagraph (ii) below, at any time
after the second anniversary of the date hereof, the Company
may, by written notice to the holder of this Warrant (the
"Call Notice"), elect to purchase this Warrant (or any new
Warrant then held by such holder representing the number of
shares with respect to which this Warrant shall not have been
exercised), in whole, on the Effective Date of Call (as
defined below), at a cash price for this Warrant equal to the
product of (x) $.01 multiplied by (y) the number of shares
with respect to which this Warrant shall not have been
exercised on such date. As used in this Paragraph 2(a), the
term "Effective Date of Call" shall mean the later of (x) 60
days from the date of the Call Notice or (y) 60 days from the
date a registration statement covering the Warrant Shares
shall have become effective, which registration statement was
filed by the Company upon the receipt of requests made
(including a request made by the holder of this Warrant) prior
to the Effective Date of Call and pursuant to the Amended and
Restated Registration Rights Agreement dated as of the date
hereof, among the Company, the Original Holder and the other
persons named therein.
(ii) The Company's right to exercise the purchase
option referred to in subparagraph (i) above is conditional
upon the last reported sales price of the Common Stock
(determined as provided in Paragraph 4(e) hereof) having being
equal to at least 200% of the Exercise Price then in effect
for 30 of the 40 consecutive Trading Days (as defined below)
immediately prior to the date of the Call Notice.
(iii) If the conditions referred to above have been
satisfied in full (including, without limitation, the giving
of a Call Notice), the holder shall present this Warrant to
the Company at its office referred to in Paragraph 1 hereof on
the Effective Date of Call, and upon surrender thereof shall
be entitled to receive the cash price to which such holder is
entitled, by wire transfer of immediately available funds to
an account designated by the holder hereof or by delivery to
such holder of a certified or official bank check in New York
Clearing House Funds payable to the order of such
-3-
<PAGE> 6
holder. Notwithstanding anything to the contrary implied in
this Paragraph 2(a), until the Effective Date of Call the
holder of this Warrant shall continue to be entitled to
exercise any and all of the rights granted to it herein.
(b) Repurchase Obligation of the Company. If at any time
there occurs a Change of Control (as defined in the Amended and
Restated Note Agreement), then the Company shall give to the holder of
this Warrant notice of such Change of Control within 5 days of its
occurrence. Not later than 60 days (the "Put Election Period") after
such notice by the Company, the holder of this Warrant (or any new
Warrant then held by such holder representing the number of shares
with respect to which this Warrant shall not have been exercised) may,
by written notice to the Company, elect to sell to the Company, and
the Company shall purchase from such holder, this Warrant, in whole,
at an aggregate cash price (the "Put Price") equal to the greater of
(x) the Net Warrant Market Price (as defined below) and (y)
$1,860,000. The holder shall present this Warrant to the Company at
its office referred to in Paragraph 1 hereof on or before the 30th day
following the expiration of the Put Election Period, and upon
surrender thereof shall be entitled to receive the cash price to which
such holder is entitled, by wire transfer of immediately available
funds to an account designated by the holder hereof or by delivery to
such holder of a certified or official bank check in New York Clearing
House Funds payable to the order of such holder. As used in this
Paragraph 2(b), the term "Net Warrant Market Price" shall mean an
amount equal to the product of (x) the number of shares with respect
to which this Warrant shall not have been exercised, multiplied by (y)
the difference between the market price per Warrant Share (determined
as provided in Paragraph 4(e) hereof) on the date of the Put Notice
and the Exercise Price then in effect.
3. Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will,
upon issuance, be validly issued, fully paid, and nonassessable.
(b) Reservation of Shares. During the period within
which this Warrant may be exercised, the Company will at all times
have authorized, and reserved for the purpose of issue upon exercise
of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing of Shares. If the issuance of any Warrant
Shares required to be reserved for purposes of exercise of this
Warrant requires listing on any national securities exchange before
such shares may be issued upon exercise of this Warrant, the Company
will, at its expense, use its best efforts to cause such
-4-
<PAGE> 7
shares to be listed on the relevant national securities exchange at
such time, so that such shares may be issued in accordance with the
terms hereof.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder
of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment,
consistent with the tenor and purpose of this Warrant.
4. Antidilution Provisions. The Exercise Price shall be subject
to adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "Capital Stock", as used herein,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation which may
be authorized in the future by an amendment to the Company's charter, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, or shares resulting from any subdivision or combination of the
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(i)
hereof, the stock or other securities or property provided for in said
Paragraph.
(a) Issuance of Capital Stock. If and whenever the
Company shall issue or sell any shares of Capital Stock without
consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Exercise Price shall be
reduced to a price (calculated to the nearest cent) determined by
dividing (x) an amount equal to the aggregate consideration received
by the Company upon such issue or sale, by (y) the total number of
shares of Capital Stock so issued or sold.
(b) Treatment of Options and Convertible Securities;
Computation of Consideration. For the purposes of Paragraph 4(a)
hereof the following provisions shall also be applicable:
(i) If at any time the Company shall grant any
rights to subscribe for or purchase, or any options for the
purchase of, Capital Stock or
-5-
<PAGE> 8
securities convertible into or exchangeable for Capital Stock
(such rights and options being herein called "Options" and
such convertible or exchangeable securities being herein
called "Convertible Securities"), whether or not such Options
or the rights to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities shall be less than the Exercise Price
in effect immediately prior to the time of the granting of
such Options, then the total maximum number of shares of
Capital Stock issuable upon the exercise of such Options or
upon the conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such
Options shall (as of the date of granting of such Options) be
deemed to be outstanding and to have been issued and sold for
such price per share. For purposes of this paragraph 4(b)(i)
the price per share for which such Capital Stock is issuable
shall be determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such Options, plus, in the case of any such
Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, other
than such Convertible Securities, payable to the Company upon
the conversion or exchange of such Convertible Securities, by
(y) the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. Except as
provided in Paragraph 4(b)(vi) hereof, no further adjustments
of the Exercise Price shall be made upon the actual issue of
such Capital Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issue of such
Capital Stock upon the conversion or exchange of such
Convertible Securities.
(ii) If at any time the Company shall issue or
sell Convertible Securities, whether or not the rights to
convert or exchange such Convertible Securities are
immediately exercisable, and the price per share for which
Capital Stock is issuable upon the conversion or exchange of
such Convertible Securities shall be less than the Exercise
Price in effect immediately prior to the time of the issue or
sale of such Convertible Securities, then the total maximum
number of shares of Capital Stock issuable upon the conversion
or exchange of all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued and sold
for such price per share, provided that (a) except as provided
in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual
-6-
<PAGE> 9
issue of such Capital Stock upon the conversion or exchange of
such Convertible Securities, and (b) if any such issue or sale
of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Exercise Price have been
or are to be made pursuant to other provisions of this
Paragraph 4(b), no further adjustment of the Exercise Price
shall be made by reason of such issue or sale. For purposes
of this Paragraph 4(b)(ii), the price per share for which
Capital Stock is issuable shall be determined by dividing (x)
the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities,
payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Capital
Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(iii) If at any time the Company shall pay a
dividend or make any other distribution upon the Capital Stock
payable in Capital Stock or Convertible Securities, any
Capital Stock or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be
deemed to have been issued without consideration, and the
Exercise Price shall be reduced as if the Company had
subdivided the outstanding shares of Capital Stock into a
greater number of shares as provided in Paragraph 4(c) hereof.
(iv) If at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the
amount received by the Company therefor, without deduction
therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. If any Capital Stock, Convertible
Securities, or Options shall be issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Company therefor shall be
deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the
Company, except where such consideration consists of
securities, in which case the amount of consideration received
by the Company shall be the market price thereof (determined
as provided in Paragraph 4(e) hereof) as of the date of
receipt, but in each such case without deduction therefrom of
any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith. In computing the market price of a note or other
obligation that is not listed or admitted to trading on any
securities exchange or quoted in the Nasdaq Stock Market or
reported by the National Quotation Bureau, Inc. or a similar
reporting organization, the total consideration to be received
by the Company thereunder (including interest) shall
-7-
<PAGE> 10
be discounted to present value at the prime rate announced or
published in The Wall Street Journal under the caption "Money
Rate" in effect at the time the note or obligation is deemed
to have been issued. If any Capital Stock, Convertible
Securities, or Options shall be issued in connection with any
merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the
Company of such portion of the assets of such merged
corporation as the Board shall determine to be attributable to
such Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a
record of the holders of Capital Stock for the purpose of
entitling them (a) to receive a dividend or other distribution
payable in Capital Stock or Convertible Securities, or (b) to
subscribe for or purchase Capital Stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of such Capital Stock or Convertible
Securities.
(vi) If the purchase price provided for in any
Option referred to in Paragraph 4(b)(i) hereof, or the price
at which any Convertible Securities referred to in Paragraph
4(b)(i) or (ii) hereof are convertible into or exchangeable
for Capital Stock, shall change at any time (whether by reason
of provisions designed to protect against dilution or
otherwise), the Exercise Price then in effect hereunder shall
forthwith be increased or decreased to such Exercise Price as
would have obtained had the adjustments made upon the issuance
of such Options or Convertible Securities been made upon the
basis of (a) the issuance of the number of shares of Capital
Stock theretofore actually deliv- ered upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities, and the total consideration received
therefor, and (b) the number of shares of Capital Stock to be
issued for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed
price.
(vii) If any adjustment has been made in the
Exercise Price because of the issuance of Options or
Convertible Securities and if any of such Options or rights to
convert or exchange such Convertible Securities expire or
otherwise terminate, then the Exercise Price shall be
readjusted to eliminate the adjustments previously made in
connection with the Options or rights to convert or exchange
Convertible Securities which have expired or terminated.
(viii) The number of shares of Capital Stock
outstanding at any given time shall not include shares owned
or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or
sale of Capital Stock.
-8-
<PAGE> 11
(ix) Anything in Paragraph 4(a) or (b) hereof to
the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Exercise Price in the
case of (a) the issuance of the Warrants or any other warrant
issued to the holder hereof, (b) the issuance of shares of
Common Stock upon exercise of the Warrants or any other
warrant issued to the holder hereof, (c) the granting of stock
options by the Company to employees or directors of the
Company or any of its subsidiaries in connection with their
employment or service as directors to purchase Capital Stock,
provided that the exercise price of such stock options is at
least equal to the market price of such shares of Capital
Stock on the date such stock options are granted and the total
number of such options granted after the date hereof does not
exceed the sum of (X) ten percent of the outstanding Common
Stock of the Company and (Y) the number of such employee or
director options outstanding on the date hereof that, on the
date in question, have expired or been cancelled, (d) the
issuance of shares of Capital Stock upon the exercise of the
stock options referred to in clause (c) above, and (e) the
issuance of shares of Capital Stock upon the exercise,
conversion, or exchange of any securities issued prior to or
simultaneously with the date of the original issue of this
Warrant.
(c) Subdivisions and Combinations. In case at any time
the Company shall subdivide the outstanding shares of Capital Stock
into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Capital
Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be
proportionately increased. An adjustment made pursuant to this
Paragraph 4(c) shall become effective immediately after the effective
date of such subdivision or combination.
(d) Extraordinary Dividends and Distributions. If at any
time the Company shall pay a dividend or make a distribution to all
holders of Capital Stock, as such, which dividend or distribution is
payable otherwise than in cash out of earnings or earned surplus and
otherwise than in Capital Stock, Convertible Securities, or Options,
then thereafter the holder of this Warrant, upon the exercise of this
Warrant, shall be entitled to receive the number of shares of Common
Stock being purchased upon such exercise and, in addition thereto and
without further payment, the stock and other securities and property
(including cash) which such holder would have received by way of
dividends or distributions (otherwise than in cash out of earnings or
earned surplus or in Capital Stock, Convertible Securities, or
Options) as if continuously, since the date of the original issue of
this Warrant, such holder (i) had been the record holder of the number
of shares of Common Stock then being purchased, and (ii) had retained
all dividends and distributions in stock or other securities (other
than Capital Stock, Convertible Securities, or Options) which would
have been paid in respect of such Common
-9-
<PAGE> 12
Stock or in respect of any stock or other securities which would have
been paid as dividends or distributions on such Common Stock.
(e) Computation of Market Price. For the purpose of any
computation under Paragraphs 2(a), 2(b) and 4(b) hereof, the market
price of the security in question on any day shall be deemed to be the
average of the last reported sale prices for the security for the 20
consecutive Trading Days beginning 30 Trading Days before the day in
question. The last reported sale price for each day shall be (i) the
last reported sale price of the security on the Nasdaq Stock Market's
National Market, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or
(ii) if not quoted as described in clause (i) above, the mean between
the high bid and low asked quotations for the security as reported by
the National Quotation Bureau, Inc. if at least two securities dealers
have inserted both bid and asked quotations for such security on at
least 10 of such 20 consecutive Trading Days, or (iii) if the security
is listed or admitted for trading on any national securities exchange,
the last sale price, or the closing bid price if no sale occurred, of
such class of security on the principal securities exchange on which
such class of security is listed or admitted to trading. If the
security is quoted on a national securities or central market system,
in lieu of a market or quotation system described above, the last
reported sale price shall be determined in the manner set forth in
clause (ii) of the preceding sentence if bid and asked quotations are
reported but actual transactions are not, and in the manner set forth
in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the last
reported sale price of the security on any day or the average of such
last reported sale prices for any period shall be the fair market
value of such security as determined by a member firm of the New York
Stock Exchange, Inc. selected by the Company. The term "Trading
Days", as used herein, means (i) if the security is quoted on the
Nasdaq Stock Market's National Market, or any similar system of
automated dissemination of quotations of securities prices, days on
which trades may be made on such system or (ii) if the security is
listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business.
(f) Record Date Adjustments. In any case in which this
Paragraph 4 requires that a downward adjustment of the Exercise Price
shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (A) issuing
to the holder of this Warrant exercised after such record date and
before the occurrence of such event the additional Warrant Shares
issuable upon such exercise by reason of the adjustment required by
such event over and above the Warrant Shares issuable upon such
exercise before giving effect to such adjustment and (B) paying to
such holder any amount in cash in lieu of a fractional share pursuant
to Paragraph 4(i) hereof.
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<PAGE> 13
(g) Minimum Adjustment of Exercise Price. No adjustment
of the Exercise Price shall be made in an amount less than $.10 per
share in effect at the time such adjustment is otherwise required to
be made, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward,
shall amount to not less than $.10 per share. In case at any time the
Company shall issue Capital Stock by way of dividend on Capital Stock
or subdivide or combine the outstanding shares of Capital Stock, said
amount of $.10 per share (as theretofore increased or decreased, if
the said amount shall have been adjusted in accordance with the
provisions of this Paragraph 4(g)) shall forthwith be proportionately
increased in the case of such a combination or decreased in the case
of such a subdivision or stock dividend so as appropriately to reflect
the same.
(h) Reorganization, Reclassification, Consolidation,
Merger, or Sale. If any capital reorganization of the Company, or any
reclassification of the Capital Stock, or any consolidation or merger
of the Company with or into another corporation or entity, or any sale
of all or substantially all the assets of the Company to another
corporation or entity, shall be effected in such a way that the
holders of Common Stock (or any other securities of the Company then
issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with
respect to or in exchange for Common Stock (or such other securities),
then lawful and adequate provision shall be made whereby the holder of
this Warrant shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this
Warrant, and in lieu of the shares of Common Stock (or such other
securities) immediately theretofore purchasable and receivable upon
the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in
exchange for a number of outstanding shares of Common Stock (or such
other securities) equal to the number of shares of Common Stock (or
such other securities) immediately theretofore purchasable and
receivable upon the exercise of this Warrant, had such reorganization,
reclassification, consolidation, merger, or sale not taken place. In
any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, the provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as
nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise
hereof. In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater
or lesser number of shares of common stock of the surviving
corporation or entity are issuable to holders of Capital Stock in
respect of the number of shares of Capital Stock outstanding
immediately prior to such consolidation or merger, then the Exercise
Price in effect immediately prior to such
-11-
<PAGE> 14
consolidation or merger shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of
Capital Stock.
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the
Company shall pay a cash adjustment in respect of any fractional share
which would otherwise be issuable in an amount equal to the same
fraction of the current market value of a share of Common Stock, which
current market value shall be the last reported sale price (determined
as provided in Paragraph 4(e) hereof) on the Trading Day immediately
preceding the date of the exercise.
(j) Other Notices. If at any time:
(i) the Company shall declare any dividend upon
the Capital Stock payable in shares of stock of any class or
make any other distribution (other than dividends or
distributions payable in cash out of earnings or earned
surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Capital Stock any additional shares
of stock of any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Capital Stock, or
consolidation or merger of the Company with or into, or sale
of all or substantially all its assets to, another corporation
or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company;
then, in each such case, the Company shall promptly give to the holder
of this Warrant (a) notice of the date on which the books of the
Company shall close or a record shall be taken for determining the
holders of Capital Stock entitled to receive any such dividend,
distribution, or subscription rights or for determining the holders of
Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up, notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice shall also specify the
date on which the holders of Capital Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to
exchange their Capital Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may
be. Failure
-12-
<PAGE> 15
to give any such notice or any defect therein shall not affect the
validity of the proceeding referred to in clauses (i), (ii), (iii),
and (iv) above.
5. No Rights or Liabilities as a Shareholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
6. Transfer, Exchange, and Replacement of Warrant.
(a) Warrant Not Transferable. You agree that this
Warrant may not be transferred, sold, assigned or hypothecated, except
to (i) your wholly-owned subsidiaries or affiliates (as defined by the
Securities Exchange Act of 1934); (ii) the respective successors to
you in a merger or consolidation; (iii) the respective purchasers of
all or substantially all of your assets; (iv) your respective
shareholders in the event you are liquidated or dissolved; (v) any one
or more financial institutions (including, without limitation, any
banks, investment banking firms, investment funds and insurance
companies); or (vi) any other person or entity with respect to whom
you have received the prior written consent of the Company. It is not
a condition to the transfer of this Warrant that it be transferred in
connection with a transfer of a Note. Until due presentment for
registration of a permitted transfer on the Company's books, the
Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any
notice to the contrary.
(b) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any
such loss, theft, or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company,
or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
(c) Register. The Company shall maintain, at its
principal office at 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas
75231 (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this
Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name
and address of each permitted transferee and each prior owner of this
Warrant.
-13-
<PAGE> 16
(d) Exercise or Transfer Without Registration. Anything
in this Warrant to the contrary notwithstanding, if, at the time of
the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant shall not be
registered under the Securities Act of 1933, as amended, and under
applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, that
the holder of this Warrant execute and deliver to the Company a
seller's Rule 144 representation letter in form and substance
reasonably acceptable to the Company. The first holder of this
Warrant, by taking and holding the same, represents to the Company
that such holder is acquiring this Warrant for investment and not with
a view to the distribution thereof.
(e) Expenses of Transfer. The Company shall pay all
taxes (other than those imposed on or in respect of income), other
expenses and charges payable in connection with the preparation,
execution, and delivery of any Warrants issued or prepared by the
Company in connection with this Paragraph 6.
7. Notices. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed, to such
holder at the address shown for such holder on the books of the Company, or at
such other address as shall have been furnished to the Company by notice from
such holder. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the Company shall be in
writing, and shall be personally delivered, or shall be sent by certified or
registered mail, postage prepaid and addressed, to the office of the Company at
8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231, Attention: President,
or at such other address as shall have been furnished to the holder of this
Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by telegram or telex, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 7, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the
case may be.
8. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 17
9. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof
may not be changed, waived, discharged, or terminated orally, but only
by an instrument in writing signed by the party (or any predecessor in
interest thereof) against which enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of
the several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
(c) Successors and Assigns. This Warrant shall be
binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the
Company's assets.
-15-
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on this 9th day of April, 1997.
SOURCE MEDIA, INC.
By:/s/ MICHAEL G. PATE
----------------------------
Michael G. Pate
Chief Financial Officer
and Treasurer
<PAGE> 19
FORM OF EXERCISE AGREEMENT
Dated: ________________, 19__.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ____________________ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in the amount of
$____________________. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Note: The above signature should correspond exactly with the name on
the face of the within Warrant or with the name of the
assignee appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE> 20
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints __________________ as agent
and attorney-in-fact to transfer said Warrant on the books of the within-named
corporation, with full power of substitution in the premises.
Dated: ____________________, 19__.
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Address:
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
<PAGE> 1
EXHIBIT 10.33
Execution Copy
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
STOCK PURCHASE WARRANT
ISSUED TO
DECLARATION OF TRUST FOR DEFINED BENEFIT PLAN
OF ICI AMERICAN HOLDINGS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Manner of Exercise; Issuance of Certificates; Payment for Shares . . . . . . . . . . . . . . . . . . . . . . 1
2. Period of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Call Option of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Repurchase Obligation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Certain Agreements of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Shares to be Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Listing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Certain Actions Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Antidilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Treatment of Options and Convertible Securities; Computation of Consideration . . . . . . . . . . . 5
(c) Subdivisions and Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Extraordinary Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(e) Computation of Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(f) Record Date Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(g) Minimum Adjustment of Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(h) Reorganization, Reclassification, Consolidation, Merger, or Sale . . . . . . . . . . . . . . . . . . 11
(i) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(j) Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. No Rights or Liabilities as a Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Transfer, Exchange, and Replacement of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Warrant Not Transferable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Replacement of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Exercise or Transfer Without Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(e) Expenses of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. ICI-01 Right to Purchase 225,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Declaration of Trust for
Defined Benefit Plan of ICI American Holdings, Inc. (the "Original Holder"), or
registered successors or assigns, is entitled to purchase from Source Media,
Inc., a Delaware corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, 225,000 fully paid and
nonassessable shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock"), at an exercise price per share of $6.00 (the "Exercise
Price"). The term "Warrant Shares", as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for
Shares. Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part (but not as to a fractional Warrant Share),
by the surrender of this Warrant, together with a completed Exercise Agreement
in the form attached hereto, to the Company during normal business hours on any
business day at the Company's principal office at 8140 Walnut Hill Lane, Suite
1000, Dallas, Texas 75231 (or such other office or agency of the Company as it
may designate by notice to the holder hereof), and upon payment to the Company
of the Exercise Price for the Warrant Shares specified in said Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or its designee as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement delivered, and payment made for
such shares as aforesaid. Certi-
<PAGE> 4
ficates for the Warrant Shares so purchased, representing the aggregate number
of shares specified in said Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding seven business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of said holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of said certificates, deliver to
said holder a new Warrant representing the number of shares with respect to
which this Warrant shall not then have been exercised. The Company shall pay
all taxes and other expenses and charges payable in connection with the
preparation, execution, and delivery of stock certificates (and any new
Warrants) pursuant to this Paragraph 1 except that, in case such stock
certificates shall be registered in a name or names other than the holder of
this Warrant, funds sufficient to pay all stock transfer taxes which shall be
payable in connection with the execution and delivery of such stock
certificates shall be paid by the holder hereof to the Company at the time of
the delivery of such stock certificates by the Company as mentioned above.
Payment of the Exercise Price may be made by either of the following
methods:
(i) Cash Exercise. By payment to the Company of the
Exercise Price in cash or by certified or official bank check, for
each share being purchased;
(ii) Surrender of Notes. By surrender to the Company for
cancellation of any Note or Notes (as such terms are defined in that
certain Amended and Restated Note Agreement, dated as of March 31,
1997 (the "Amended and Restated Note Agreement"), among the Company,
IT Network, Inc., the Original Holder and the other Purchasers named
therein), or any portion of a Note, for which credit shall be given
toward the Exercise Price on a dollar-for-dollar basis with reference
to the principal amount and accrued but unpaid interest cancelled;
(iii) Net Issue Exercise. By an election to receive shares
the aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event the Company, upon
receipt of notice of such election, shall issue to the holder hereof a
number of shares of Common Stock equal to (A) the number of shares of
Common Stock acquirable upon exercise of all or any portion of this
Warrant being exercised, as at such date, multiplied by (B) the
balance remaining after deducting (x) the Exercise Price, as in effect
on such date, from (y) the market price of one share of Common Stock
as at such date (determined as provided in Paragraph 4(e) hereof) and
dividing the result by (C) such market price; provided, however, that
payment of the Exercise Price pursuant to this method may be made only
to the extent that the aggregate outstanding principal amount of the
Notes held by the holder of this Warrant on the date of such election
has been paid in full; or
-2-
<PAGE> 5
(iv) Combined Payment Method. By satisfaction of the
Exercise Price for such shares acquired in combination of the methods
described in clauses (i), (ii) or (iii).
2. Period of Exercise. Subject to the provisions of Paragraphs
2(a) and (b) below, this Warrant is exercisable at any time after the date
hereof, and before 5:00 p.m., Dallas time, on March 31, 2004.
(a) Call Option of the Company.
(i) Subject to the satisfaction in full of the
conditions set forth in subparagraph (ii) below, at any time
after the second anniversary of the date hereof, the Company
may, by written notice to the holder of this Warrant (the
"Call Notice"), elect to purchase this Warrant (or any new
Warrant then held by such holder representing the number of
shares with respect to which this Warrant shall not have been
exercised), in whole, on the Effective Date of Call (as
defined below), at a cash price for this Warrant equal to the
product of (x) $.01 multiplied by (y) the number of shares
with respect to which this Warrant shall not have been
exercised on such date. As used in this Paragraph 2(a), the
term "Effective Date of Call" shall mean the later of (x) 60
days from the date of the Call Notice or (y) 60 days from the
date a registration statement covering the Warrant Shares
shall have become effective, which registration statement was
filed by the Company upon the receipt of requests made
(including a request made by the holder of this Warrant) prior
to the Effective Date of Call and pursuant to the Amended and
Restated Registration Rights Agreement dated as of the date
hereof, among the Company, the Original Holder and the other
persons named therein.
(ii) The Company's right to exercise the purchase
option referred to in subparagraph (i) above is conditional
upon the last reported sales price of the Common Stock
(determined as provided in Paragraph 4(e) hereof) having being
equal to at least 200% of the Exercise Price then in effect
for 30 of the 40 consecutive Trading Days (as defined below)
immediately prior to the date of the Call Notice.
(iii) If the conditions referred to above have been
satisfied in full (including, without limitation, the giving
of a Call Notice), the holder shall present this Warrant to
the Company at its office referred to in Paragraph 1 hereof on
the Effective Date of Call, and upon surrender thereof shall
be entitled to receive the cash price to which such holder is
entitled, by wire transfer of immediately available funds to
an account designated by the holder hereof or by delivery to
such holder of a certified or official bank check in New York
Clearing House Funds payable to the order of such
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<PAGE> 6
holder. Notwithstanding anything to the contrary implied in
this Paragraph 2(a), until the Effective Date of Call the
holder of this Warrant shall continue to be entitled to
exercise any and all of the rights granted to it herein.
(b) Repurchase Obligation of the Company. If at any time
there occurs a Change of Control (as defined in the Amended and
Restated Note Agreement), then the Company shall give to the holder of
this Warrant notice of such Change of Control within 5 days of its
occurrence. Not later than 60 days (the "Put Election Period") after
such notice by the Company, the holder of this Warrant (or any new
Warrant then held by such holder representing the number of shares
with respect to which this Warrant shall not have been exercised) may,
by written notice to the Company, elect to sell to the Company, and
the Company shall purchase from such holder, this Warrant, in whole,
at an aggregate cash price (the "Put Price") equal to the greater of
(x) the Net Warrant Market Price (as defined below) and (y) $540,000.
The holder shall present this Warrant to the Company at its office
referred to in Paragraph 1 hereof on or before the 30th day following
the expiration of the Put Election Period, and upon surrender thereof
shall be entitled to receive the cash price to which such holder is
entitled, by wire transfer of immediately available funds to an
account designated by the holder hereof or by delivery to such holder
of a certified or official bank check in New York Clearing House Funds
payable to the order of such holder. As used in this Paragraph 2(b),
the term "Net Warrant Market Price" shall mean an amount equal to the
product of (x) the number of shares with respect to which this Warrant
shall not have been exercised, multiplied by (y) the difference
between the market price per Warrant Share (determined as provided in
Paragraph 4(e) hereof) on the date of the Put Notice and the Exercise
Price then in effect.
3. Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will,
upon issuance, be validly issued, fully paid, and nonassessable.
(b) Reservation of Shares. During the period within
which this Warrant may be exercised, the Company will at all times
have authorized, and reserved for the purpose of issue upon exercise
of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing of Shares. If the issuance of any Warrant
Shares required to be reserved for purposes of exercise of this
Warrant requires listing on any national securities exchange before
such shares may be issued upon exercise of this Warrant, the Company
will, at its expense, use its best efforts to cause such
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<PAGE> 7
shares to be listed on the relevant national securities exchange at
such time, so that such shares may be issued in accordance with the
terms hereof.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or99 through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment, consistent with
the tenor and purpose of this Warrant.
4. Antidilution Provisions. The Exercise Price shall be subject
to adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "Capital Stock", as used herein,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation which may
be authorized in the future by an amendment to the Company's charter, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, or shares resulting from any subdivision or combination of the
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(i)
hereof, the stock or other securities or property provided for in said
Paragraph.
(a) Issuance of Capital Stock. If and whenever the
Company shall issue or sell any shares of Capital Stock without
consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Exercise Price shall be
reduced to a price (calculated to the nearest cent) determined by
dividing (x) an amount equal to the aggregate consideration received
by the Company upon such issue or sale, by (y) the total number of
shares of Capital Stock so issued or sold.
(b) Treatment of Options and Convertible Securities;
Computation of Consideration. For the purposes of Paragraph 4(a)
hereof the following provisions shall also be applicable:
(i) If at any time the Company shall grant any
rights to subscribe for or purchase, or any options for the
purchase of, Capital Stock or
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<PAGE> 8
securities convertible into or exchangeable for Capital Stock
(such rights and options being herein called "Options" and
such convertible or exchangeable securities being herein
called "Convertible Securities"), whether or not such Options
or the rights to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities shall be less than the Exercise Price
in effect immediately prior to the time of the granting of
such Options, then the total maximum number of shares of
Capital Stock issuable upon the exercise of such Options or
upon the conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such
Options shall (as of the date of granting of such Options) be
deemed to be outstanding and to have been issued and sold for
such price per share. For purposes of this paragraph 4(b)(i)
the price per share for which such Capital Stock is issuable
shall be determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such Options, plus, in the case of any such
Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, other
than such Convertible Securities, payable to the Company upon
the conversion or exchange of such Convertible Securities, by
(y) the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. Except as
provided in Paragraph 4(b)(vi) hereof, no further adjustments
of the Exercise Price shall be made upon the actual issue of
such Capital Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issue of such
Capital Stock upon the conversion or exchange of such
Convertible Securities.
(ii) If at any time the Company shall issue or
sell Convertible Securities, whether or not the rights to
convert or exchange such Convertible Securities are
immediately exercisable, and the price per share for which
Capital Stock is issuable upon the conversion or exchange of
such Convertible Securities shall be less than the Exercise
Price in effect immediately prior to the time of the issue or
sale of such Convertible Securities, then the total maximum
number of shares of Capital Stock issuable upon the conversion
or exchange of all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued and sold
for such price per share, provided that (a) except as provided
in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual
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<PAGE> 9
issue of such Capital Stock upon the conversion or exchange of
such Convertible Securities, and (b) if any such issue or sale
of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Exercise Price have been
or are to be made pursuant to other provisions of this
Paragraph 4(b), no further adjustment of the Exercise Price
shall be made by reason of such issue or sale. For purposes
of this Paragraph 4(b)(ii), the price per share for which
Capital Stock is issuable shall be determined by dividing (x)
the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities,
payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Capital
Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(iii) If at any time the Company shall pay a
dividend or make any other distribution upon the Capital Stock
payable in Capital Stock or Convertible Securities, any
Capital Stock or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be
deemed to have been issued without consideration, and the
Exercise Price shall be reduced as if the Company had
subdivided the outstanding shares of Capital Stock into a
greater number of shares as provided in Paragraph 4(c) hereof.
(iv) If at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the
amount received by the Company therefor, without deduction
therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. If any Capital Stock, Convertible
Securities, or Options shall be issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Company therefor shall be
deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the
Company, except where such consideration consists of
securities, in which case the amount of consideration received
by the Company shall be the market price thereof (determined
as provided in Paragraph 4(e) hereof) as of the date of
receipt, but in each such case without deduction therefrom of
any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith. In computing the market price of a note or other
obligation that is not listed or admitted to trading on any
securities exchange or quoted in the Nasdaq Stock Market or
reported by the National Quotation Bureau, Inc. or a similar
reporting organization, the total consideration to be received
by the Company thereunder (including interest) shall
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<PAGE> 10
be discounted to present value at the prime rate announced or
published in The Wall Street Journal under the caption "Money
Rate" in effect at the time the note or obligation is deemed
to have been issued. If any Capital Stock, Convertible
Securities, or Options shall be issued in connection with any
merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the
Company of such portion of the assets of such merged
corporation as the Board shall determine to be attributable to
such Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a
record of the holders of Capital Stock for the purpose of
entitling them (a) to receive a dividend or other distribution
payable in Capital Stock or Convertible Securities, or (b) to
subscribe for or purchase Capital Stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of such Capital Stock or Convertible
Securities.
(vi) If the purchase price provided for in any
Option referred to in Paragraph 4(b)(i) hereof, or the price
at which any Convertible Securities referred to in Paragraph
4(b)(i) or (ii) hereof are convertible into or exchangeable
for Capital Stock, shall change at any time (whether by reason
of provisions designed to protect against dilution or
otherwise), the Exercise Price then in effect hereunder shall
forthwith be increased or decreased to such Exercise Price as
would have obtained had the adjustments made upon the issuance
of such Options or Convertible Securities been made upon the
basis of (a) the issuance of the number of shares of Capital
Stock theretofore actually delivered upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities, and the total consideration received
therefor, and (b) the number of shares of Capital Stock to be
issued for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed
price.
(vii) If any adjustment has been made in the
Exercise Price because of the issuance of Options or
Convertible Securities and if any of such Options or rights to
convert or exchange such Convertible Securities expire or
otherwise terminate, then the Exercise Price shall be
readjusted to eliminate the adjustments previously made in
connection with the Options or rights to convert or exchange
Convertible Securities which have expired or terminated.
(viii) The number of shares of Capital Stock
outstanding at any given time shall not include shares owned
or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or
sale of Capital Stock.
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<PAGE> 11
(ix) Anything in Paragraph 4(a) or (b) hereof to
the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Exercise Price in the
case of (a) the issuance of the Warrants or any other warrant
issued to the holder hereof, (b) the issuance of shares of
Common Stock upon exercise of the Warrants or any other
warrant issued to the holder hereof, (c) the granting of stock
options by the Company to employees or directors of the
Company or any of its subsidiaries in connection with their
employment or service as directors to purchase Capital Stock,
provided that the exercise price of such stock options is at
least equal to the market price of such shares of Capital
Stock on the date such stock options are granted and the total
number of such options granted after the date hereof does not
exceed the sum of (X) ten percent of the outstanding Common
Stock of the Company and (Y) the number of such employee or
director options outstanding on the date hereof that, on the
date in question, have expired or been cancelled, (d) the
issuance of shares of Capital Stock upon the exercise of the
stock options referred to in clause (c) above, and (e) the
issuance of shares of Capital Stock upon the exercise,
conversion, or exchange of any securities issued prior to or
simultaneously with the date of the original issue of this
Warrant.
(c) Subdivisions and Combinations. In case at any time
the Company shall subdivide the outstanding shares of Capital Stock
into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Capital
Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be
proportionately increased. An adjustment made pursuant to this
Paragraph 4(c) shall become effective immediately after the effective
date of such subdivision or combination.
(d) Extraordinary Dividends and Distributions. If at any
time the Company shall pay a dividend or make a distribution to all
holders of Capital Stock, as such, which dividend or distribution is
payable otherwise than in cash out of earnings or earned surplus and
otherwise than in Capital Stock, Convertible Securities, or Options,
then thereafter the holder of this Warrant, upon the exercise of this
Warrant, shall be entitled to receive the number of shares of Common
Stock being purchased upon such exercise and, in addition thereto and
without further payment, the stock and other securities and property
(including cash) which such holder would have received by way of
dividends or distributions (otherwise than in cash out of earnings or
earned surplus or in Capital Stock, Convertible Securities, or
Options) as if continuously, since the date of the original issue of
this Warrant, such holder (i) had been the record holder of the number
of shares of Common Stock then being purchased, and (ii) had retained
all dividends and distributions in stock or other securities (other
than Capital Stock, Convertible Securities, or Options) which would
have been paid in respect of such Common
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<PAGE> 12
Stock or in respect of any stock or other securities which would have
been paid as dividends or distributions on such Common Stock.
(e) Computation of Market Price. For the purpose of any
computation under Paragraphs 2(a), 2(b) and 4(b) hereof, the market
price of the security in question on any day shall be deemed to be the
average of the last reported sale prices for the security for the 20
consecutive Trading Days beginning 30 Trading Days before the day in
question. The last reported sale price for each day shall be (i) the
last reported sale price of the security on the Nasdaq Stock Market's
National Market, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or
(ii) if not quoted as described in clause (i) above, the mean between
the high bid and low asked quotations for the security as reported by
the National Quotation Bureau, Inc. if at least two securities dealers
have inserted both bid and asked quotations for such security on at
least 10 of such 20 consecutive Trading Days, or (iii) if the security
is listed or admitted for trading on any national securities exchange,
the last sale price, or the closing bid price if no sale occurred, of
such class of security on the principal securities exchange on which
such class of security is listed or admitted to trading. If the
security is quoted on a national securities or central market system,
in lieu of a market or quotation system described above, the last
reported sale price shall be determined in the manner set forth in
clause (ii) of the preceding sentence if bid and asked quotations are
reported but actual transactions are not, and in the manner set forth
in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the last
reported sale price of the security on any day or the average of such
last reported sale prices for any period shall be the fair market
value of such security as determined by a member firm of the New York
Stock Exchange, Inc. selected by the Company. The term "Trading
Days", as used herein, means (i) if the security is quoted on the
Nasdaq Stock Market's National Market, or any similar system of
automated dissemination of quotations of securities prices, days on
which trades may be made on such system or (ii) if the security is
listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business.
(f) Record Date Adjustments. In any case in which this
Paragraph 4 requires that a downward adjustment of the Exercise Price
shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (A) issuing
to the holder of this Warrant exercised after such record date and
before the occurrence of such event the additional Warrant Shares
issuable upon such exercise by reason of the adjustment required by
such event over and above the Warrant Shares issuable upon such
exercise before giving effect to such adjustment and (B) paying to
such holder any amount in cash in lieu of a fractional share pursuant
to Paragraph 4(i) hereof.
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<PAGE> 13
(g) Minimum Adjustment of Exercise Price. No adjustment
of the Exercise Price shall be made in an amount less than $.10 per
share in effect at the time such adjustment is otherwise required to
be made, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward,
shall amount to not less than $.10 per share. In case at any time the
Company shall issue Capital Stock by way of dividend on Capital Stock
or subdivide or combine the outstanding shares of Capital Stock, said
amount of $.10 per share (as theretofore increased or decreased, if
the said amount shall have been adjusted in accordance with the
provisions of this Paragraph 4(g)) shall forthwith be proportionately
increased in the case of such a combination or decreased in the case
of such a subdivision or stock dividend so as appropriately to reflect
the same.
(h) Reorganization, Reclassification, Consolidation,
Merger, or Sale. If any capital reorganization of the Company, or any
reclassification of the Capital Stock, or any consolidation or merger
of the Company with or into another corporation or entity, or any sale
of all or substantially all the assets of the Company to another
corporation or entity, shall be effected in such a way that the
holders of Common Stock (or any other securities of the Company then
issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with
respect to or in exchange for Common Stock (or such other securities),
then lawful and adequate provision shall be made whereby the holder of
this Warrant shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this
Warrant, and in lieu of the shares of Common Stock (or such other
securities) immediately theretofore purchasable and receivable upon
the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in
exchange for a number of outstanding shares of Common Stock (or such
other securities) equal to the number of shares of Common Stock (or
such other securities) immediately theretofore purchasable and
receivable upon the exercise of this Warrant, had such reorganization,
reclassification, consolidation, merger, or sale not taken place. In
any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, the provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as
nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise
hereof. In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater
or lesser number of shares of common stock of the surviving
corporation or entity are issuable to holders of Capital Stock in
respect of the number of shares of Capital Stock outstanding
immediately prior to such consolidation or merger, then the Exercise
Price in effect immediately prior to such
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<PAGE> 14
consolidation or merger shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of
Capital Stock.
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the
Company shall pay a cash adjustment in respect of any fractional share
which would otherwise be issuable in an amount equal to the same
fraction of the current market value of a share of Common Stock, which
current market value shall be the last reported sale price (determined
as provided in Paragraph 4(e) hereof) on the Trading Day immediately
preceding the date of the exercise.
(j) Other Notices. If at any time:
(i) the Company shall declare any dividend upon
the Capital Stock payable in shares of stock of any class or
make any other distribution (other than dividends or
distributions payable in cash out of earnings or earned
surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Capital Stock any additional shares
of stock of any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Capital Stock, or
consolidation or merger of the Company with or into, or sale
of all or substantially all its assets to, another corporation
or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company;
then, in each such case, the Company shall promptly give to the holder
of this Warrant (a) notice of the date on which the books of the
Company shall close or a record shall be taken for determining the
holders of Capital Stock entitled to receive any such dividend,
distribution, or subscription rights or for determining the holders of
Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up, notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice shall also specify the
date on which the holders of Capital Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to
exchange their Capital Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may
be. Failure
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<PAGE> 15
to give any such notice or any defect therein shall not affect the
validity of the proceeding referred to in clauses (i), (ii), (iii),
and (iv) above.
5. No Rights or Liabilities as a Shareholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
6. Transfer, Exchange, and Replacement of Warrant.
(a) Warrant Not Transferable. You agree that this
Warrant may not be transferred, sold, assigned or hypothecated, except
to (i) your wholly-owned subsidiaries or affiliates (as defined by the
Securities Exchange Act of 1934); (ii) the respective successors to
you in a merger or consolidation; (iii) the respective purchasers of
all or substantially all of your assets; (iv) your respective
shareholders in the event you are liquidated or dissolved; (v) any one
or more financial institutions (including, without limitation, any
banks, investment banking firms, investment funds and insurance
companies); or (vi) any other person or entity with respect to whom
you have received the prior written consent of the Company. It is not
a condition to the transfer of this Warrant that it be transferred in
connection with a transfer of a Note. Until due presentment for
registration of a permitted transfer on the Company's books, the
Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any
notice to the contrary.
(b) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any
such loss, theft, or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company,
or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
(c) Register. The Company shall maintain, at its
principal office at 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas
75231 (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this
Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name
and address of each permitted transferee and each prior owner of this
Warrant.
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<PAGE> 16
(d) Exercise or Transfer Without Registration. Anything
in this Warrant to the contrary notwithstanding, if, at the time of
the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant shall not be
registered under the Securities Act of 1933, as amended, and under
applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, that
the holder of this Warrant execute and deliver to the Company a
seller's Rule 144 representation letter in form and substance
reasonably acceptable to the Company. The first holder of this
Warrant, by taking and holding the same, represents to the Company
that such holder is acquiring this Warrant for investment and not with
a view to the distribution thereof.
(e) Expenses of Transfer. The Company shall pay all
taxes (other than those imposed on or in respect of income), other
expenses and charges payable in connection with the preparation,
execution, and delivery of any Warrants issued or prepared by the
Company in connection with this Paragraph 6.
7. Notices. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed, to such
holder at the address shown for such holder on the books of the Company, or at
such other address as shall have been furnished to the Company by notice from
such holder. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the Company shall be in
writing, and shall be personally delivered, or shall be sent by certified or
registered mail, postage prepaid and addressed, to the office of the Company at
8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231, Attention: President,
or at such other address as shall have been furnished to the holder of this
Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by telegram or telex, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 7, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the
case may be.
8. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
-14-
<PAGE> 17
9. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof
may not be changed, waived, discharged, or terminated orally, but only
by an instrument in writing signed by the party (or any predecessor in
interest thereof) against which enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of
the several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
(c) Successors and Assigns. This Warrant shall be
binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the
Company's assets.
-15-
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on this 9th day of April, 1997.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
----------------------------------
Michael G. Pate
Chief Financial Officer
and Treasurer
<PAGE> 19
FORM OF EXERCISE AGREEMENT
Dated: ________________, 19__.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ____________________ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in the amount of
$____________________. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Note: The above signature should correspond exactly with the name on
the face of the within Warrant or with the name of the
assignee appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE> 20
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints ____________________ as agent
and attorney-in-fact to transfer said Warrant on the books of the within-named
corporation, with full power of substitution in the premises.
Dated: ____________________, 19__.
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Address:
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant.
<PAGE> 1
EXHIBIT 10.34
Execution Copy
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
STOCK PURCHASE WARRANT
ISSUED TO
THE J.W. MCCONNELL FAMILY FOUNDATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Manner of Exercise; Issuance of Certificates; Payment for Shares . . . . . . . . . . . . . . . . . . . . . . 1
2. Period of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Call Option of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Repurchase Obligation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Certain Agreements of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Shares to be Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Listing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Certain Actions Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Antidilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Treatment of Options and Convertible Securities; Computation of Consideration . . . . . . . . . . . 5
(c) Subdivisions and Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Extraordinary Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(e) Computation of Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(f) Record Date Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(g) Minimum Adjustment of Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(h) Reorganization, Reclassification, Consolidation, Merger, or Sale . . . . . . . . . . . . . . . . . . 11
(i) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(j) Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. No Rights or Liabilities as a Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Transfer, Exchange, and Replacement of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Warrant Not Transferable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Replacement of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Exercise or Transfer Without Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(e) Expenses of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. MC-01 Right to Purchase 100,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, The J.W. McConnell Family
Foundation (the "Original Holder"), or registered successors or assigns, is
entitled to purchase from Source Media, Inc., a Delaware corporation (the
"Company"), at any time or from time to time during the period specified in
Paragraph 2 hereof, 100,000 fully paid and nonassessable shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock"), at an
exercise price per share of $6.00 (the "Exercise Price"). The term "Warrant
Shares", as used herein, refers to the shares of Common Stock purchasable
hereunder. The Warrant Shares and the Exercise Price are subject to adjustment
as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for
Shares. Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part (but not as to a fractional Warrant Share),
by the surrender of this Warrant, together with a completed Exercise Agreement
in the form attached hereto, to the Company during normal business hours on any
business day at the Company's principal office at 8140 Walnut Hill Lane, Suite
1000, Dallas, Texas 75231 (or such other office or agency of the Company as it
may designate by notice to the holder hereof), and upon payment to the Company
of the Exercise Price for the Warrant Shares specified in said Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or its designee as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement delivered, and payment made for
such shares as aforesaid. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares
<PAGE> 4
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of said holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of said certificates, deliver to said holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised. The Company shall pay all taxes and other
expenses and charges payable in connection with the preparation, execution, and
delivery of stock certificates (and any new Warrants) pursuant to this
Paragraph 1 except that, in case such stock certificates shall be registered in
a name or names other than the holder of this Warrant, funds sufficient to pay
all stock transfer taxes which shall be payable in connection with the
execution and delivery of such stock certificates shall be paid by the holder
hereof to the Company at the time of the delivery of such stock certificates by
the Company as mentioned above.
Payment of the Exercise Price may be made by either of the following
methods:
(i) Cash Exercise. By payment to the Company of the
Exercise Price in cash or by certified or official bank check, for
each share being purchased;
(ii) Surrender of Notes. By surrender to the Company for
cancellation of any Note or Notes (as such terms are defined in that
certain Amended and Restated Note Agreement, dated as of March 31,
1997 (the "Amended and Restated Note Agreement"), among the Company,
IT Network, Inc., the Original Holder and the other Purchasers named
therein), or any portion of a Note, for which credit shall be given
toward the Exercise Price on a dollar-for-dollar basis with reference
to the principal amount and accrued but unpaid interest cancelled;
(iii) Net Issue Exercise. By an election to receive shares
the aggregate fair market value of which as of the date of exercise is
equal to the fair market value of this Warrant (or the portion thereof
being exercised) on such date, in which event the Company, upon
receipt of notice of such election, shall issue to the holder hereof a
number of shares of Common Stock equal to (A) the number of shares of
Common Stock acquirable upon exercise of all or any portion of this
Warrant being exercised, as at such date, multiplied by (B) the
balance remaining after deducting (x) the Exercise Price, as in effect
on such date, from (y) the market price of one share of Common Stock
as at such date (determined as provided in Paragraph 4(e) hereof) and
dividing the result by (C) such market price; provided, however, that
payment of the Exercise Price pursuant to this method may be made only
to the extent that the aggregate outstanding principal amount of the
Notes held by the holder of this Warrant on the date of such election
has been paid in full; or
-2-
<PAGE> 5
(iv) Combined Payment Method. By satisfaction of the
Exercise Price for such shares acquired in combination of the methods
described in clauses (i), (ii) or (iii).
2. Period of Exercise. Subject to the provisions of Paragraphs
2(a) and (b) below, this Warrant is exercisable at any time after the date
hereof, and before 5:00 p.m., Dallas time, on March 31, 2004.
(a) Call Option of the Company .
(i) Subject to the satisfaction in full of the
conditions set forth in subparagraph (ii) below, at any time
after the second anniversary of the date hereof, the Company
may, by written notice to the holder of this Warrant (the
"Call Notice"), elect to purchase this Warrant (or any new
Warrant then held by such holder representing the number of
shares with respect to which this Warrant shall not have been
exercised), in whole, on the Effective Date of Call (as
defined below), at a cash price for this Warrant equal to the
product of (x) $.01 multiplied by (y) the number of shares
with respect to which this Warrant shall not have been
exercised on such date. As used in this Paragraph 2(a), the
term "Effective Date of Call" shall mean the later of (x) 60
days from the date of the Call Notice or (y) 60 days from the
date a registration statement covering the Warrant Shares
shall have become effective, which registration statement was
filed by the Company upon the receipt of requests made
(including a request made by the holder of this Warrant) prior
to the Effective Date of Call and pursuant to the Amended and
Restated Registration Rights Agreement dated as of the date
hereof, among the Company, the Original Holder and the other
persons named therein.
(ii) The Company's right to exercise the purchase
option referred to in subparagraph (i) above is conditional
upon the last reported sales price of the Common Stock
(determined as provided in Paragraph 4(e) hereof) having being
equal to at least 200% of the Exercise Price then in effect
for 30 of the 40 consecutive Trading Days (as defined below)
immediately prior to the date of the Call Notice.
(iii) If the conditions referred to above have been
satisfied in full (including, without limitation, the giving
of a Call Notice), the holder shall present this Warrant to
the Company at its office referred to in Paragraph 1 hereof on
the Effective Date of Call, and upon surrender thereof shall
be entitled to receive the cash price to which such holder is
entitled, by wire transfer of immediately available funds to
an account designated by the holder hereof or by delivery to
such
-3-
<PAGE> 6
holder of a certified or official bank check in New York
Clearing House Funds payable to the order of such holder.
Notwithstanding anything to the contrary implied in this
Paragraph 2(a), until the Effective Date of Call the holder of
this Warrant shall continue to be entitled to exercise any and
all of the rights granted to it herein.
(b) Repurchase Obligation of the Company. If at any time
there occurs a Change of Control (as defined in the Amended and
Restated Note Agreement), then the Company shall give to the holder of
this Warrant notice of such Change of Control within 5 days of its
occurrence. Not later than 60 days (the "Put Election Period") after
such notice by the Company, the holder of this Warrant (or any new
Warrant then held by such holder representing the number of shares
with respect to which this Warrant shall not have been exercised) may,
by written notice to the Company, elect to sell to the Company, and
the Company shall purchase from such holder, this Warrant, in whole,
at an aggregate cash price (the "Put Price") equal to the greater of
(x) the Net Warrant Market Price (as defined below) and (y) $240,000.
The holder shall present this Warrant to the Company at its office
referred to in Paragraph 1 hereof on or before the 30th day following
the expiration of the Put Election Period, and upon surrender thereof
shall be entitled to receive the cash price to which such holder is
entitled, by wire transfer of immediately available funds to an
account designated by the holder hereof or by delivery to such holder
of a certified or official bank check in New York Clearing House Funds
payable to the order of such holder. As used in this Paragraph 2(b),
the term "Net Warrant Market Price" shall mean an amount equal to the
product of (x) the number of shares with respect to which this Warrant
shall not have been exercised, multiplied by (y) the difference
between the market price per Warrant Share (determined as provided in
Paragraph 4(e) hereof) on the date of the Put Notice and the Exercise
Price then in effect.
3. Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will,
upon issuance, be validly issued, fully paid, and nonassessable.
(b) Reservation of Shares. During the period within
which this Warrant may be exercised, the Company will at all times
have authorized, and reserved for the purpose of issue upon exercise
of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing of Shares. If the issuance of any Warrant
Shares required to be reserved for purposes of exercise of this
Warrant requires listing on any national securities exchange before
such shares may be issued upon exercise of this Warrant, the Company
will, at its expense, use its best efforts to cause such
-4-
<PAGE> 7
shares to be listed on the relevant national securities exchange at
such time, so that such shares may be issued in accordance with the
terms hereof.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or 99 through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder
of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment,
consistent with the tenor and purpose of this Warrant.
4. Antidilution Provisions. The Exercise Price shall be subject
to adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "Capital Stock", as used herein,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation which may
be authorized in the future by an amendment to the Company's charter, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, or shares resulting from any subdivision or combination of the
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(i)
hereof, the stock or other securities or property provided for in said
Paragraph.
(a) Issuance of Capital Stock. If and whenever the
Company shall issue or sell any shares of Capital Stock without
consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Exercise Price shall be
reduced to a price (calculated to the nearest cent) determined by
dividing (x) an amount equal to the aggregate consideration received
by the Company upon such issue or sale, by (y) the total number of
shares of Capital Stock so issued or sold.
(b) Treatment of Options and Convertible Securities;
Computation of Consideration. For the purposes of Paragraph 4(a)
hereof the following provisions shall also be applicable:
(i) If at any time the Company shall grant any
rights to subscribe for or purchase, or any options for the
purchase of, Capital Stock or
-5-
<PAGE> 8
securities convertible into or exchangeable for Capital Stock
(such rights and options being herein called "Options" and
such convertible or exchangeable securities being herein
called "Convertible Securities"), whether or not such Options
or the rights to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities shall be less than the Exercise Price
in effect immediately prior to the time of the granting of
such Options, then the total maximum number of shares of
Capital Stock issuable upon the exercise of such Options or
upon the conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such
Options shall (as of the date of granting of such Options) be
deemed to be outstanding and to have been issued and sold for
such price per share. For purposes of this paragraph 4(b)(i)
the price per share for which such Capital Stock is issuable
shall be determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such Options, plus, in the case of any such
Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, other
than such Convertible Securities, payable to the Company upon
the conversion or exchange of such Convertible Securities, by
(y) the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. Except as
provided in Paragraph 4(b)(vi) hereof, no further adjustments
of the Exercise Price shall be made upon the actual issue of
such Capital Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issue of such
Capital Stock upon the conversion or exchange of such
Convertible Securities.
(ii) If at any time the Company shall issue or
sell Convertible Securities, whether or not the rights to
convert or exchange such Convertible Securities are
immediately exercisable, and the price per share for which
Capital Stock is issuable upon the conversion or exchange of
such Convertible Securities shall be less than the Exercise
Price in effect immediately prior to the time of the issue or
sale of such Convertible Securities, then the total maximum
number of shares of Capital Stock issuable upon the conversion
or exchange of all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued and sold
for such price per share, provided that (a) except as provided
in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual
-6-
<PAGE> 9
issue of such Capital Stock upon the conversion or exchange of
such Convertible Securities, and (b) if any such issue or sale
of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Exercise Price have been
or are to be made pursuant to other provisions of this
Paragraph 4(b), no further adjustment of the Exercise Price
shall be made by reason of such issue or sale. For purposes
of this Paragraph 4(b)(ii), the price per share for which
Capital Stock is issuable shall be determined by dividing (x)
the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities,
payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Capital
Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(iii) If at any time the Company shall pay a
dividend or make any other distribution upon the Capital Stock
payable in Capital Stock or Convertible Securities, any
Capital Stock or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be
deemed to have been issued without consideration, and the
Exercise Price shall be reduced as if the Company had
subdivided the outstanding shares of Capital Stock into a
greater number of shares as provided in Paragraph 4(c) hereof.
(iv) If at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the
amount received by the Company therefor, without deduction
therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. If any Capital Stock, Convertible
Securities, or Options shall be issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Company therefor shall be
deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the
Company, except where such consideration consists of
securities, in which case the amount of consideration received
by the Company shall be the market price thereof (determined
as provided in Paragraph 4(e) hereof) as of the date of
receipt, but in each such case without deduction therefrom of
any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection
therewith. In computing the market price of a note or other
obligation that is not listed or admitted to trading on any
securities exchange or quoted in the Nasdaq Stock Market or
reported by the National Quotation Bureau, Inc. or a similar
reporting organization, the total consideration to be received
by the Company thereunder (including interest) shall
-7-
<PAGE> 10
be discounted to present value at the prime rate announced or
published in The Wall Street Journal under the caption "Money
Rate" in effect at the time the note or obligation is deemed
to have been issued. If any Capital Stock, Convertible
Securities, or Options shall be issued in connection with any
merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the
Company of such portion of the assets of such merged
corporation as the Board shall determine to be attributable to
such Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a
record of the holders of Capital Stock for the purpose of
entitling them (a) to receive a dividend or other distribution
payable in Capital Stock or Convertible Securities, or (b) to
subscribe for or purchase Capital Stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of such Capital Stock or Convertible
Securities.
(vi) If the purchase price provided for in any
Option referred to in Paragraph 4(b)(i) hereof, or the price
at which any Convertible Securities referred to in Paragraph
4(b)(i) or (ii) hereof are convertible into or exchangeable
for Capital Stock, shall change at any time (whether by reason
of provisions designed to protect against dilution or
otherwise), the Exercise Price then in effect hereunder shall
forthwith be increased or decreased to such Exercise Price as
would have obtained had the adjustments made upon the issuance
of such Options or Convertible Securities been made upon the
basis of (a) the issuance of the number of shares of Capital
Stock theretofore actually delivered upon the exercise of
such Options or upon the conversion or exchange of such
Convertible Securities, and the total consideration received
therefor, and (b) the number of shares of Capital Stock to be
issued for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed
price.
(vii) If any adjustment has been made in the
Exercise Price because of the issuance of Options or
Convertible Securities and if any of such Options or rights to
convert or exchange such Convertible Securities expire or
otherwise terminate, then the Exercise Price shall be
readjusted to eliminate the adjustments previously made in
connection with the Options or rights to convert or exchange
Convertible Securities which have expired or terminated.
(viii) The number of shares of Capital Stock
outstanding at any given time shall not include shares owned
or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or
sale of Capital Stock.
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<PAGE> 11
(ix) Anything in Paragraph 4(a) or (b) hereof to
the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Exercise Price in the
case of (a) the issuance of the Warrants or any other warrant
issued to the holder hereof, (b) the issuance of shares of
Common Stock upon exercise of the Warrants or any other
warrant issued to the holder hereof, (c) the granting of stock
options by the Company to employees or directors of the
Company or any of its subsidiaries in connection with their
employment or service as directors to purchase Capital Stock,
provided that the exercise price of such stock options is at
least equal to the market price of such shares of Capital
Stock on the date such stock options are granted and the total
number of such options granted after the date hereof does not
exceed the sum of (X) ten percent of the outstanding Common
Stock of the Company and (Y) the number of such employee or
director options outstanding on the date hereof that, on the
date in question, have expired or been cancelled, (d) the
issuance of shares of Capital Stock upon the exercise of the
stock options referred to in clause (c) above, and (e) the
issuance of shares of Capital Stock upon the exercise,
conversion, or exchange of any securities issued prior to or
simultaneously with the date of the original issue of this
Warrant.
(c) Subdivisions and Combinations. In case at any time
the Company shall subdivide the outstanding shares of Capital Stock
into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Capital
Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be
proportionately increased. An adjustment made pursuant to this
Paragraph 4(c) shall become effective immediately after the effective
date of such subdivision or combination.
(d) Extraordinary Dividends and Distributions. If at any
time the Company shall pay a dividend or make a distribution to all
holders of Capital Stock, as such, which dividend or distribution is
payable otherwise than in cash out of earnings or earned surplus and
otherwise than in Capital Stock, Convertible Securities, or Options,
then thereafter the holder of this Warrant, upon the exercise of this
Warrant, shall be entitled to receive the number of shares of Common
Stock being purchased upon such exercise and, in addition thereto and
without further payment, the stock and other securities and property
(including cash) which such holder would have received by way of
dividends or distributions (otherwise than in cash out of earnings or
earned surplus or in Capital Stock, Convertible Securities, or
Options) as if continuously, since the date of the original issue of
this Warrant, such holder (i) had been the record holder of the number
of shares of Common Stock then being purchased, and (ii) had retained
all dividends and distributions in stock or other securities (other
than Capital Stock, Convertible Securities, or Options) which would
have been paid in respect of such Common
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<PAGE> 12
Stock or in respect of any stock or other securities which would have
been paid as dividends or distributions on such Common Stock.
(e) Computation of Market Price. For the purpose of any
computation under Paragraphs 2(a), 2(b) and 4(b) hereof, the market
price of the security in question on any day shall be deemed to be the
average of the last reported sale prices for the security for the 20
consecutive Trading Days beginning 30 Trading Days before the day in
question. The last reported sale price for each day shall be (i) the
last reported sale price of the security on the Nasdaq Stock Market's
National Market, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or
(ii) if not quoted as described in clause (i) above, the mean between
the high bid and low asked quotations for the security as reported by
the National Quotation Bureau, Inc. if at least two securities dealers
have inserted both bid and asked quotations for such security on at
least 10 of such 20 consecutive Trading Days, or (iii) if the security
is listed or admitted for trading on any national securities exchange,
the last sale price, or the closing bid price if no sale occurred, of
such class of security on the principal securities exchange on which
such class of security is listed or admitted to trading. If the
security is quoted on a national securities or central market system,
in lieu of a market or quotation system described above, the last
reported sale price shall be determined in the manner set forth in
clause (ii) of the preceding sentence if bid and asked quotations are
reported but actual transactions are not, and in the manner set forth
in clause (iii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the last
reported sale price of the security on any day or the average of such
last reported sale prices for any period shall be the fair market
value of such security as determined by a member firm of the New York
Stock Exchange, Inc. selected by the Company. The term "Trading
Days", as used herein, means (i) if the security is quoted on the
Nasdaq Stock Market's National Market, or any similar system of
automated dissemination of quotations of securities prices, days on
which trades may be made on such system or (ii) if the security is
listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business.
(f) Record Date Adjustments. In any case in which this
Paragraph 4 requires that a downward adjustment of the Exercise Price
shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (A) issuing
to the holder of this Warrant exercised after such record date and
before the occurrence of such event the additional Warrant Shares
issuable upon such exercise by reason of the adjustment required by
such event over and above the Warrant Shares issuable upon such
exercise before giving effect to such adjustment and (B) paying to
such holder any amount in cash in lieu of a fractional share pursuant
to Paragraph 4(i) hereof.
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<PAGE> 13
(g) Minimum Adjustment of Exercise Price. No adjustment
of the Exercise Price shall be made in an amount less than $.10 per
share in effect at the time such adjustment is otherwise required to
be made, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward,
shall amount to not less than $.10 per share. In case at any time the
Company shall issue Capital Stock by way of dividend on Capital Stock
or subdivide or combine the outstanding shares of Capital Stock, said
amount of $.10 per share (as theretofore increased or decreased, if
the said amount shall have been adjusted in accordance with the
provisions of this Paragraph 4(g)) shall forthwith be proportionately
increased in the case of such a combination or decreased in the case
of such a subdivision or stock dividend so as appropriately to reflect
the same.
(h) Reorganization, Reclassification, Consolidation,
Merger, or Sale. If any capital reorganization of the Company, or any
reclassification of the Capital Stock, or any consolidation or merger
of the Company with or into another corporation or entity, or any sale
of all or substantially all the assets of the Company to another
corporation or entity, shall be effected in such a way that the
holders of Common Stock (or any other securities of the Company then
issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with
respect to or in exchange for Common Stock (or such other securities),
then lawful and adequate provision shall be made whereby the holder of
this Warrant shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this
Warrant, and in lieu of the shares of Common Stock (or such other
securities) immediately theretofore purchasable and receivable upon
the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in
exchange for a number of outstanding shares of Common Stock (or such
other securities) equal to the number of shares of Common Stock (or
such other securities) immediately theretofore purchasable and
receivable upon the exercise of this Warrant, had such reorganization,
reclassification, consolidation, merger, or sale not taken place. In
any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, the provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as
nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise
hereof. In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater
or lesser number of shares of common stock of the surviving
corporation or entity are issuable to holders of Capital Stock in
respect of the number of shares of Capital Stock outstanding
immediately prior to such consolidation or merger, then the Exercise
Price in effect immediately prior to such
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<PAGE> 14
consolidation or merger shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of
Capital Stock.
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the
Company shall pay a cash adjustment in respect of any fractional share
which would otherwise be issuable in an amount equal to the same
fraction of the current market value of a share of Common Stock, which
current market value shall be the last reported sale price (determined
as provided in Paragraph 4(e) hereof) on the Trading Day immediately
preceding the date of the exercise.
(j) Other Notices. If at any time:
(i) the Company shall declare any dividend upon
the Capital Stock payable in shares of stock of any class or
make any other distribution (other than dividends or
distributions payable in cash out of earnings or earned
surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Capital Stock any additional shares
of stock of any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Capital Stock, or
consolidation or merger of the Company with or into, or sale
of all or substantially all its assets to, another corporation
or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company;
then, in each such case, the Company shall promptly give to the holder
of this Warrant (a) notice of the date on which the books of the
Company shall close or a record shall be taken for determining the
holders of Capital Stock entitled to receive any such dividend,
distribution, or subscription rights or for determining the holders of
Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up, notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice shall also specify the
date on which the holders of Capital Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to
exchange their Capital Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may
be. Failure
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<PAGE> 15
to give any such notice or any defect therein shall not affect the
validity of the proceeding referred to in clauses (i), (ii), (iii),
and (iv) above.
5. No Rights or Liabilities as a Shareholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
6. Transfer, Exchange, and Replacement of Warrant.
(a) Warrant Not Transferable. You agree that this
Warrant may not be transferred, sold, assigned or hypothecated, except
to (i) your wholly-owned subsidiaries or affiliates (as defined by the
Securities Exchange Act of 1934); (ii) the respective successors to
you in a merger or consolidation; (iii) the respective purchasers of
all or substantially all of your assets; (iv) your respective
shareholders in the event you are liquidated or dissolved; (v) any one
or more financial institutions (including, without limitation, any
banks, investment banking firms, investment funds and insurance
companies); or (vi) any other person or entity with respect to whom
you have received the prior written consent of the Company. It is not
a condition to the transfer of this Warrant that it be transferred in
connection with a transfer of a Note. Until due presentment for
registration of a permitted transfer on the Company's books, the
Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any
notice to the contrary.
(b) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any
such loss, theft, or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company,
or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
(c) Register. The Company shall maintain, at its
principal office at 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas
75231 (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this
Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name
and address of each permitted transferee and each prior owner of this
Warrant.
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<PAGE> 16
(d) Exercise or Transfer Without Registration. Anything
in this Warrant to the contrary notwithstanding, if, at the time of
the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant shall not be
registered under the Securities Act of 1933, as amended, and under
applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, that
the holder of this Warrant execute and deliver to the Company a
seller's Rule 144 representation letter in form and substance
reasonably acceptable to the Company. The first holder of this
Warrant, by taking and holding the same, represents to the Company
that such holder is acquiring this Warrant for investment and not with
a view to the distribution thereof.
(e) Expenses of Transfer. The Company shall pay all
taxes (other than those imposed on or in respect of income), other
expenses and charges payable in connection with the preparation,
execution, and delivery of any Warrants issued or prepared by the
Company in connection with this Paragraph 6.
7. Notices. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed, to such
holder at the address shown for such holder on the books of the Company, or at
such other address as shall have been furnished to the Company by notice from
such holder. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the Company shall be in
writing, and shall be personally delivered, or shall be sent by certified or
registered mail, postage prepaid and addressed, to the office of the Company at
8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231, Attention: President,
or at such other address as shall have been furnished to the holder of this
Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by telegram or telex, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 7, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the
case may be.
8. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 17
9. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof
may not be changed, waived, discharged, or terminated orally, but only
by an instrument in writing signed by the party (or any predecessor in
interest thereof) against which enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of
the several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
(c) Successors and Assigns. This Warrant shall be
binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the
Company's assets.
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<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on this 9th day of April, 1997.
SOURCE MEDIA, INC.
By: /s/ Michael G. Pate
----------------------------------
Michael G. Pate
Chief Financial Officer
and Treasurer
<PAGE> 19
FORM OF EXERCISE AGREEMENT
Dated: ________________, 19__.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ____________________ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in the amount of
$____________________. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:
Signature:
Title of Signing Officer or Agent (if
any):
Note: The above signature should correspond exactly with the name on
the face of the within Warrant or with the name of the
assignee appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE> 20
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints_________________________
______________________________________ as agent and attorney-in-fact to
transfer said Warrant on the books of the within-named corporation, with full
power of substitution in the premises.
Dated: ____________________, 19__.
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
<PAGE> 1
EXHIBIT 10.35
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of April 9, 1997,
among Source Media, Inc., a Delaware corporation (the "Company"), the Investor
whose name appears under the heading "Northstar Investor " on the signature
page hereof (the "Northstar Investor") and the Investors whose names appear
under the heading "Pecks Investors" on the signature page hereof (the "Pecks
Investors" and, together with the Northstar Investor, the "Investors").
1. Background. This Amended and Restated Registration Rights
Agreement amends and restates in its entirety the Registration Rights Agreement
dated April 3, 1996, between Source Media, Inc., a Delaware corporation (the
"Company") and the Northstar Investor. Capitalized terms used and not otherwise
defined herein shall have the meanings given to such terms in the Amended and
Restated Note Agreement dated as of April 9, 1997 (the "Note Agreement"), among
the Company, IT Network, Inc. and the Investors.
In consideration of the purchase by the Investors of the
Notes and the Warrants, and as an inducement to consummate the transactions
contemplated by the Note Agreement, the parties hereby covenant and agree as
follows:
2. Registration under Securities Act, etc.
2.1. Registration of Registrable Securities on Request. (a)
Request. The holder or holders of the Registrable Securities shall three times
have the right to request in writing that the Company effect an underwritten
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of all or part of such holders' Registrable Securities; provided, that
the aggregate Fair Market Value of the Registrable Securities to be so
registered is at least $2,500,000. Such requested registrations shall be made
as follows: the Northstar Investor shall have the right to request one such
registration, without the consent of any of the Pecks Investors; a majority of
the Pecks Investors shall have the right to request one such registration,
without the consent of the Northstar Investor; and the holder or holders of
more than 50% (by number of shares) of the Registrable Securities shall have
the right to request one such registration. The Company will promptly give
written notice of any such requested registration to all other holders of
Registrable Securities and all holders of Prior Registrable Shareholder
Securities, which holders shall be entitled to include their Registrable
Securities and Prior Registrable Shareholder Securities in such registration
subject to Sections 2.1(b) and 2.1(g). Thereupon the Company will use its best
efforts to effect the registrations under the Securities Act of:
<PAGE> 2
(i) the Registrable Securities which the Company
has been so requested to register by such holders; and
(ii) subject to Sections 2.1(b) and 2.1(g), all
other Registrable Securities and Prior Registrable
Shareholder Securities which the Company has been requested
to register by the holders thereof by written request given
to the Company within 30 days after the giving of such
written notice by the Company (which request shall specify
the intended method of disposition of such Registrable
Securities and Prior Registrable Shareholder Securities) all
to the extent requisite to permit the disposition of the
Registrable Securities and Prior Registrable Shareholder
Securities so to be registered.
(b) Registration of Other Securities. Whenever the Company
shall effect a registration pursuant to this Section 2.1, no securities other
than Registrable Securities shall be included among the securities covered by
such registration unless the managing underwriter of such offering shall have
advised each holder of Registrable Securities to be covered by such
registration in writing that the inclusion of such other securities would not
in the underwriter's reasonable judgment adversely affect the marketing or the
selling price of the Registrable Securities to be covered by such registration.
(c) Registration Statement Form. Registrations under this
Section 2.1 shall be on such appropriate registration form or prospectus of the
Commission (i) as shall be selected by the Company and as shall be reasonably
acceptable to the holders of more than 50% (by number of shares) of the
Registrable Securities so to be registered and (ii) as shall permit the
disposition of such Registrable Securities in accordance with the intended
method or methods of disposition specified in their request for such
registration. The Company agrees to include in any such registration statement
all information which holders of Registrable Securities being registered shall
reasonably request.
(d) Expenses. The Company will pay all Registration Expenses
in connection with the registration requests made pursuant to this Section 2.1.
(e) Effective Registration Statement. A registration
requested pursuant to this Section 2.1 shall not be deemed to have been
effected and shall not count as a requested registration pursuant to Section
2.1 (a) hereof (i) unless a registration statement with respect thereto has
become effective, (ii) if a registration statement has been filed with the
Commission and prior to its becoming effective a majority of holders of the
Registrable Securities to be registered has decided to terminate the
registration process, (iii) if after it has become effective, such registration
is interfered with by any
2
<PAGE> 3
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not the fault of a holder of
Registrable Securities and the Registrable Securities covered thereby have not
been sold, or (iv) if the conditions to closing specified in the selling
agreement or underwriting agreement entered into in connection with such
registration are not satisfied or waived by the parties thereto.
(f) Underwriters. Any registration effected pursuant to this
Section 2.1 shall at the election of the holders of at least 50% (by number of
shares) of the Registrable Securities so to be registered be an underwritten
public offering on a firm commitment basis or a best efforts basis. The
managing underwriter or underwriters thereof shall be selected by the Company
and such underwriter as well as the price, terms and provisions of the offering
shall be subject to the approval of the Company and the holders of more than
50% (by number of shares) of the Registrable Securities so to be registered.
(g) Apportionment in Registrations Requested. If, in
connection with a registration requested pursuant to this Section 2.1, the
managing underwriter shall advise the Company in writing (with a copy to each
holder of Registrable Securities and Prior Registrable Shareholder Securities
requesting registration) that, in its opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering within a price range acceptable to the holders of more
than 50% (by number of shares) of the Registrable Securities requested to be
included in such registration, the number of securities that are otherwise
entitled to be included in such registration shall be allocated in the
following manner: (i) all securities other than Registrable Securities,
including all Prior Registrable Shareholder Securities, shall be reduced, on a
pro rata basis (based on the number of securities requested to be included in
such registration) and (ii) if, after the exclusion of such securities, further
reductions are still required, the Registrable Securities requested to be
included in such registration shall be reduced pro rata among the holders
thereof requesting such registration on the basis of the percentage of the
Registrable Securities sought to be registered held by such holders of
Registrable Securities which have requested that such Registrable Securities be
included. In connection with any registration as to which the provisions of
this clause (g) apply, no securities other than Registrable Securities or, to
the extent not excluded as set forth above, Prior Registrable Shareholder
Securities shall be covered by such registration and if the pro ration as
aforesaid results in the exclusion of in excess of 15% of the Registrable
Securities sought to be registered, the holder or holders of more than 50% (by
number of shares) of the Registrable Securities may, at their sole option,
notify the Company that the request shall not be counted for purposes of
determining the number of registrations pursuant to Section 2.1
3
<PAGE> 4
hereof, and upon receipt of such notice the Company may, at its sole option,
determine not to register such securities.
2.2. Registrations on Form S-3. The Company shall use its
best efforts to qualify for registration on Form S-3 promulgated under the
Securities Act or any successor form thereto ("Form S-3") for secondary sales.
Anything contained in Section 2.1 to the contrary notwithstanding, at such time
as the Company shall have qualified for the use of Form S-3, the holder or
holders of the Registrable Securities shall have the right to request in
writing an unlimited number of registrations on Form S-3 of Registrable
Securities, which request or requests shall (i) specify the number of
Registrable Securities intended to be sold or disposed of and the holders
thereof and (ii) state the intended method of disposition of such Registrable
Securities. A requested registration on Form S-3 in compliance with this
Section 2.2 shall not count as a registration statement initiated pursuant to
Section 2.1 but shall otherwise be treated as a registration initiated pursuant
to, and shall, except as otherwise expressly provided in this Section 2.2, be
subject to Section 2.1.
2.3. "Piggyback" Registrations. (a) Right to Include
Registrable Securities. If the Company at any time proposes to register any of
its securities under the Securities Act (other than by a registration on Form
S-4, Form S-8 or any successor or similar form, or in connection with a tender
offer, merger, or other acquisition, and other than pursuant to Section 2.1 or
Section 2.2), whether or not for sale for its own account, it will each such
time give prompt written notice to all holders of Registrable Securities of its
intention to do so and of such holders' rights under this Section 2.3. Upon the
written request of any such holder made within 10 days after the date of any
such notice given in accordance with Section 7 hereof, the Company will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holders thereof, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if, at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to each holder of Registrable Securities
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay the Registration
Expenses in connection therewith), without prejudice, however, to the rights of
any holder or holders of Registrable Securities entitled to do so to request
that such registration be effected as a registration under Section 2.1 or
Section 2.2, and (ii) in the case of a determination to delay
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<PAGE> 5
registering, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other securities. No
registration effected under this Section 2.3 shall relieve the Company of its
obligation to effect any registration upon request under Section 2.1 or Section
2.2. The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 2.3.
(b) Apportionment in "Piggyback" Registrations. If (i) a
registration pursuant to this Section 2.3 involves an underwritten offering of
the securities being registered, whether or not for sale for the account of the
Company, to be distributed (on a firm commitment basis) by or through one or
more underwriters of recognized national or regional standing under
underwriting terms appropriate for such a transaction, and (ii) the managing
underwriter of such underwritten offering shall inform the Company and the
holders of the Registrable Securities requesting such piggyback registration by
letter that marketing considerations require a limitation on the number of
securities that can be included in such registration, then the Company shall
include all securities proposed by the Company to be sold for its own account
or the maximum amount that the underwriter considers saleable and such
limitation on any remaining securities that may, in the opinion of the
underwriter, be sold will be imposed pro rata among all shareholders who are
entitled to include shares in such registration statement according to the
number of Registrable Securities and other securities each such shareholder
requested to be included in such registration statement. To the extent that any
Registrable Securities or other securities are excluded from the registration
pursuant to this Section 2.3(b), no shares of Common Stock issued to management
of the Company after the date hereof pursuant to a stock option (or any other
type of benefit plan) ("Option Shares") shall be included in such registration.
Notwithstanding the foregoing, if the registration referred to herein involves
an underwritten offering of securities being registered for sale by holders of
securities other than Registrable Securities pursuant to the exercise by such
holders of demand registration rights, the Company will include in such
registration the securities proposed by such holders to be sold and may
decrease the number of Registrable Securities and such other securities
exercising "piggyback" registration rights proposed to be sold in such
registration (pro rata on the basis of the percentage of the securities sought
to be registered by such holders of Registrable Securities, and such other
securities exercising "piggyback" registration rights) to the extent necessary
to reduce the number of securities to be included in the registration to the
level recommended by the managing underwriter. To the extent that any
Registrable Securities or other securities are excluded from the registration
pursuant to this Section 2.3(b), for a registration involving demand
registration rights of holders of Prior Right Holder, no securities shall be
offered for sale for the account of the
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<PAGE> 6
Company and no Option Shares shall be included in the registration.
2.4. Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities and under the Securities Act as provided in Sections 2.1, 2.2 and
2.3, the Company will as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or
in any event no later than 45 days after the end of the
period within which requests for registration may be given to
the Company) file with the Commission the requisite
registration statement to effect such registration and
thereafter use its best efforts to cause such registration
statement to become effective, provided that the Company may
discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances
specified in Section 2.3(a), its securities which are
Registrable Securities) at any time prior to the effective
date of the registration statement relating thereto;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement until such time as all of such
securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers
thereof set forth in such registration statement or if the
registration is on Form S-1 for 6 months, whichever period is
shorter;
(iii) furnish to each seller of Registrable
Securities covered by such registration statement such number
of conformed copies of such registration statement and of
each such amendment and supplement thereto, such number of
copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule
424 or Rule 430A under the Securities Act, in conformity with
the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(iv) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or blue
sky laws of such jurisdictions as
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<PAGE> 7
each seller thereof shall reasonably request, to keep such
registration or qualification in effect for so long as such
registration statement remains in effect, and take any other
action which may be reasonably necessary to enable such
seller to consummate the disposition in such jurisdictions of
the securities owned by such seller, except that the Company
shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of
this subdivision (iv) be obligated to be so qualified or to
consent to general service of process in any such
jurisdiction or subject itself to be required to pay any
franchise or income taxes in any such jurisdiction;
(v) use its best efforts to cause all Registrable
Securities covered by such registration statement to be
registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) furnish to each seller of Registrable
Securities a signed counterpart, addressed to such seller,
except as provided in (y) below (and the underwriters, if
any), of
(x) an opinion of counsel for the Company,
dated the effective date of such registration
statement (and, if such registration includes an
underwritten public offering, dated the date of the
closing under the underwriting agreement),
reasonably satisfactory in form and substance to
counsel for all such sellers or, if such
registration includes an underwritten public
offering, to such underwriter, and
(y) a "comfort" letter, dated the effective
date of such registration statement (and, if such
registration includes an underwritten public
offering, dated the date of the closing under the
underwriting agreement), signed by the independent
public accountants who have certified the Company's
financial statements included in such registration
statement, addressed to each seller, to the extent
the same can be reasonably obtained, and addressed
to the underwriters, if any, covering substantially
the same matters with respect to such registration
statement (and the prospectus included therein) and,
in the case of the accountants' letter, with respect
to events subsequent to the date of such financial
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<PAGE> 8
statements, as are customarily covered in
accountants' letters delivered to the underwriters
in underwritten public offerings of securities and
such other financial matters as such seller or such
holder (or the underwriters, if any) may reasonably
request;
(vii) notify each seller of Registrable Securities
covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the
happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading in
the light of the circumstances under which they were made,
and at the request of any such seller or holder promptly
prepare to furnish to such seller or holder a reasonable
number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter
delivered to the Investors of such securities, such
prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which
they were made;
(viii) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the
effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of
the Securities Act, and, in the case of a registration
requested pursuant to Section 2.1 or 2.2 hereof, will furnish
to each such seller at least two business days prior to the
filing thereof a copy of any amendment or supplement to such
registration statement or prospectus and shall not file any
thereof to which any such seller shall have reasonably
objected on the grounds that such amendment or supplement
does not comply in all material respects with the
requirements of the Securities Act or of the rules or
regulations thereunder;
(ix) provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by
such registration statement from
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<PAGE> 9
and after a date not later than the effective date of such
registration statement; and
(x) use its best efforts to list all Registrable
Securities covered by such registration statement on any
securities exchange on which any of the Registrable
Securities is then listed.
Notwithstanding the foregoing, the Company may defer its
obligations under Section 2.1 and Section 2.2 to file a registration statement,
but not its obligations to initiate the process of preparing the applicable
registration statement, for a period of no more than (i) 90 days in any 365-day
period, if the Company's Board of Directors determines in good faith based upon
a written opinion of counsel that filing such a registration statement would
require a public disclosure by the Company, which disclosure would interfere
with a material transaction then under consideration by the Company, provided
that once such information has been publicly disclosed, the Company shall
promptly proceed to fulfill its obligations under Section 2.1 and (ii) 180 days
from the most recent effective date of any registration statement of the
Company filed under the Securities Act and pursuant to Section 2.1 occurring
prior to the request for registration made pursuant to Section 2.1.
The Company may require each proposed seller of Registrable
Securities as to which any registration is being effected to promptly furnish
the Company, as a condition precedent to including such holder's Registrable
Securities in any registration, such information regarding such seller and the
distribution of such securities as the Company may from time to time reasonably
request in writing.
Each holder of Registrable Securities agrees by acquisition
of such Registrable Securities that upon receipt of any notice from the Company
of the happening of any event of the kind described in subdivision (vii) of
this Section 2.4, such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(vii) of this Section 2.4 and, if so directed by the Company, will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice. Nothing
in this paragraph shall relieve the Company of its obligations under Section
2.4(vii) to promptly prepare a supplement or amendment at the request of any
seller or holder as set forth in Section 2.4(vii).
2.5. Underwritten Offerings. (a) Requested Underwritten
Offerings. If requested by the underwriters for any offering by holders of
Registrable Securities pursuant to a
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<PAGE> 10
registration requested under Section 2.1, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be satisfactory in substance and form to the Company, to holders of more
than 50% (by number of shares) of the Registrable Securities included in such
registration and the underwriters and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of this type, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.7. The holders of the
Registrable Securities will cooperate with the Company in the negotiation of
the underwriting agreement and will give consideration to the reasonable
requests of the Company regarding the form thereof, provided that nothing
herein contained shall diminish the foregoing obligations of the Company. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to such underwriting agreement and may, at their option, require
that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities. Any such holder of Registrable Securities shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements typical in an
offering of that type, including those regarding such holder, such holder's
Registrable Securities, and such holder's intended method of distribution, any
other information supplied by such holder to the Company for use in the
Registration Statement and any other representation required by law.
(b) Incidental Underwritten Offerings. If the Company at
any time proposes to register any of its securities under the Securities Act as
contemplated by Section 2.3 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Section 2.3 and subject to the
provisions of Sections 2.3(a), 2.3(b) and 2.4, arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such holder
among the securities to be distributed by such underwriters. The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters and
may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of such holders of
Registrable Securities. Any such
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<PAGE> 11
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties, or agreements typical in
an offering of this type, including those regarding such holder, such holder's
Registrable Securities and such holder's intended method of distribution, any
other information supplied by such holder to the Company for use in the
Registration Statement and any other representation required by law.
2.6. Preparation; Reasonable Investigation. In connection
with the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company will give the holders of
Registrable Securities registered under such registration statement, the
underwriters, if any, and their respective counsel (such holders' counsel to be
appointed by the holders of more than 50% (by number of shares) of Registrable
Securities so to be registered, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
2.7. Indemnification. (a) Indemnification by the Company. In
the event of any registration of any securities of the Company under the
Securities Act, the Company will, and hereby does, indemnify and hold harmless
the seller of any Registrable Securities covered by such registration
statement, its directors and officers, each other Person who participates as an
underwriter in the offering or sale of such securities and such other Person,
if any, who controls such seller or any such underwriter within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which such seller or any such director or officer or underwriter
or controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse such seller
and each such director, officer, underwriter and controlling person for any
legal or any other expenses reasonably
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<PAGE> 12
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, said preliminary or final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such seller,
specifically for use in the preparation thereof. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such seller or any such director, officer, underwriter or controlling person
and shall survive the transfer of such securities by such seller.
(b) Indemnification by the Investors. Each Investor will,
and hereby does, severally and not jointly, indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 2.7) the Company, each director of the Company, each officer of the
Company and each other Person, if any, who controls the Company within the
meaning of the Securities Act with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Investor
for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement;
provided, however, that, except in cases where the liability of each seller
hereunder is attributable to such seller's gross negligence or willful
misconduct, the liability of each seller hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense which is equal
to the proportion that the public offering price of shares sold by such seller
under such registration statement bears to the total public offering price of
all securities sold thereunder, but not to exceed the proceeds (net of
underwriting discounts and commissions) received by such seller from the sale
of Registrable Securities covered by such registration statement. Such
indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling Person and shall survive the transfer of such securities by such
Investor with respect to information furnished by such Investor prior to such
transfer.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
2.7, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying
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party, give written notice to the latter of the commencement of such action,
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.7, except to the extent that the
indemnifying party is prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
party and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 2.7 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2.8. Adjustments Affecting Registrable Securities. The
Company will not effect or permit to occur any combination or subdivision of
shares which would adversely affect the ability of the holders of Registrable
Securities to include such Registrable Securities in any registration of its
securities contemplated by this Section 2 or the marketability of such
Registrable Securities under any such registration.
3. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
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Commission: The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
Common Stock: All shares now or hereafter authorized and designated as
the Common Stock of the Company and stock of any other class with
which such shares may hereafter have been exchanged or reclassified.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Fair Market Value: (i) The Market Price, if any, of the Common Stock,
or (ii) if no Market Price exists, the value (which shall not take
into effect any minority discounts) of the Common Stock as determined
by a nationally recognized investment banking firm designated by the
Investors and reasonably acceptable to the Company; and provided,
further, that if the parties cannot agree on such a firm, each party
shall choose a nationally recognized investment banking firm, which
shall choose a third firm which shall be nationally recognized and
that third firm shall determine the Fair Market Value, which
determination shall be final and binding. The cost relating to
retaining any investment banking firm(s) in accordance herewith shall
be borne by the Company.
Market Price: The value determined in accordance with the following
provisions:
(i) if such security is listed on a national
securities exchange registered under the Exchange Act, a price equal
to the average of the closing sales prices for such security on such
exchange for each day during the 20 trading days preceding the day of
the initial written request for a demand registration; and
(ii) if not so listed under clause (i) above and
such security is quoted on the NASDAQ system, a price equal to the
average of the average of the closing bid and asked prices for such
security quoted on such system each day during the 20 trading days
preceding the day of the initial written request for a demand
registration.
Other Permitted Transferee: with respect to any Shareholder who is a
natural person:
(i) Any person related by lineal or collateral
consanguinity to such Shareholder or to the spouse of such
Shareholder;
(ii) the spouse of such Shareholder or of any person
described in clause (i) above; and
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(iii) all persons related to those persons described
in clause (i) or clause (ii) by lineal or collateral consanguinity.
For purposes of this definition of Other Permitted Transferee (i)
adopted persons shall be considered the natural born child of their
adoptive parents; (ii) lineal consanguinity is that relationship that
exists between persons of whom one is descended (or ascended) in a
direct line from the other, as between son, father, grandfather,
great-grandfather; and (iii) collateral consanguinity is that
relationship that exists between persons who have the same ancestors,
but who do not descend (or ascend) from the other, as between uncle
and nephew, or cousin and cousin.
Person: A corporation, an association, a partnership, a limited
liability company, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
Prior Registrable Shareholder Securities: (a) All shares of Common
Stock held by the Prior Right Holders or any Shareholder Relation of a
Prior Right Holder on the date hereof or (b) Common Stock by way of
stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other
reorganization or otherwise upon any required adjustments, in all
cases in respect of shares of Common Stock referred to in (a) above.
[As to any particular Prior Registrable Shareholder Securities, such
securities shall cease to be Prior Registrable Shareholder Securities
when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such
registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the
Securities Act, or (c) they shall have ceased to be outstanding.]
Prior Right Holders: The Purchasers in connection with the [1995
Purchase and Rights Agreement] listed under the heading "Purchaser" on
Exhibit A attached hereto.
Registrable Securities: (i) The Common Stock issuable upon the
conversion of Warrants held by the Investors and any Warrants or
Common Stock by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise upon any required adjustments,
and (ii) in any underwritten public offering contemplated by this
Agreement, if acceptable to the underwriters thereof, the Warrants
sold in accordance with the terms thereof to
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<PAGE> 16
the underwriters for exercise and sale of the shares of Common Stock
issued upon exercise of such Warrants.
As to any particular Registrable Securities, such securities shall
cease to be Registrable Securities when (a) a registration statement
with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they
shall have been distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act, or (c) they shall have
ceased to be outstanding.
Registration Expenses: All expenses incident to the Company's
performance of or compliance with Section 2, including, without
limitation, all registration, filing and National Association of
Securities Dealers, Inc. fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the reasonable
fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, the reasonable fees and disbursements of a
single counsel retained by the holder or holders of more than 50% (by
number of shares) of the Registrable Securities being registered,
premiums and other costs of policies of insurance obtained by the
Company against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities,
including reasonable fees of underwriters counsel incurred in the
qualification of the Securities under blue sky laws, but excluding all
agency fees and commissions, underwriting discounts and commissions
and transfer taxes, if any.
Securities Act: The Securities Act of 1933, as amended.
Shareholder Relation: (i) Any Other Permitted Transferee of an
individual Shareholder, (ii) any inter-vivos trust whose principal
beneficiary is such individual Shareholder or any Other Permitted
Transferee of such individual Shareholder created during their
respective lifetimes and not as a result of death, (iii) any family
limited partnership in which an individual Shareholder is a general or
limited partner, and (iv) the legal representative or guardian of such
individual Shareholder or any Other Permitted Transferee of such
individual Shareholder appointed during their respective lifetimes and
not as a result of death.
Warrants: As defined in the Note Agreement.
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4. Rule 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company will file the reports required to be filed by it, and in the manner
required to be filed by it, under the Securities Act and the Exchange Act (or,
if the Company is not required to file such reports, will, upon the request of
any holder of Registrable Securities, make publicly available other
information) and will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time or
(b) any similar rule or regulation hereafter adopted by the Commission ("Rule
144"). Upon the request of any holder of Registrable Securities, the Company
will deliver to such holder a written statement as to whether it has complied
with such requirements.
5. Amendments and Waivers. This Agreement 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 shall have obtained
the written consent to such amendment, action or omission to act, of the holder
or holders of 66 2/3% or more (by number of shares) of Registrable Securities.
Each holder of any Registrable Securities at the time or thereafter outstanding
shall be bound by any consent authorized by this Section 5, whether or not such
Registrable Securities shall have been marked to indicate such consent.
6. Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
2.1 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of such securities will not reduce the amount of
the Registrable Securities of the holders which is included, (b) to make a
demand registration similar to that set forth in Section 2.1 hereof prior to
(i) the earlier date on which the Investors have made one demand registration
or two years from the date hereof or (ii) within one hundred and eighty (180)
days after the effective date of a registration made pursuant to Section 2.1
hereof, or (c) to have registration rights that are inconsistent with or
superior to the rights provided herein.
7. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may upon
17
<PAGE> 18
the giving of written notice to the Company, at its election, be treated as the
holder of such Registrable Securities for purposes of any request or other
action by any holder or holders of Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. The Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
8. Notices. All communications provided for hereunder shall
be sent by first-class mail or overnight courier and (a) if addressed to a
party other than the Company, addressed to such party in the manner set forth
in the Note Agreement, as the case may be, or at such other address as such
party shall have furnished to the Company in writing, or (b) if addressed to
any other holder of Registrable Securities, at the address that such holder
shall have furnished to the Company in writing, or, until any such other holder
so furnishes to the Company an address, then to and at the address of the last
holder of such Registrable Securities who has furnished an address to the
Company, or (c) if addressed to the Company, at 8140 Walnut Hill Lane, Suite
1000, Dallas, TX 75231 to the attention of its President, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding.
9. Assignment. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are for
the benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent holder of any Registrable
Securities or Prior Registrable Shareholder Securities, subject to the
provisions respecting the minimum numbers or percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein.
10. Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
11. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of New York.
12. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one and the same
instrument.
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<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
SOURCE MEDIA, INC.
By:
--------------------------------------
Michael G. Pate
Chief Financial Officer and
Treasurer
THE NORTHSTAR INVESTOR:
NORTHSTAR HIGH TOTAL RETURN FUND
By:
--------------------------------------
Thomas Ole Dial
Vice President
THE PECKS INVESTORS:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By:
---------------------------------
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ICI AMERICAN HOLDINGS
INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By:
---------------------------------
Robert J. Cresci
Managing Director
19
<PAGE> 20
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By:
---------------------------------
Robert J. Cresci
Managing Director
THE J.W. MCCONNELL FAMILY FOUNDATION
By: Pecks Management Partners Ltd.
Its Investment Advisor
By:
---------------------------------
Robert J. Cresci
Managing Director
20
<PAGE> 1
Exhibit 10.36
Execution Copy
AMENDED AND RESTATED
SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AGREEMENT, dated as of April 9, 1997,
made by SOURCE MEDIA, INC., a Delaware corporation (the "Grantor"), in favor of
PECKS MANAGEMENT PARTNERS LTD., in its capacity as Collateral Agent (in such
capacity, the "Collateral Agent") for the ratable benefit of the Investors as
defined in and pursuant to the Intercreditor Agreement dated as of the date
hereof, among the Grantor, IT Network, Inc., a Texas corporation ("IT"),
Northstar High Total Return Fund ("Northstar"), the Pecks Investors listed on
Schedule 1 attached thereto, the Guarantors listed on Schedule 2 attached
thereto and the Collateral Agent (the "Intercreditor Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Note Agreement dated as of
March 28, 1996, between the Grantor and Northstar, the Grantor entered into and
delivered to Northstar a Security Agreement dated as of April 3, 1996 (the
"Original Security Agreement"); and
WHEREAS, the Grantor, IT and the Investors have entered into an
Amended and Restated Note Agreement dated as of the date hereof (the "Amended
and Restated Note Agreement"), pursuant to which, among other things, (i) the
Investors have agreed to purchase the 1997 Notes (as defined in the Amended and
Restated Note Agreement) from the Grantor and IT and (ii) Northstar has agreed
to the amendment and restatement of the Original Notes (as defined in the
Amended and Restated Note Agreement); and
WHEREAS, it is a condition precedent to the obligations of the
Investors to purchase the 1997 Notes under the Amended and Restated Note
Agreement and the obligation of Northstar to agree to the amendment and
restatement of the Original Notes under the Amended and Restated Note Agreement,
that the Grantor shall have executed and delivered this Amended and Restated
Security Agreement to the Collateral Agent, amending and restating the Original
Security Agreement in its entirety;
NOW, THEREFORE, in consideration of the premises and to induce the
Investors to enter into the Amended and Restated Note Agreement and to purchase
the 1997 Notes and to induce Northstar to agree to the amendment and restatement
of the Original Notes, all as provided in the Amended and Restated Note
Agreement, the Grantor hereby agrees with the Collateral Agent, as follows:
<PAGE> 2
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Amended and Restated Note Agreement and used herein are so used
as so defined, and the meanings assigned to terms defined herein or in the
Amended and Restated Note Agreement shall be equally applicable to both the
singular and plural forms of such terms; the following terms which are defined
in the Uniform Commercial Code in effect in the State of New York on the date
hereof are used herein as so defined: Accounts, Chattel Paper, Documents,
Equipment, Farm Products, General Intangibles, Instruments, Inventory and
Proceeds; and the following terms shall have the following meanings:
"Amended and Restated Security Agreement" means this Amended and
Restated Security Agreement, as amended, supplemented or otherwise
modified from time to time.
"Code" means the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section 2 of
this Amended and Restated Security Agreement.
"Computer Hardware and Software Collateral" means (a) all computer
and other electronic data processing hardware, integrated computer
systems, central processing units, memory units, display terminals,
printers, features, computer elements, card readers, tape drives, hard and
soft disk drives, cables, electrical supply hardware, generators, power
equalizers, accessories and all peripheral devices and other related
computer hardware; (b) all software programs (including both source code,
object code and related applications and data files), whether now owned,
licensed or leased or hereafter acquired by the Grantor, designed for use
on the computers and electronic data processing hardware described in
clause (a) above; (c) all firmware associated therewith; (d) all
documentation (including flow charts, logic diagrams, manuals, guides and
specifications) with respect to such hardware, software and firmware
described in the preceding clauses (a) through (c); and (e) all rights
with respect to all of the foregoing, including, without limitation, any
and all copyrights, licenses, options, warranties, service contracts,
program services, test rights, maintenance rights, support rights,
improvement rights, renewal rights and indemnifications and any
substitutions, replacements, additions or model conversions of any of the
foregoing.
"Contracts" means the contracts entered into by the Grantor,
including, without limitation, (a) all rights of the Grantor to receive
moneys due and to become due to it thereunder or in connection therewith,
(b) all rights of the Grantor to damages arising out of, or for, breach or
default
2
<PAGE> 3
in respect thereof and (c) all rights of the Grantor to perform and
exercise all remedies thereunder.
"Copyright License" means any written agreement naming the Grantor
as licensor or licensee or granting any right under any Copyright,
including the agreements described in Schedule I hereto.
"Copyrights" means (a) all copyrights of the Grantor, whether
published or unpublished and whether now or hereafter in force throughout
the world, all registrations and recordings thereof, and all applications
in connection therewith, including, without limitation, registrations,
recordings and applications in the United States Copyright office referred
to in Schedule I hereto and (b) all renewals thereof.
"Obligations" shall mean the unpaid principal amount of, or any
premium applicable to, and interest on (including, without limitation,
interest accruing after the maturity of the Notes and interest accruing
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Grantor,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) and all other obligations and liabilities of
the Grantor to the Investors or the Collateral Agent, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with,
the Amended and Restated Note Agreement, the Notes, the other Note
Purchase Documents or this Amended and Restated Security Agreement (in
each such case as the same may be amended, supplemented or modified from
time to time) and any other document made, delivered or given in
connection therewith or herewith, whether on account of principal,
premium, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees and disbursements of
counsel to the Investors that are required to be paid by the Grantor
pursuant to the terms of the Amended and Restated Note Agreement) or
otherwise.
"Patents" means any and all now or in the future issued or
registered, anywhere in the world, patents and utility models, and any and
all now or in the future filed, anywhere in the world, patent applications
and utility model applications, whose subject matter is now or hereafter
conceived, or reduced to practice, or which is now or hereafter owned,
acquired or controlled, by the Grantor under which the Grantor has the
right to grant licenses; and all divisions, continuations, and
continuations-in-part of, substitutions for and additions to any of the
foregoing patent and utility
3
<PAGE> 4
model applications directly or through one or more intervening
applications, and all reissues, reexaminations, renewals, and extensions
of any such patents and utility models, including, without limitation, any
thereof referred to in Schedule II hereto.
"Patent License" means any agreement providing for the grant by or
to the Grantor of any right under any patent or patent application, or any
Patent, and all license rights, immunities from suit and all other rights
and interests conferred by or to the Grantor with respect to patents,
patent applications, utility models and utility model applications under
all licenses and agreements, including but not limited to all licenses and
agreements between the Grantor, on the one hand, and any member of the ICT
Group, on the other, and including, without limitation any thereof
referred to in Schedule II hereto.
"Security" means any "security," as such term is defined in Article
8 of the Code and, in any event, shall include, but not be limited to, any
obligation of an "issuer" (as such term is defined in Article 8 of the
Code), or a share, participation, or other interest in an issuer or in
property or an enterprise of an issuer: (a) which is represented by a
Security certificate in bearer or registered form, or the transfer of
which may be registered upon books maintained for that purpose by or on
behalf of the issuer; (b) which is one of a class or series or by its
terms is divisible into a class or series of shares, participations,
interests, or obligations; and (c) which (i) is, or is of a type, dealt in
or traded on securities exchanges or securities markets; or (ii) is a
medium for investment and by its terms expressly provides that it is a
security governed by Article 8 of the Code.
"Trademark License" means any agreement providing for the grant by
or to the Grantor of any right to use any Trademark, including, without
limitation, any thereof referred to in Schedule III hereto.
"Trademarks" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers of the
Grantor, now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, and the goodwill associated
therewith, all registrations and recordings thereof, and all applications
in connection therewith, including, without limitation, any thereof
referred to in Schedule III hereto, and (b) all renewals thereof.
4
<PAGE> 5
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, the Grantor hereby grants to
the Collateral Agent a security interest in all of the following property now
owned or at any time hereafter acquired by the Grantor or in which the Grantor
now has or at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Computer Hardware and Software Collateral
(iv) all Contracts;
(v) all Copyrights;
(vi) all Copyright Licenses;
(vii) all Documents;
(viii) all Equipment;
(ix) all General Intangibles;
(x) all Patents;
(xi) all Patent Licenses;
(xii) all Securities;(including, without limitation, any and all
Securities of any and all subsidiaries of the Grantor from time to time
owned or acquired by the Grantor in any manner, and the certificates and
all dividends, cash, Instruments and other property from time to time
received, receivable or otherwise distributed or distributable in respect
of or in exchange for all or any of such Securities)
(xiii) all Instruments;
(xiv) all Inventory;
(xv) all Trademarks;
(xvi) all Trademark Licenses;
(xvii) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing.
5
<PAGE> 6
3. Rights of the Collateral Agent; Limitations on the Collateral
Agent's Obligations.
(a) Grantor Remains Liable under Accounts and Contracts. Anything
herein to the contrary notwithstanding, the Grantor shall remain liable under
each of the Accounts and Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account and in
accordance with and pursuant to the terms and provisions of each such Contract.
The Collateral Agent shall not have any obligation or liability under any
Account (or any agreement giving rise thereto) or under any Contract by reason
of or arising out of this Amended and Restated Security Agreement or the receipt
by the Collateral Agent of any payment relating to such Account or Contract
pursuant hereto, nor shall the Collateral Agent be obligated in any manner to
perform any of the obligations of the Grantor under or pursuant to any Account
(or any agreement giving rise thereto) or under or pursuant to any Contract, to
make any payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party
under any Account (or any agreement giving rise thereto) or under any Contract,
to present or file any claim, to take any action to enforce any performance or
to collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
(b) Notice to Account Debtors and Contracting Parties. Upon the
request of the Collateral Agent at any time after the occurrence and during the
continuance of an Event of Default, the Grantor shall notify account debtors on
the Accounts and parties to the Contracts that the Accounts and the Contracts
have been assigned to the Collateral Agent for the benefit of the Collateral
Agent and that payments in respect thereof shall be made directly to the
Collateral Agent. The Collateral Agent may in its own name or in the name of
others communicate with account debtors on the Accounts and parties to the
Contracts to verify with them to its satisfaction the existence, amount and
terms of any Accounts or Contracts.
(c) Analysis of Accounts. The Collateral Agent shall have the right
to make test verifications of the Accounts in any manner and through any medium
that it reasonably considers advisable, and the Grantor shall furnish all such
assistance and information as the Collateral Agent may require in connection
therewith. At any time and from time to time, upon the Collateral Agent's
request and at the expense of the Grantor, the Grantor shall cause independent
public accountants or others satisfactory to the Collateral Agent to furnish to
the Collateral Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts.
6
<PAGE> 7
(d) Collections on Accounts. If required by the Collateral Agent
after the occurrence and during the continuance of an Event of Default, any
payments of Accounts, when collected by the Grantor, shall be forthwith (and, in
any event, within two Business Days) deposited by the Grantor in the exact form
received, duly indorsed by the Grantor to the Collateral Agent if required, in a
special collateral account maintained by the Collateral Agent, and, until so
turned over, shall be held by the Grantor in trust for the Collateral Agent,
segregated from other funds of the Grantor. Each deposit of any such Proceeds
shall be accompanied by a report identifying in reasonable detail the nature and
source of the payments included in the deposit. All Proceeds constituting
collections of Accounts while held by the Collateral Agent (or by the Grantor in
trust for the Collateral Agent) shall continue to be collateral security for all
of the Obligations and shall not constitute payment thereof until applied as
hereinafter provided. At any time after the occurrence and during the
continuance of an Event of Default, at the Collateral Agent's election, the
Collateral Agent shall apply all or any part of the funds on deposit in said
special collateral account on account of the Obligations in such order as the
Collateral Agent may elect, and any part of such funds which the Collateral
Agent elects not so to apply and deems not required as collateral security for
the Obligations shall be paid over from time to time by the Collateral Agent to
the Grantor or to whomsoever may be lawfully entitled to receive the same. After
the occurrence and during the continuance of an Event of Default, at the
Collateral Agent's request, the Grantor shall deliver to the Collateral Agent
all original and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts, including, without limitation, all
original orders, invoices and shipping receipts.
4. Representations and Warranties. The Grantor hereby represents and
warrants that:
(a) Title; No Other Liens. Except for the Lien granted to the
Collateral Agent pursuant to this Amended and Restated Security Agreement,
the Grantor owns each item of the Collateral free and clear of any and all
Liens or claims of others except as permitted by the Amended and Restated
Note Agreement. No security agreement, financing statement or other public
notice with respect to all or any part of the Collateral is on file or of
record in any public office, except as permitted by the Amended and
Restated Note Agreement and such as may have been filed in favor of the
Collateral Agent, pursuant to this Amended and Restated Security
Agreement.
(b) Perfected First Priority Liens. The Liens granted pursuant to
this Amended and Restated Security Agreement will constitute upon the
completion of all necessary filings
7
<PAGE> 8
or notices in proper public offices or the taking of any necessary
possessions or similar acts, perfected Liens on all Collateral, which are,
except as permitted by the Amended and Restated Note Agreement, prior to
all other Liens on such Collateral created by the Grantor and in existence
on the date hereof and which are enforceable as such against all creditors
of the Grantor.
(c) Accounts. The amount represented by the Grantor to the
Collateral Agent from time to time as owing by each account debtor or by
all account debtors in respect of the Accounts will at such time be the
correct amount actually owing by such account debtor or debtors
thereunder. No amount payable to the Grantor under or in connection with
any Account is evidenced by any Instrument or Chattel Paper which has not
been delivered to the Collateral Agent. The place where the Grantor keeps
its records concerning the Accounts is set forth on Schedule IV hereto.
(d) Consents. No consent of any party (other than the Grantor) to
any Contract is required, or purports to be required, in connection with
the execution, delivery and performance of this Amended and Restated
Security Agreement.
(e) Bank Accounts. The bank accounts with the banks listed on
Schedule V hereto are the only bank or deposit accounts that the Grantor
maintains.
(f) Inventory and Equipment. The Inventory and the Equipment are
kept at the locations listed on Schedule VI hereto and have not been kept
at any other location within the five-month period ending on the Closing
Date.
(g) Chief Executive Office. The Grantor's chief executive office and
chief place of business is located at 8140 Walnut Hill Lane, Suite 1000,
Dallas, Texas 75231.
(h) Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
(i) Governmental Obligors. None of the obligors on any Accounts is a
Governmental Authority.
5. Covenants. The Grantor covenants and agrees with the Collateral
Agent, from and after the date of this Amended and Restated Security Agreement
until the Obligations are paid in full:
(a) Further Documentation; Pledge of Instruments and Chattel Paper.
At any time and from time to time, upon the written request of the
Collateral Agent, and at the sole expense of the Grantor, the Grantor will
promptly and duly
8
<PAGE> 9
execute and deliver such further instruments and documents and take such
further action as the Collateral Agent may reasonably request for the
purpose of obtaining or preserving the full benefits of this Amended and
Restated Security Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any such
jurisdiction with respect to the Liens created hereby. The Grantor also
hereby authorizes the Collateral Agent to file any such financing or
continuation statement without the signature of the Grantor to the extent
permitted by applicable law. A carbon, photographic or other reproduction
of this Amended and Restated Security Agreement shall be sufficient as a
financing statement for filing in any jurisdiction. If any amount payable
under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be immediately delivered to the Collateral Agent, duly
endorsed in a manner satisfactory to the Collateral Agent, to be held as
Collateral pursuant to this Amended and Restated Security Agreement.
(b) Indemnification. The Grantor agrees to pay, and to save the
Collateral Agent harmless from, any and all liabilities, costs and
expenses (including, without limitation, legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise,
sales or other taxes which may be payable or determined to be payable with
respect to any of the Collateral, (ii) with respect to, or resulting from,
any delay in complying with any requirement of law applicable to any of
the Collateral or (iii) in connection with any of the transactions
contemplated by this Amended and Restated Security Agreement. In any suit,
proceeding or action brought by the Collateral Agent under any Account or
Contract for any sum owing there-under, or to enforce any provisions of
any Account or Contract, the Grantor will save, indemnify and keep the
Collateral Agent harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction or liability whatsoever of the account debtor or obligor
thereunder, arising out of a breach by the Grantor of any obligation
thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or
obligor or its successors from the Grantor.
(c) Maintenance of Records. The Grantor will keep and maintain at
its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Accounts. For the
Collateral Agent's further security, the Collateral Agent shall have a
9
<PAGE> 10
security interest in all of the Grantor's books and records pertaining to
the Collateral, and the Grantor shall turn over any such books and records
for inspection at the office of the Grantor to the Collateral Agent or to
its representatives during normal business hours at the request of the
Collateral Agent.
(d) Limitation on Liens on Collateral. The Grantor (x) will not
create, incur or permit to exist, will defend the Collateral against, and
will take such other action as is necessary to remove, any Lien or claim
on or to the Collateral, other than the Liens created hereby and other
than as permitted pursuant to the Amended and Restated Note Agreement, and
(y) will defend the right, title and interest of the Collateral Agent in
and to any of the Collateral against the claims and demands of all Persons
whomsoever.
(e) Limitations on Dispositions of Collateral. The Grantor will not
sell, transfer, lease or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so except for (x) sales of Inventory in
the ordinary course of its business, (y) so long as no Default or Event of
Default has occurred and is continuing, the disposition in the ordinary
course of business of items of Equipment and which have become worn out or
obsolete and (z) as otherwise permitted by the Amended and Restated Note
Agreement.
(f) Limitations on Modifications, Waivers, Extensions of Contracts
and Agreements Giving Rise to Accounts. The Grantor will not (i) amend,
modify, terminate or waive any provision of any Contract or any agreement
giving rise to an Account in any manner which could reasonably be expected
to materially adversely affect the value of such Contract or Account as
Collateral, (ii) fail to exercise promptly and diligently each and every
material right which it may have under each Contract and each agreement
giving rise to an Account (other than any right of termination) or (iii)
fail to deliver to the Collateral Agent a copy of each material demand,
notice or document received by it relating in any way to any Contract or
any agreement giving rise to an Account.
(g) Limitations on Discounts, Compromises, Extensions of Accounts.
Other than in the ordinary course of business as generally conducted by
the Grantor over a period of time, the Grantor will not grant any
extension of the time of payment of any of the Accounts, compromise,
compound or settle the same for less than the full amount thereof,
release, wholly or partially, any Person liable for the payment thereof,
or allow any credit or discount whatsoever thereon, to the extent that the
same, individually or in the aggregate, could have a material adverse
effect on the
10
<PAGE> 11
business, properties, assets, liabilities, results of operations,
condition (financial or other) or prospects of the Grantor.
(h) Further Identification of Collateral. The Grantor will furnish
to the Collateral Agent from time to time, statements and schedules
further identifying and describing the Collateral and such other reports
in connection with the Collateral as the Collateral Agent may reasonably
request, all in reasonable detail.
(i) Notices. The Grantor will advise the Collateral Agent promptly,
in reasonable detail, (i) of any Lien (other than Liens created hereby or
permitted under the Amended and Restated Note Agreement) on, or claim
asserted against, any of the Collateral, (ii) of the opening by the
Grantor of any bank or deposit account after the Closing Date, (iii) of
any Account arising after the Closing Date with respect to which the
obligor thereon is a Governmental Authority and (iv) of the occurrence of
any other event which could reasonably be expected to have a material
adverse effect on the aggregate value of the Collateral or on the Liens
created hereunder.
(j) Changes in Locations, Name, etc. The Grantor will not (i) change
the location of its chief executive office/chief place of business from
that specified in Section 4(g) or remove its books and records from the
location specified in Section 4(c), (ii) permit any of the Inventory or
Equipment to be kept at a location other than that specified in Section
4(f) or (iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Collateral Agent in
connection with this Amended and Restated Security Agreement would become
misleading, unless it shall have given the Collateral Agent at least 30
days' prior written notice thereof.
(k) Copyrights.
(i) The Grantor (either itself or through licensees) will (a) employ
each Copyright with appropriate copyright notice consistent with its past
practice and (b) not knowingly (and not permit any licensee or sublicensee
thereof knowingly to) do any act or knowingly omit to do any act whereby
any Copyright or any portion of the Copyright may become invalidated.
(ii) The Grantor will not (either itself or through licensees)
knowingly do any act, or omit to do any act, whereby any Copyright or any
portion of the Copyrights may become injected into the public domain.
11
<PAGE> 12
(iii) The Grantor shall notify the Collateral Agent immediately if it
knows, or has reason to know, that any Copyright or any portion of the
Copyrights may become injected into the public domain or of any adverse
determination (including, without limitation, the institution of, or any
such determination or development in, any court or tribunal in the United
States or any other country) regarding the Grantor's ownership of any
Copyright or any portion of the Copyrights.
(iv) The Grantor will, with respect to any Copyright that the Grantor
registers after the Closing Date or any Copyright License that the Grantor
knowingly acquires after the Closing Date, promptly (i) take all actions
necessary so that the Collateral Agent shall obtain a perfected security
interest in such Copyright or Copyright License and (ii) provide to the
Collateral Agent a revised Schedule I hereto listing all registered
Copyright and all Copyright Licenses owned by the Grantor.
(v) On each December 31 of each year following the Date of the Initial
Closing (or, if the Collateral Agent so requests in writing, more often),
the Grantor either itself or through any agent, employee, licensee or
designee, shall provide to the Collateral Agent a document confirming the
Collateral Agent's security interest in all Copyrights and Copyright
Licenses acquired by the Grantor during the preceding calendar year. Upon
request of the Collateral Agent, the Grantor shall execute and deliver any
and all additional agreements, instruments, documents, and papers as the
Collateral Agent may reasonably request to confirm the Collateral Agent's
security interest in such Copyrights and Copyright Licenses, and the
Grantor hereby constitutes the Collateral Agent its attorney-in-fact to
file all such writings for the foregoing purposes, all lawful acts of such
attorney being hereby ratified and confirmed; such power being coupled
with an interest is irrevocable until the Obligations are paid in full.
(vi) The Grantor will take all reasonable and necessary steps as it
shall deem appropriate under the circumstances, to maintain and pursue
each application (and to obtain the relevant registration) and to maintain
each registration of each Copyright owned by the Grantor including,
without limitation, filing of applications for renewal, where necessary.
(vii) The Grantor will promptly notify the Collateral Agent of any
infringement of any Copyright or any portion of the Copyrights of which it
becomes aware and will take all appropriate steps to stop the infringement
as are reasonably
12
<PAGE> 13
mutually agreed upon by the Grantor and the Collateral Agent.
(1) Trademarks.
(i) The Grantor (either itself or through licensees) will, with
respect to each Trademark, (i) continue to use such Trademark to the extent
necessary to maintain such Trademark in full force free from any claim of
abandonment for non-use, if consistent with its overall business plan or if to
do otherwise would be an unsound commercial and business judgment, (ii) maintain
as in the past the quality of products and services offered under such
Trademark, (iii) employ such Trademark with the appropriate notice of
registration, (iv) not (and not permit any licensee or sublicensee thereof to)
do any act or knowingly omit to do any act whereby any Trademark may become
invalidated other than solely (x) through the discontinuance of the sale of
goods or the provision of services or (y) the abandonment of a Trademark where,
in each such case covered by (x) and (y) above, the Collateral Agent shall have
received not less than fifteen (15) days' prior written notice of any such
discontinuance or abandonment and the Grantor shall have acted in a manner
consistent with its overall business plan and the exercise of sound commercial
and business judgment. Nothing in this Amended and Restated Security Agreement
shall restrict the Grantor from adding new goods and services to its business
or, upon not less than fifteen (15) days' prior written notice to the Collateral
Agent and in a manner consistent with the Grantor's overall business plan and
the exercise of sound commercial and business judgment, discontinuing the
provision of goods or services and thereby abandoning any Trademark relating
thereto.
(ii) The Grantor will notify the Collateral Agent immediately if it
knows, or has reason to know, that any application or registration relating to
any Trademark may become abandoned, or of any adverse determination or
development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office or any court or tribunal in any country) regarding the
Grantor's ownership of any Trademark or its right to register the same or to
keep and maintain the same.
(iii) The Grantor will, with respect to any Trademark that the Grantor
registers after the Closing Date or any Trademark License that the Grantor
acquires after the Closing Date, promptly (i) take all actions necessary so that
the Collateral Agent shall obtain a perfected security interest in such
Trademark or Trademark License and (ii) provide to the Collateral Agent a
revised Schedule II hereto listing all registered Trademarks and all Trademark
Licenses owned by the Grantor.
(iv) On each December 31 of each year following the Date of the
Initial Closing (or, if the Collateral Agent so
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<PAGE> 14
requests in writing, more often), the Grantor either itself or through any
agent, employee, licensee or designee, shall provide to the Collateral Agent, a
document confirming the Collateral Agent's security interest in any Trademark
with respect to which the Grantor has filed an application for registration
during the preceding calendar year. Upon request of the Collateral Agent, the
Grantor shall execute and deliver any and all agreements, instruments,
documents, and papers as the Collateral Agent may request to evidence the
Collateral Agent's security interest in any Trademark and the goodwill and
general intangibles of the Grantor relating thereto or represented thereby, and
the Grantor hereby constitutes the Collateral Agent its attorney-in-fact to
execute and file all such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power being coupled with an
interest is irrevocable until the Obligations are paid in full.
(v) The Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of the
Trademarks, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability. Notwithstanding the
foregoing, the Grantor may decline to maintain and pursue each application and
decline to maintain each registration as aforesaid upon not less than fifteen
(15) days' prior written notice to the Collateral Agent and if so to decline is
consistent with the Grantor's overall business plan and is an exercise of sound
commercial and business judgment.
(vi) In the event that any Trademark included in the Collateral is
infringed, misappropriated or diluted by a third party, the Grantor shall
promptly notify the Collateral Agent after it learns thereof and shall promptly
take all appropriate steps to stop the infringement as are reasonably mutually
agreed upon by the Grantor and the Collateral Agent.
(m) Patents
(i) The Grantor will notify the Collateral Agent immediately if it
knows, of has reason to know, that any application relating to any Patent may
become abandoned or of any adverse determination or development (including,
without limitation, the institution of, or any such determination or development
in, any proceeding in the United States Patent and Trademark Office or any court
or tribunal in any country) regarding the Grantor's ownership of any Patent.
14
<PAGE> 15
(ii) The Grantor will, with respect to any Patent that the Grantor
obtains after the Date of the Initial Closing or any Patent License that the
Grantor acquires after the Date of the Initial Closing, promptly (i) take all
actions necessary so that the Collateral Agent shall obtain a perfected security
interest in such Patent or Patent License and (ii) provide to the Collateral
Agent a revised Schedule II hereto listing all Patents and all Patent Licenses
owned by the Grantor.
(iii) On each December 31 of each year following the Date of the
Initial Closing (or, if the Collateral Agent so requests in writing, more
often), the Grantor either itself or through any agent, employee, licensee or
designee, shall provide to the Collateral Agent, a document confirming the
Collateral Agent's security interest in any Patent or Patent License which the
Grantor has obtained during the preceding calendar year. Upon request of the
Collateral Agent, the Grantor shall execute and deliver any and all agreements,
instruments, documents, and papers as the Collateral Agent may request to
evidence the Collateral Agent's security interest in such Patents or Patent
Licenses, and the Grantor hereby constitutes the Collateral Agent its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations are
paid in full.
(iv) The Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each patent or
application for patent and to maintain each Patent, including, without
limitation, payment of maintenance fees. Notwithstanding the foregoing, the
Grantor may decline to maintain and pursue each patent and application for
patent and decline to maintain each Patent as aforesaid upon not less than
fifteen (15) days' prior written notice to the Collateral Agent and if so to
decline is consistent with the Grantor's overall business plan and is an
exercise of sound commercial and business judgment.
(v) In the event that any Patent included in the Collateral is infringed
by a third party, the Grantor shall promptly notify the Collateral Agent after
it learns thereof and shall promptly take all appropriate steps to stop the
infringement as are reasonably mutually agreed upon by the Grantor and the
Collateral Agent.
(n) Patent Licenses
The Grantor shall comply with its obligations under each of its
Patent License Agreements.
15
<PAGE> 16
6. Collateral Agent's Appointment as Attorney-in-Fact.
(a) Powers. The Grantor hereby irrevocably constitutes and appoints
the Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of the
Grantor or in its own name, from time to time (in the Collateral Agent's
discretion) for the purpose of carrying out the terms of this Amended and
Restated Security Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Amended and Restated Security
Agreement, and, without limiting the generality of the foregoing, the Grantor
hereby gives the Collateral Agent the power and right, on behalf of the Grantor,
without notice to or assent by the Grantor, except any notice required by law
referred to in Section 9 hereof, to do the following:
(i) at any time when any Event of Default shall have occurred and is
continuing, in the name of the Grantor or its own name, or otherwise, to
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Account, Instrument, General Intangible or Contract or with respect to any
other Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate
by the Collateral Agent for the purpose of collecting any and all such
moneys due under any Account, Instrument, General Intangible or Contract
or with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this Amended and Restated Security Agreement
and to pay all or any part of the premiums therefor and the costs thereof;
and
(iii) upon the occurrence and during the continuance of any Event of
Default, (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Collateral Agent or as the Collateral Agent
shall direct; (B) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral; (C) to
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection
16
<PAGE> 17
with any of the Collateral; (D) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce any
other right in respect of any Collateral; (E) to defend any suit, action
or proceeding brought against the Grantor with respect to any Collateral;
(F) to settle, compromise or adjust any suit, action or proceeding
described in clause (E) above and, in connection therewith, to give such
discharges or releases as the Collateral Agent may deem appropriate; (G)
to assign any Copyright or Trademark (along with the goodwill of the
business to which any such Copyright or Trademark pertains), throughout
the world for such term or terms, on such conditions, and in such manner,
as the Collateral Agent shall in its sole discretion determine; and (H)
generally, to sell, transfer, pledge and make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though the Collateral Agent were the absolute owner thereof for all
purposes, and to do, at the Collateral Agent's option and the Grantor's
expense, at any time, or from time to time, all acts and things which the
Collateral Agent deems necessary to protect, preserve or realize upon the
Collateral and the Collateral Agent's Liens thereon and to effect the
intent of this Amended and Restated Security Agreement, all as fully and
effectively as the Grantor might do.
The Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until the Obligations are paid in full.
(b) Other Powers. The Grantor also authorizes the Collateral Agent,
at any time and from time to time, to execute, in connection with the sale
provided for in Section 9 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on Collateral Agent's Part. The powers conferred on the
Collateral Agent hereunder are solely to protect the Collateral Agent's
interests in the Collateral and shall not impose any duty upon the Collateral
Agent to exercise any such powers. The Collateral Agent shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees or agents
shall be responsible to the Grantor for any act or failure to act hereunder,
except for their own gross negligence or willful misconduct.
7. Performance by Collateral Agent of Grantor's Obligations. If the
Grantor fails to perform or comply with any of its agreements contained herein
and the Collateral Agent, as
17
<PAGE> 18
provided for by the terms of this Amended and Restated Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the expenses of the Collateral Agent incurred in connection with
such performance or compliance, together with interest thereon at a rate per
annum specified in the last sentence of the first paragraph of the Notes, shall
be payable by the Grantor to the Collateral Agent on demand and shall constitute
Obligations secured hereby.
8. Proceeds. In addition to the rights of the Collateral Agent
specified in Section 3(d) with respect to payments of Accounts, it is agreed
that if an Event of Default shall occur and be continuing (a) all Proceeds
received by the Grantor consisting of cash, checks and other instruments shall
be held by the Grantor in trust for the Collateral Agent, segregated from other
funds of the Grantor, and shall, forthwith upon receipt by the Grantor, be
turned over to the Collateral Agent in the exact form received by the Grantor
(duly indorsed by the Grantor to the Collateral Agent, if required), and (b) any
and all such Proceeds received by the Collateral Agent (whether from the Grantor
or otherwise) may, in the sole discretion of the Collateral Agent, be held by
the Collateral Agent as collateral security for, and/or then or at any time
thereafter may be applied by the Collateral Agent against, the Obligations
(whether matured or unmatured), such application to be in such order as the
Collateral Agent shall elect. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full shall have been terminated shall be
paid over to the Grantor or to whomsoever may be lawfully entitled to receive
the same.
9. Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise, in addition to all other rights and remedies
granted to them in this Amended and Restated Security Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Collateral Agent, without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon the Grantor or
any other Person (all and each of which demands, defenses, advertisements and
notices are, to the extent permitted by applicable law, hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Collateral Agent or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without
18
<PAGE> 19
assumption of any credit risk. The Collateral Agent shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in the Grantor, which right
or equity is hereby waived, to the extent permitted by applicable law, or
released. The Grantor further agrees, at the Collateral Agent's request, to
assemble the Collateral and make it available to the Collateral Agent at places
which the Collateral Agent shall reasonably select, whether at the Grantor's
premises or elsewhere. The Collateral Agent shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all costs and expenses of every kind incurred therein or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Collateral Agent hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Obligations, in such order as the Collateral Agent may
elect, and only after such application and after the payment by the Collateral
Agent of any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the Code, need the Collateral Agent account
for the surplus, if any, to the Grantor. To the extent permitted by applicable
law, the Grantor waives all claims, damages and demands it may acquire against
the Collateral Agent arising out of the exercise by them of any rights
hereunder. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Grantor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Collateral Agent to
collect such deficiency.
In furtherance, but not in limitation of, the foregoing, if an Event
of Default shall occur and be continuing, the Grantor shall assign, license, or
sublicense, as requested by Collateral Agent, any or all of the Patent Licenses
to the Collateral Agent.
10. Limitation on Duties Regarding Preservation of Collateral. The
Collateral Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Collateral Agent deals with similar property for its own account. Neither the
Collateral Agent, nor any of its directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise
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<PAGE> 20
dispose of any Collateral upon the request of the Grantor or otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest until the Obligations are indefeasibly paid in full.
12. Severability. Any provision of this Amended and Restated
Security Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in this Amended
and Restated Security Agreement are for convenience of reference only and are
not to affect the construction hereof or be taken into consideration in the
interpretation hereof.
14. No Waiver; Cumulative Remedies. The Collateral Agent shall not
by any act (except by a written instrument pursuant to Section 15 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Collateral Agent, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Collateral Agent of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Collateral Agent would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any rights or remedies provided by law.
15. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Amended and Restated Security Agreement may be
waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Grantor and the Collateral Agent, provided that any
provision of this Amended and Restated Security Agreement may be waived by the
Collateral Agent in a written letter or agreement executed by the Collateral
Agent or by facsimile transmission from the Collateral Agent. This Amended and
Restated Security Agreement shall be binding upon the successors and assigns of
the Grantor and shall
20
<PAGE> 21
inure to the benefit of the Collateral Agent and its successors and assigns.
16. Termination of Security Interest; Release of Collateral. (a)
Upon the repayment in full of all Obligations, the security interest granted in
the Collateral pursuant to this Agreement (the "Security Interest") shall
terminate and all rights to the Collateral shall revert to the Grantor.
(b) Upon any such termination of the Security Interest or release of
Collateral pursuant to this Section , the Collateral Agent will, at the expense
of the Grantor, execute and deliver to the Grantor such documents as the Grantor
shall reasonably request to evidence the termination of the Security Interest
and deliver to the Grantor all Collateral so released then in its possession.
17. Notices. All notices or other communications provided for
hereunder shall be in writing and sent by first class mail or nationwide
overnight delivery service, if to Grantor, addressed to it at 8140 Walnut Hill
Lane, Suite 1000, Dallas, Texas 75321, Attention: Michael G. Pate, or at such
other address as the Grantor shall have specified to the Collateral Agent in
writing, with a copy to Thompson & Knight, P.C., 1700 Pacific Avenue, Suite
3300, Dallas, Texas 75201, Attention: Michael L. Bengston, and (ii) if to the
Collateral Agent, addressed to it at One Rockefeller Plaza, Suite 900, New York,
New York 10020, Attention: Robert J. Cresci, with a copy to Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York
10022-4677, Attention: William J. Grant, Jr.
18. Grant of Access to Trademark. Copyright, Patent or Patent
License or Collateral. For the purposes of enabling the Collateral Agent to
exercise rights and remedies under Sections 6 and 9 hereof at such time as the
Collateral Agent shall be lawfully entitled to exercise such rights and
remedies, the Grantor hereby grants to the Collateral Agent during the
continuance of an Event of Default access to all media in which any Trademark,
Copyright, Trademark License, Copyright Patent or Patent License may be recorded
or stored and to all computer and automatic machinery software and programs used
for the compilation or printout thereof to the extent that the Grantor may
lawfully do so.
19. Integration. This Amended and Restated Security Agreement
represents the agreement of the Grantor and the Collateral Agent with respect to
the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent relative to subject matter
hereof not expressly set forth or referred to herein or in the other Note
Purchase Documents.
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<PAGE> 22
20. GOVERNING LAW. THIS AMENDED AND RESTATED SECURITY AGREEMENT AND
THE RIGHTS AND OBLIGATIONS OF THE GRANTOR UNDER THIS AMENDED AND RESTATED
SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE
PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY
INTEREST CREATED HEREBY, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
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<PAGE> 23
IN WITNESS WHEREOF, the Grantor has caused this Amended and Restated
Security Agreement to be duly executed and delivered as of the date first above
written.
SOURCE MEDIA, INC.
By:_________________________________
Michael G. Pate
Chief Financial Officer
and Treasurer
Accepted and Agreed:
PECKS MANAGEMENT PARTNERS LTD.,
as Collateral Agent
By:_______________________________
Robert J. Cresci
Managing Director
<PAGE> 24
SOURCE MEDIA
SCHEDULE I
Copyrights and Copyright Licenses
Development and Licensing Agreement entered into as of April 1, 1995, between
IT Network, Inc., Source Media, Inc., Interactive Channel Technologies, Inc.,
Cable Share International Inc., Cableshare (U.S.) Limited and Cableshare B.V.
First Amendment to Development and Licensing Agreement, dated October 31, 1996.
Second Amendment to Development and Licensing Agreement, dated March 17, 1997.
<PAGE> 25
SOURCE MEDIA
SCHEDULE II
Patents and Patent Licenses
Development and Licensing Agreement entered into as of April 1, 1995, between
IT Network, Inc., Source Media, Inc., Interactive Channel Technologies, Inc.,
Cable Share International Inc., Cableshare (U.S.) Limited and Cableshare B.V.
First Amendment to Development and Licensing Agreement, dated October 31, 1996.
Second Amendment to Development and Licensing Agreement, dated March 17, 1997.
<PAGE> 26
SOURCE MEDIA
SCHEDULE III
Trademarks and Trademark Licenses
NONE
<PAGE> 27
SOURCE MEDIA
SCHEDULE IV
Location of Records Regarding Accounts
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
<PAGE> 28
SOURCE MEDIA
SCHEDULE V
Bank Accounts
- - None -
<PAGE> 29
SOURCE MEDIA
SCHEDULE VI
Location of Inventory and Equipment
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
5601 Executive Drive
Suite 200
Irving, Texas 75038-2508
5400 LBJ Freeway
Suite 680
Dallas, Texas 75240
<PAGE> 1
Execution Copy
EXHIBIT 10.37
AMENDED AND RESTATED
PLEDGE AGREEMENT
AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of April 9, 1997,
made by SOURCE MEDIA, INC., a Delaware corporation (the "Pledgor"), in favor of
PECKS MANAGEMENT PARTNERS LTD., in its capacity as Collateral Agent (in such
capacity, the "Collateral Agent") for the ratable benefit of the Investors as
defined in and pursuant to the Intercreditor Agreement dated as of the date
hereof, among the Pledgor, IT Network, Inc., a Texas corporation ("IT"),
Northstar High Total Return Fund ("Northstar"), the Pecks Investors listed on
Schedule 1 attached thereto, the Guarantors listed on Schedule 2 attached
thereto and the Collateral Agent (the "Intercreditor Agreement").
W I T N E S S E T H
WHEREAS, pursuant to the terms of the Note Agreement dated as of
March 28, 1996, between the Pledgor and Northstar, the Pledgor entered into and
delivered to Northstar a Pledge Agreement dated as of April 3, 1996 (the
"Original Pledge Agreement"); and
WHEREAS, the Pledgor, IT and the Investors have entered into an
Amended and Restated Note Agreement dated as of the date hereof (the "Amended
and Restated Note Agreement"), pursuant to which, among other things, (i) the
Investors have agreed to purchase the 1997 Notes (as defined in the Amended and
Restated Note Agreement) from the Pledgor and IT and (ii) Northstar has agreed
to the amendment and restatement of the Original Notes (as defined in the
Amended and Restated Note Agreement); and
WHEREAS, the Pledgor is the legal and beneficial owner of the shares
of Pledged Stock (as hereinafter defined) issued by each of the companies listed
on Schedule I hereto (each an "Issuer", together, the "Issuers"); and
WHEREAS, it is a condition precedent to the obligations of the
Investors to purchase the 1997 Notes under the Amended and Restated Note
Agreement and the obligation of Northstar to agree to the amendment and
restatement of the Original Notes under the Amended and Restated Note Agreement,
that the Pledgor shall have executed and delivered this Amended and Restated
Pledge Agreement to the Collateral Agent, amending and restating the Original
Pledge Agreement in its entirety;
NOW, THEREFORE, in consideration of the premises and to induce the
Investors to enter into the Amended and Restated Note
<PAGE> 2
Agreement and to purchase the 1997 Notes and to induce Northstar to agree to the
amendment and restatement of the Original Notes, all as provided in the Amended
and Restated Note Agreement, the Pledgor hereby agrees with the Collateral
Agent, as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Amended and Restated Note Agreement and used herein are so used
as so defined, and the meanings assigned to terms defined herein or in the
Amended and Restated Note Agreement shall be equally applicable to both the
singular and plural forms of such terms; and the following terms shall have the
following meanings:
"Amended and Restated Pledge Agreement" means this Amended and
Restated Pledge Agreement, as further amended, supplemented or otherwise
modified from time to time.
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" means the unpaid principal of, any premium applicable
to, and interest on the Notes (including, without limitation, interest
accruing after the maturity of the Notes and interest accruing after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Pledgor,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) and all other obligations and liabilities of
the Pledgor to the Investors, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the Amended and
Restated Note Agreement, the Notes, the other Note Purchase Documents,
this Amended and Restated Pledge Agreement (in each such case as the same
may be amended, supplemented or modified from time to time) and any other
document made, delivered or given in connection therewith or herewith,
whether on account of principal, premium, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees and disbursements of counsel to the Investors (or the
Collateral Agent) that are required to be paid by the Pledgor pursuant to
the terms of the Amended and Restate Note Agreement or this Amended and
Restated Pledge Agreement) or otherwise.
"Pledged Stock" means the shares of capital stock of each Issuer
listed on Schedule I hereto, together with all stock certificates, options
or rights of any nature whatsoever that may be issued or granted by such
Issuer to the Pledgor in respect of the Pledged Stock while this Amended
and Restated Pledge Agreement is in effect.
2
<PAGE> 3
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the State of New York
on the date hereof and, in any event, shall include, without limitation,
all dividends or other income from the Pledged Stock, collections thereon
or distributions with respect thereto.
"UCC" means the Uniform Commercial Code from time to time in effect
in the State of New York.
2. Pledge; Grant of Security Interest; Endorsement. The Pledgor
hereby delivers to the Collateral Agent all the Pledged Stock and hereby grants
to the Collateral Agent a first priority security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
3. Perfection of Security. The Pledgor authorizes the Collateral
Agent to file such financing statements and other documents and do such acts,
matters and things as the Collateral Agent may consider appropriate to perfect
and continue the Collateral Agent's security interest in the Collateral, to
protect and preserve the Collateral Agent's security interest in the Collateral
and to realize upon the Collateral Agent's security interest in the Collateral.
4. Stock Powers. Concurrently with the delivery to the Collateral
Agent of each certificate representing one or more shares of Pledged Stock to
the Collateral Agent, the Pledgor shall deliver an undated stock power covering
such certificate, duly executed in blank by the Pledgor with signature
guaranteed.
5. Representations and Warranties. The Pledgor represents and
warrants that:
(a) the shares of Pledged Stock listed on Schedule I constitute (i)
all the issued and outstanding shares of all classes of the capital stock
of each Issuer that are owned by the Pledgor and (ii) the percentage
listed on Schedule I of the aggregate number of the issued and outstanding
shares of capital stock of such Issuer;
(b) all the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable, except as described in
Schedule II;
(c) the Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Stock listed on Schedule I, free of
any and all Liens or options in favor of, or claims of, any other Person,
except the Lien created by this Amended and Restated Pledge Agreement; and
3
<PAGE> 4
(d) upon delivery to the Collateral Agent of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Amended
and Restated Pledge Agreement will constitute a valid, perfected first
priority Lien on the Pledged Stock, enforceable as such against all
creditors of the Pledgor.
6. Covenants. The Pledgor covenants and agrees with the Collateral
Agent that, from and after the date of this Amended and Restated Pledge
Agreement until the Obligations are paid in full:
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate or any certificate or other instrument evidencing ownership of
any partnership interest (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights, whether
in addition to, in substitution for, as a conversion of, or in exchange
for any shares of the Pledged Stock, or otherwise in respect thereof, the
Pledgor shall accept the same as the agent of the Collateral Agent, hold
the same in trust for the Collateral Agent and deliver the same forthwith
to the Collateral Agent in the exact form received, duly indorsed by the
Pledgor to the Collateral Agent, if required, together with an undated
stock power covering such certificate duly executed in blank by the
Pledgor and with signature guaranteed, to be held by the Collateral Agent,
subject to the terms hereof, as additional collateral security for the
Obligations. Any sums paid upon or in respect of the Pledged Stock upon
the liquidation or dissolution of any Issuer shall be paid over to the
Collateral Agent, and in case any distribution of capital shall be made on
or in respect of the Pledged Stock or any property shall be distributed
upon or with respect to the Pledged Stock pursuant to the recapitalization
or reclassification of the capital of any Issuer or pursuant to the
reorganization thereof, the property so distributed shall be delivered to
the Collateral Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of the Pledged Stock shall be received by the
Pledgor, the Pledgor shall, until such money or property is paid or
delivered to the Collateral Agent, hold such money or property in trust
for the Investors, segregated from other funds of the Pledgor, as
additional collateral security for the Obligations.
(b) Without the prior written consent of the Collateral Agent, the
Pledgor will not (i) permit any Issuer to
4
<PAGE> 5
issue any stock or other equity securities of any nature or to issue any
other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of such
Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Collateral, or (iii) create, incur
or permit to exist any Lien or option in favor of, or any claim of any
Person with respect to, any of the Collateral, or any interest therein,
except for the Lien provided for by this Amended and Restated Pledge
Agreement. The Pledgor will defend the right, title and interest of the
Collateral Agent in and to the Collateral against the claims and demands
of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Collateral Agent, and at the sole expense of the Pledgor, the Pledgor
will promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Collateral Agent may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Amended and Restated Pledge Agreement and of the rights
and powers herein granted. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory
note, other instrument or chattel paper, such note, instrument or chattel
paper shall be immediately delivered to the Collateral Agent, duly
endorsed in a manner satisfactory to the Collateral Agent, to be held as
Collateral pursuant to this Amended and Restated Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Collateral Agent
harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by
this Amended and Restated Pledge Agreement.
7. Cash Dividends and Distributions; Voting Rights. Unless an Event
of Default shall have occurred and be continuing, the Pledgor shall be permitted
to receive and retain all cash dividends in respect of the Pledged Stock and to
exercise all voting and corporate rights with respect to the Pledged Stock,
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which results in any violation of any provision of the
Amended and Restated Note Agreement, the Notes, the other Note Purchase
Documents or this Amended and Restated Pledge Agreement.
8. Rights of the Collateral. (a) If an Event of Default shall occur
and be continuing, (i) promptly upon receipt thereof by the Pledgor and without
any request therefor by the
5
<PAGE> 6
Collateral Agent, the Pledgor shall deliver to the Collateral Agent any and all
cash dividends paid in respect of the Pledged Stock and the Collateral Agent may
make application thereof to the Obligations in such order as the Collateral
Agent may determine, (ii) all shares of the Pledged Stock shall be registered in
the name of the Collateral Agent or its nominee, and the Collateral Agent or its
nominee may thereafter exercise (A) all voting, corporate and other rights,
privileges or options pertaining to such shares of the Pledged Stock as if it
were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Stock upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of the Issuers, or upon the exercise by the Pledgor or
the Collateral Agent of any right, privilege or option pertaining to such shares
of Pledged Stock, and in connection therewith, the right to deposit and deliver
any and all of the Pledged Stock with any committee, depositary, transfer agent,
registrar or other designated agency upon such terms and conditions as it may
determine), all without liability except to account for property actually
received by it, but the Collateral Agent shall have no duty to the Pledgor to
exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
(b) The rights of the Collateral Agent hereunder shall not be
conditioned or contingent upon the pursuit by the Collateral Agent of any right
or remedy against the Pledgor or any of the Issuers or against any other Person
which may be or become liable in respect of all or any part of the Obligations
or against any collateral security therefor, guarantee therefor or right of
offset with respect thereto. The Collateral Agent shall not be liable for any
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so, nor shall the Collateral Agent be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
9. Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise, in addition to all other rights and remedies
granted in this Amended and Restated Pledge Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the UCC and under similar laws in
effect in other relevant jurisdictions. Without limiting the generality of the
foregoing, the Collateral Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Pledgor, any Issuer or any
other Person (all and each of which demands, defenses, advertisements and
notices are, to the extent permitted by law, hereby waived), may in such
circumstances forthwith collect,
6
<PAGE> 7
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange, broker's board or office
of the Collateral Agent or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Collateral Agent
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
the Pledgor, which right or equity is, to the extent permitted by law, hereby
waived or released. The Collateral Agent shall apply any Proceeds from time to
time held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all costs and expenses of
every kind incurred in respect thereof or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Collateral Agent hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Collateral Agent, to the
payment in whole or in part of the Obligations, in such order as the Collateral
Agent may elect, and only after such application and after the payment by the
Collateral Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(l)(c) of the UCC, need the
Collateral Agent account for the surplus, if any, to the Pledgor. To the extent
permitted by applicable law, the Pledgor waives all claims, damages and demands
it may acquire against the Collateral Agent arising out of the exercise by them
of any rights hereunder. If any notice of a proposed sale or other disposition
of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least 10 days before such sale or other disposition. The
Pledgor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Collateral Agent to
collect such deficiency.
10. Registration Rights; Private Sales. (a) If the Collateral Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to paragraph 9 hereof, and if in the opinion of the Collateral Agent it
is necessary or advisable to have the Pledged Stock, or that portion thereof to
be sold, registered under the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Pledgor will use its best efforts to cause
each Issuer to (i) execute and deliver, and cause the directors and officers of
such Issuer to execute and deliver, all such instruments and documents, and do
or cause to
7
<PAGE> 8
be done all such other acts as may be, in the opinion of the Collateral Agent,
necessary or advisable to register the Pledged Stock, or that portion thereof to
be sold, under the provisions of the Securities Act, (ii) use its best efforts
to cause the registration statement relating thereto to become effective and to
remain effective for a period of one year from the date of the first public
offering of the Pledged Stock, or that portion thereof to be sold, and (iii)
make all amendments thereto and/or to the related prospectus which, in the
opinion of the Collateral Agent, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to use
its best efforts to cause each Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the Collateral
Agent shall designate and to make available to its security holders, as soon as
practicable, an earnings statement which will satisfy the provisions of Section
11(a) of the Securities Act.
(b) The Pledgor recognizes that the Collateral Agent may be unable
to effect a public sale of the Pledged Stock, or to sell the Pledged Stock as a
control block at more than a stated premium to the "market price" of the Pledged
Stock by reason of certain prohibitions contained in the Securities Act
(Ontario) and applicable securities laws of other jurisdictions, but may be
compelled to resort to one or more private sales of the Pledged Stock to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such Pledged Stock as principal and to comply with certain resale
restrictions provided for in the Securities Act (Ontario) and other applicable
securities laws. The Pledgor acknowledges and agrees that any such private sale
may result in prices and other terms less favorable to the Collateral Agent than
if such sale were a public sale of a control block sale; notwithstanding such
circumstances, the Pledgor agrees that any such private sale shall not be deemed
to have been made in a commercially unreasonable manner solely by reason of its
being such a private sale. The Collateral Agent shall be under no obligation to
delay a sale of the Pledged Stock for a period of time necessary to permit the
Issuer of such Pledged Stock or any other Person to qualify such Pledged Stock
for public sale under the Securities Act (Ontario) or under applicable
securities laws of other jurisdictions even of the issuer would agree to do so
or to permit a prospective purchaser to make a formal offer to all or
substantially all Persons who own property of the same kind as the Pledged
Stock. Upon the occurrence of an Event of Default, the Pledgor hereby consents,
and agrees to cause the issuer of any Pledged Stock to consent, to the
disclosure by the Collateral Agent to the public generally and/or to any
prospective purchaser of the Pledged Stock of any information relating to the
Pledged Stock, whether confidential or not.
8
<PAGE> 9
(c) The Pledgor further agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Stock pursuant to this paragraph 10
valid and binding and in compliance with any and all other applicable
Requirements of Law. The Pledgor further agrees that a breach of any of the
covenants contained in this paragraph 10 will cause irreparable injury to the
Collateral Agent, that the Collateral Agent has no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant
contained in this paragraph 10 shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred under the Amended and Restated
Note Agreement.
11. Limitation on Duties Regarding Collateral. The Collateral
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Collateral
Agent deals with similar securities and property for its own account. Neither
the Collateral Agent nor any of its directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Pledgor or
otherwise.
12. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
13. Severability. Any provision of this Amended and Restated Pledge
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. Paragraph Headings. The paragraph headings used in this Amended
and Restated Pledge Agreement are for convenience of reference only and are not
to affect the construction hereof or be taken into consideration in the
interpretation hereof.
15. No Waiver; Cumulative Remedies. The Collateral Agent shall not
by any act (except by a written instrument pursuant to paragraph 16 hereof) be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and condi-
9
<PAGE> 10
tions hereof. No failure to exercise, nor any delay in exercising, on the part
of the Collateral Agent, any right, power or privilege hereunder shall operate
as a waiver thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by the Collateral
Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Collateral Agent would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.
16. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Amended and Restated Pledge Agreement may be
amended, supplemented or otherwise modified except by a written instrument
executed by the Pledgor and the Collateral Agent, provided that any provision of
this Amended and Restated Pledge Agreement may be waived by the Collateral Agent
in a letter or agreement executed by the Collateral Agent or by telecopy from
the Collateral Agent. This Amended and Restated Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Collateral Agent and its respective successors and assigns.
17. Termination of Security Interest; Release of Collateral. (a)
Upon the repayment in full of all Obligations under the Amended and Restated
Note Agreement, the security interest granted in the Collateral pursuant to this
Agreement (the "Security Interest") shall terminate and all rights to the
Collateral shall revert to the Pledgor.
(b) Upon any such termination of the Security Interest, the
Collateral Agent will, at the expense of the Pledgor, execute and deliver to the
Pledgor such documents, as the Pledgor shall reasonably request to evidence the
termination of the Security Interest and deliver to the Pledgor all Collateral
so released then in its possession.
18. Notices. All notices or other communications provided for
hereunder shall be in writing and sent by first class mail or nationwide
overnight delivery service (i) if to the Pledgor, addressed to it at 8140 Walnut
Hill Lane, Suite 1000, Dallas, Texas 75321, Attention: Michael G. Pate, or at
such other address as the Pledgor shall have specified to the Collateral Agent
in writing, with a copy to Thompson & Knight, P.C., 1700 Pacific Avenue, Suite
3300, Dallas, Texas, 75201, Attention: Michael L. Bengston, (ii) if to the
Collateral Agent, addressed to it at One Rockefeller Plaza, Suite 900, New York,
New York 10020, Attention: Robert J. Cresci, or at such other address as the
Collateral Agent shall have specified to the Pledgor in
10
<PAGE> 11
writing, with a copy to Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022-4677, Attention: William J. Grant, Jr.,
and (iii) if to any Issuer at its address provided for in the Acknowledgment and
Consent executed by such Issuer in connection herewith.
19. Notices and Other Communications in Respect of Collateral. The
Pledgor shall deliver promptly to the Collateral Agent copies of all notices or
other communications received by the Pledgor in respect of the Collateral. Until
the occurrence of an Event of Default, the Collateral Agent shall deliver
promptly to the Pledgor all notices or other communications received by the
Collateral Agent or its nominee in respect of the Collateral. After the
occurrence of an Event of Default, the Pledgor waives all rights to receive any
notices or communications received by the Collateral Agent or its nominee in
respect of the Collateral.
20. Irrevocable Authorization and Instruction to Issuer. The Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Collateral Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Amended and Restated Pledge Agreement, without any other or further
instructions from the Pledgor, and the Pledgor agrees that each Issuer shall be
fully protected in so complying.
21. Integration. This Amended and Restated Pledge Agreement
represents the agreement of the Pledgor and the Collateral Agent with respect to
the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent relative to subject matter
hereof not expressly set forth or referred to herein or in the other Note
Purchase Documents.
22. GOVERNING LAW. THIS AMENDED AND RESTATED PLEDGE AGREEMENT AND
THE RIGHTS AND OBLIGATIONS OF THE PLEDGOR UNDER THIS AMENDED AND RESTATED PLEDGE
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION
AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED
HEREBY, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
23. Copy Received. The Pledgor hereby acknowledges receipt of a copy
of this Amended and Restated Pledge Agreement and a copy of the financing
statement/verification statement registered under the Personal Property Security
Act (Ontario).
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<PAGE> 12
IN WITNESS WHEREOF, the undersigned has caused this Amended and
Restated Pledge Agreement to be duly executed and delivered as of the date first
above written.
SOURCE MEDIA, INC.
By:________________________________
Michael G. Pate
Chief Financial Officer
and Treasurer
Accepted and Agreed:
PECKS MANAGEMENT PARTNERS LTD.,
as Collateral Agent
By:_____________________________
Robert J. Cresci
Managing Director
<PAGE> 13
ACKNOWLEDGEMENT AND CONSENT
The Issuer referred to in the foregoing Amended and Restated Pledge
Agreement hereby acknowledges receipt of a copy thereof agrees to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. The Issuer agrees to notify the Collateral Agent promptly in
writing of the occurrence of any of the events described in paragraph 6(a) of
the Amended and Restated Pledge Agreement. The Issuer further agrees that the
terms of paragraph 10(c) of the Amended and Restated Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
of it under or pursuant to or arising out of paragraph 10 of the Amended and
Restated Pledge Agreement.
IT NETWORK, INC.
By:____________________________________
Michael G. Pate
Chief Financial Officer
and Treasurer
Address for Notices:
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
<PAGE> 14
ACKNOWLEDGEMENT AND CONSENT
The Issuer referred to in the foregoing Amended and Restated Pledge
Agreement hereby acknowledges receipt of a copy thereof agrees to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. The Issuer agrees to notify the Collateral Agent promptly in
writing of the occurrence of any of the events described in paragraph 6(a) of
the Amended and Restated Pledge Agreement. The Issuer further agrees that the
terms of paragraph 10(c) of the Amended and Restated Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
of it under or pursuant to or arising out of paragraph 10 of the Amended and
Restated Pledge Agreement.
INTERACTIVE CHANNEL TECHNOLOGIES INC.
By:___________________________________
Michael G. Pate
Secretary
Address for Notices:
150 Dufferin Avenue
London, Ontario
N6A 5N6 Canada
<PAGE> 15
Schedule I
----------
Description of Pledged Stock
<TABLE>
<CAPTION>
Stock
Class of Certificate Number of
Issuer Stock No. Shares Percentage
- ------ -------- ----------- --------- ----------
<S> <C> <C> <C> <C>
IT Network, Inc. Common S-407 10 100%
Interactive Channel
Technologies, Inc. Common C-1 7,152,299 49.6%
</TABLE>
<PAGE> 1
Execution Copy
EXHIBIT 10.38
AMENDED AND RESTATED
SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AGREEMENT, dated as of April 9, 1997,
made by IT NETWORK, INC., a Texas corporation (the "Grantor"), in favor of PECKS
MANAGEMENT PARTNERS LTD. in its capacity as Collateral Agent (in such capacity,
the "Collateral Agent") for the ratable benefit of the Investors as defined in
and pursuant to the Intercreditor Agreement dated as of the date hereof, among
Source Media, Inc., a Delaware corporation ("Source Media"), the Grantor,
Northstar High Total Return Fund ("Northstar"), the Pecks Investors listed on
Schedule 1 attached thereto, the Guarantors listed on Schedule 2 attached
thereto and the Collateral Agent (the "Intercreditor Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Note Agreement dated as of
March 28, 1996, between Source Media and Northstar, the Grantor entered into and
delivered to Northstar a Security Agreement dated as of April 3, 1996 (the
"Original Security Agreement"); and
WHEREAS, Source Media, the Grantor and the Investors have entered
into an Amended and Restated Note Agreement dated as of the date hereof (the
"Amended and Restated Note Agreement"), pursuant to which, among other things,
(i) the Investors have agreed to purchase the 1997 Notes (as defined in the
Amended and Restated Note Agreement) from the Grantor and Source Media and (ii)
Northstar has agreed to the amendment and restatement of the Original Notes (as
defined in the Amended and Restated Note Agreement); and
WHEREAS, it is a condition precedent to the obligations of the
Investors to purchase the 1997 Notes under the Amended and Restated Note
Agreement and the obligation of Northstar to agree to the amendment and
restatement of the Original Notes under the Amended and Restated Note Agreement,
that the Grantor shall have executed and delivered this Amended and Restated
Security Agreement to the Collateral Agent, amending and restating the Original
Security Agreement in its entirety;
NOW, THEREFORE, in consideration of the premises and to induce the
Investors to enter into the Amended and Restated Note Agreement and to purchase
the 1997 Notes and to induce Northstar to agree to the amendment and restatement
of the Original Notes, all as provided in the Amended and Restated Note
Agreement, the Grantor hereby agrees with the Collateral Agent, as follows:
<PAGE> 2
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Amended and Restated Note Agreement and used herein are so used
as so defined, and the meanings assigned to terms defined herein or in the
Amended and Restated Note Agreement shall be equally applicable to both the
singular and plural forms of such terms; the following terms which are defined
in the Uniform Commercial Code in effect in the State of New York on the date
hereof are used herein as so defined: Accounts, Chattel Paper, Documents,
Equipment, Farm Products, General Intangibles, Instruments, Inventory and
Proceeds; and the following terms shall have the following meanings:
"Amended and Restated Security Agreement" means this Amended and
Restated Security Agreement, as amended, supplemented or otherwise
modified from time to time.
"Code" means the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section 2 of
this Amended and Restated Security Agreement.
"Computer Hardware and Software Collateral" means (a) all computer
and other electronic data processing hardware, integrated computer
systems, central processing units, memory units, display terminals,
printers, features, computer elements, card readers, tape drives, hard and
soft disk drives, cables, electrical supply hardware, generators, power
equalizers, accessories and all peripheral devices and other related
computer hardware; (b) all software programs (including both source code,
object code and related applications and data files), whether now owned,
licensed or leased or hereafter acquired by the Grantor, designed for use
on the computers and electronic data processing hardware described in
clause (a) above; (c) all firmware associated therewith; (d) all
documentation (including flow charts, logic diagrams, manuals, guides and
specifications) with respect to such hardware, software and firmware
described in the preceding clauses (a) through (c); and (e) all rights
with respect to all of the foregoing, including, without limitation, any
and all copyrights, licenses, options, warranties, service contracts,
program services, test rights, maintenance rights, support rights,
improvement rights, renewal rights and indemnifications and any
substitutions, replacements, additions or model conversions of any of the
foregoing.
"Contracts" means the contracts entered into by the Grantor,
including, without limitation, (a) all rights of the Grantor to receive
moneys due and to become due to it thereunder or in connection therewith,
(b) all rights of the Grantor to damages arising out of, or for, breach or
default
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<PAGE> 3
in respect thereof and (c) all rights of the Grantor to perform and
exercise all remedies thereunder.
"Copyright License" means any written agreement naming the Grantor
as licensor or licensee or granting any right under any Copyright,
including the agreements described in Schedule I hereto.
"Copyrights" means (a) all copyrights of the Grantor, whether
published or unpublished and whether now or hereafter in force throughout
the world, all registrations and recordings thereof, and all applications
in connection therewith, including, without limitation, registrations,
recordings and applications in the United States Copyright office referred
to in Schedule I hereto and (b) all renewals thereof.
"Obligations" shall mean the unpaid principal amount of, or any
premium applicable to, and interest on (including, without limitation,
interest accruing after the maturity of the Notes and interest accruing
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Grantor,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) and all other obligations and liabilities of
the Grantor to the Investors or the Collateral Agent, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with,
the Amended and Restated Note Agreement, the Notes, the other Note
Purchase Documents or this Amended and Restated Security Agreement (in
each such case as the same may be amended, supplemented or modified from
time to time) and any other document made, delivered or given in
connection therewith or herewith, whether on account of principal,
premium, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees and disbursements of
counsel to the Investors that are required to be paid by the Grantor
pursuant to the terms of the Amended and Restated Note Agreement) or
otherwise.
"Patents" means any and all now or in the future issued or
registered, anywhere in the world, patents and utility models, and any and
all now or in the future filed, anywhere in the world, patent applications
and utility model applications, whose subject matter is now or hereafter
conceived, or reduced to practice, or which is now or hereafter owned,
acquired or controlled, by the Grantor under which the Grantor has the
right to grant licenses; and all divisions, continuations, and
continuations-in-part of, substitutions for and additions to any of the
foregoing patent and utility
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<PAGE> 4
model applications directly or through one or more intervening
applications, and all reissues, reexaminations, renewals, and extensions
of any such patents and utility models, including, without limitation, any
thereof referred to in Schedule II hereto.
"Patent License" means any agreement providing for the grant by or
to the Grantor of any right under any patent or patent application, or any
Patent, and all license rights, immunities from suit and all other rights
and interests conferred by or to the Grantor with respect to patents,
patent applications, utility models and utility model applications under
all licenses and agreements, including but not limited to all licenses and
agreements between the Grantor, on the one hand, and any member of the ICT
Group, on the other, and including, without limitation any thereof
referred to in Schedule II hereto.
"Security" means any "security," as such term is defined in Article
8 of the Code and, in any event, shall include, but not be limited to, any
obligation of an "issuer" (as such term is defined in Article 8 of the
Code), or a share, participation, or other interest in an issuer or in
property or an enterprise of an issuer: (a) which is represented by a
Security certificate in bearer or registered form, or the transfer of
which may be registered upon books maintained for that purpose by or on
behalf of the issuer; (b) which is one of a class or series or by its
terms is divisible into a class or series of shares, participations,
interests, or obligations; and (c) which (i) is, or is of a type, dealt in
or traded on securities exchanges or securities markets; or (ii) is a
medium for investment and by its terms expressly provides that it is a
security governed by Article 8 of the Code.
"Trademark License" means any agreement providing for the grant by
or to the Grantor of any right to use any Trademark, including, without
limitation, any thereof referred to in Schedule III hereto.
"Trademarks" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers of the
Grantor, now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, and the goodwill associated
therewith, all registrations and recordings thereof, and all applications
in connection therewith, including, without limitation, any thereof
referred to in Schedule III hereto, and (b) all renewals thereof.
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<PAGE> 5
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, the Grantor hereby grants to
the Collateral Agent a security interest in all of the following property now
owned or at any time hereafter acquired by the Grantor or in which the Grantor
now has or at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Computer Hardware and Software Collateral
(iv) all Contracts;
(v) all Copyrights;
(vi) all Copyright Licenses;
(vii) all Documents;
(viii) all Equipment;
(ix) all General Intangibles;
(x) all Patents;
(xi) all Patent Licenses;
(xii) all Securities;(including, without limitation, any and all
Securities of any and all subsidiaries of the Grantor from time to time
owned or acquired by the Grantor in any manner, and the certificates and
all dividends, cash, Instruments and other property from time to time
received, receivable or otherwise distributed or distributable in respect
of or in exchange for all or any of such Securities)
(xiii) all Instruments;
(xiv) all Inventory;
(xv) all Trademarks;
(xvi) all Trademark Licenses;
(xvii) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing.
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<PAGE> 6
Notwithstanding the foregoing, the Collateral shall not include the
Grantor's right, title and interest in and to (a) that certain Non-Recourse
Individual Term Note, dated as of December 1, 1993, issued to the Grantor by
John J. Reed ("Reed") in the original principal amount of $52,083.00, as amended
by Amendment to Non-Recourse Individual Term Note dated May 15, 1995, by and
between Grantor and Reed, and having, as of the date hereof, unpaid principal in
the amount of $52,083.00, and (b) that certain Security Agreement - Pledge,
dated December 1, 1993, given to the Grantor by Reed.
3. Rights of the Collateral Agent; Limitations on the Collateral
Agent's Obligations.
(a) Grantor Remains Liable under Accounts and Contracts. Anything
herein to the contrary notwithstanding, the Grantor shall remain liable under
each of the Accounts and Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account and in
accordance with and pursuant to the terms and provisions of each such Contract.
The Collateral Agent shall not have any obligation or liability under any
Account (or any agreement giving rise thereto) or under any Contract by reason
of or arising out of this Amended and Restated Security Agreement or the receipt
by the Collateral Agent of any payment relating to such Account or Contract
pursuant hereto, nor shall the Collateral Agent be obligated in any manner to
perform any of the obligations of the Grantor under or pursuant to any Account
(or any agreement giving rise thereto) or under or pursuant to any Contract, to
make any payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party
under any Account (or any agreement giving rise thereto) or under any Contract,
to present or file any claim, to take any action to enforce any performance or
to collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
(b) Notice to Account Debtors and Contracting Parties. Upon the
request of the Collateral Agent at any time after the occurrence and during the
continuance of an Event of Default, the Grantor shall notify account debtors on
the Accounts and parties to the Contracts that the Accounts and the Contracts
have been assigned to the Collateral Agent for the benefit of the Collateral
Agent and that payments in respect thereof shall be made directly to the
Collateral Agent. The Collateral Agent may in its own name or in the name of
others communicate with account debtors on the Accounts and parties to the
Contracts to verify with them to its satisfaction the existence, amount and
terms of any Accounts or Contracts.
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<PAGE> 7
(c) Analysis of Accounts. The Collateral Agent shall have the right
to make test verifications of the Accounts in any manner and through any medium
that it reasonably considers advisable, and the Grantor shall furnish all such
assistance and information as the Collateral Agent may require in connection
therewith. At any time and from time to time, upon the Collateral Agent's
request and at the expense of the Grantor, the Grantor shall cause independent
public accountants or others satisfactory to the Collateral Agent to furnish to
the Collateral Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts.
(d) Collections on Accounts. If required by the Collateral Agent
after the occurrence and during the continuance of an Event of Default, any
payments of Accounts, when collected by the Grantor, shall be forthwith (and, in
any event, within two Business Days) deposited by the Grantor in the exact form
received, duly indorsed by the Grantor to the Collateral Agent if required, in a
special collateral account maintained by the Collateral Agent, and, until so
turned over, shall be held by the Grantor in trust for the Collateral Agent,
segregated from other funds of the Grantor. Each deposit of any such Proceeds
shall be accompanied by a report identifying in reasonable detail the nature and
source of the payments included in the deposit. All Proceeds constituting
collections of Accounts while held by the Collateral Agent (or by the Grantor in
trust for the Collateral Agent) shall continue to be collateral security for all
of the Obligations and shall not constitute payment thereof until applied as
hereinafter provided. At any time after the occurrence and during the
continuance of an Event of Default, at the Collateral Agent's election, the
Collateral Agent shall apply all or any part of the funds on deposit in said
special collateral account on account of the Obligations in such order as the
Collateral Agent may elect, and any part of such funds which the Collateral
Agent elects not so to apply and deems not required as collateral security for
the Obligations shall be paid over from time to time by the Collateral Agent to
the Grantor or to whomsoever may be lawfully entitled to receive the same. After
the occurrence and during the continuance of an Event of Default, at the
Collateral Agent's request, the Grantor shall deliver to the Collateral Agent
all original and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts, including, without limitation, all
original orders, invoices and shipping receipts.
4. Representations and Warranties. The Grantor hereby represents and
warrants that:
(a) Title; No Other Liens. Except for the Lien granted to the
Collateral Agent pursuant to this Amended and Restated Security
Agreement, the Grantor owns each item of the Collateral free and clear of
any and all Liens or claims of
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<PAGE> 8
others except as permitted by the Amended and Restated Note Agreement. No
security agreement, financing statement or other public notice with
respect to all or any part of the Collateral is on file or of record in
any public office, except as permitted by the Amended and Restated Note
Agreement and such as may have been filed in favor of the Collateral
Agent, pursuant to this Amended and Restated Security Agreement.
(b) Perfected First Priority Liens. The Liens granted pursuant to
this Amended and Restated Security Agreement will constitute upon the
completion of all necessary filings or notices in proper public offices or
the taking of any necessary possessions or similar acts, perfected Liens
on all Collateral, which are, except as permitted by the Amended and
Restated Note Agreement, prior to all other Liens on such Collateral
created by the Grantor and in existence on the date hereof and which are
enforceable as such against all creditors of the Grantor.
(c) Accounts. The amount represented by the Grantor to the
Collateral Agent from time to time as owing by each account debtor or by
all account debtors in respect of the Accounts will at such time be the
correct amount actually owing by such account debtor or debtors
thereunder. No amount payable to the Grantor under or in connection with
any Account is evidenced by any Instrument or Chattel Paper which has not
been delivered to the Collateral Agent. The place where the Grantor keeps
its records concerning the Accounts is set forth on Schedule IV hereto.
(d) Consents. No consent of any party (other than the Grantor) to
any Contract is required, or purports to be required, in connection with
the execution, delivery and performance of this Amended and Restated
Security Agreement.
(e) Bank Accounts. The bank accounts with the banks listed on
Schedule V hereto are the only bank or deposit accounts that the Grantor
maintains.
(f) Inventory and Equipment. The Inventory and the Equipment are
kept at the locations listed on Schedule VI hereto and have not been kept
at any other location within the five-month period ending on the Closing
Date.
(g) Chief Executive Office. The Grantor's chief executive office and
chief place of business is located at 8140 Walnut Hill Lane, Suite 1000,
Dallas, Texas 75231.
(h) Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
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<PAGE> 9
(i) Governmental Obligors. None of the obligors on any Accounts is a
Governmental Authority.
5. Covenants. The Grantor covenants and agrees with the Collateral
Agent, from and after the date of this Amended and Restated Security Agreement
until the Obligations are paid in full:
(a) Further Documentation; Pledge of Instruments and Chattel Paper.
At any time and from time to time, upon the written request of the
Collateral Agent, and at the sole expense of the Grantor, the Grantor will
promptly and duly execute and deliver such further instruments and
documents and take such further action as the Collateral Agent may
reasonably request for the purpose of obtaining or preserving the full
benefits of this Amended and Restated Security Agreement and of the rights
and powers herein granted, including, without limitation, the filing of
any financing or continuation statements under the Uniform Commercial Code
in effect in any such jurisdiction with respect to the Liens created
hereby. The Grantor also hereby authorizes the Collateral Agent to file
any such financing or continuation statement without the signature of the
Grantor to the extent permitted by applicable law. A carbon, photographic
or other reproduction of this Amended and Restated Security Agreement
shall be sufficient as a financing statement for filing in any
jurisdiction. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel
Paper, such Instrument or Chattel Paper shall be immediately delivered to
the Collateral Agent, duly endorsed in a manner satisfactory to the
Collateral Agent, to be held as Collateral pursuant to this Amended and
Restated Security Agreement.
(b) Indemnification. The Grantor agrees to pay, and to save the
Collateral Agent harmless from, any and all liabilities, costs and
expenses (including, without limitation, legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise,
sales or other taxes which may be payable or determined to be payable with
respect to any of the Collateral, (ii) with respect to, or resulting from,
any delay in complying with any requirement of law applicable to any of
the Collateral or (iii) in connection with any of the transactions
contemplated by this Amended and Restated Security Agreement. In any suit,
proceeding or action brought by the Collateral Agent under any Account or
Contract for any sum owing thereunder, or to enforce any provisions of any
Account or Contract, the Grantor will save, indemnify and keep the
Collateral Agent harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction or liability whatsoever of
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<PAGE> 10
the account debtor or obligor thereunder, arising out of a breach by the
Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor of
such account debtor or obligor or its successors from the Grantor.
(c) Maintenance of Records. The Grantor will keep and maintain at
its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Accounts. For the
Collateral Agent's further security, the Collateral Agent shall have a
security interest in all of the Grantor's books and records pertaining to
the Collateral, and the Grantor shall turn over any such books and records
for inspection at the office of the Grantor to the Collateral Agent or to
its representatives during normal business hours at the request of the
Collateral Agent.
(d) Limitation on Liens on Collateral. The Grantor (x) will not
create, incur or permit to exist, will defend the Collateral against, and
will take such other action as is necessary to remove, any Lien or claim
on or to the Collateral, other than the Liens created hereby and other
than as permitted pursuant to the Amended and Restated Note Agreement, and
(y) will defend the right, title and interest of the Collateral Agent in
and to any of the Collateral against the claims and demands of all Persons
whomsoever.
(e) Limitations on Dispositions of Collateral. The Grantor will not
sell, transfer, lease or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so except for (x) sales of Inventory in
the ordinary course of its business, (y) so long as no Default or Event of
Default has occurred and is continuing, the disposition in the ordinary
course of business of items of Equipment and which have become worn out or
obsolete and (z) as otherwise permitted by the Amended and Restated Note
Agreement.
(f) Limitations on Modifications, Waivers, Extensions of Contracts
and Agreements Giving Rise to Accounts. The Grantor will not (i) amend,
modify, terminate or waive any provision of any Contract or any agreement
giving rise to an Account in any manner which could reasonably be expected
to materially adversely affect the value of such Contract or Account as
Collateral, (ii) fail to exercise promptly and diligently each and every
material right which it may have under each Contract and each agreement
giving rise to an Account (other than any right of termination) or (iii)
fail to deliver to the Collateral Agent a copy of each material demand,
notice or document received by it relating in any
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<PAGE> 11
way to any Contract or any agreement giving rise to an Account.
(g) Limitations on Discounts, Compromises, Extensions of Accounts.
Other than in the ordinary course of business as generally conducted by
the Grantor over a period of time, the Grantor will not grant any
extension of the time of payment of any of the Accounts, compromise,
compound or settle the same for less than the full amount thereof,
release, wholly or partially, any Person liable for the payment thereof,
or allow any credit or discount whatsoever thereon, to the extent that the
same, individually or in the aggregate, could have a material adverse
effect on the business, properties, assets, liabilities, results of
operations, condition (financial or other) or prospects of the Grantor.
(h) Further Identification of Collateral. The Grantor will furnish
to the Collateral Agent from time to time, statements and schedules
further identifying and describing the Collateral and such other reports
in connection with the Collateral as the Collateral Agent may reasonably
request, all in reasonable detail.
(i) Notices. The Grantor will advise the Collateral Agent promptly,
in reasonable detail, (i) of any Lien (other than Liens created hereby or
permitted under the Amended and Restated Note Agreement) on, or claim
asserted against, any of the Collateral, (ii) of the opening by the
Grantor of any bank or deposit account after the Closing Date, (iii) of
any Account arising after the Closing Date with respect to which the
obligor thereon is a Governmental Authority and (iv) of the occurrence of
any other event which could reasonably be expected to have a material
adverse effect on the aggregate value of the Collateral or on the Liens
created hereunder.
(j) Changes in Locations, Name, etc. The Grantor will not (i) change
the location of its chief executive office/chief place of business from
that specified in Section 4(g) or remove its books and records from the
location specified in Section 4(c), (ii) permit any of the Inventory or
Equipment to be kept at a location other than that specified in Section
4(f) or (iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Collateral Agent in
connection with this Amended and Restated Security Agreement would become
misleading, unless it shall have given the Collateral Agent at least 30
days' prior written notice thereof.
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(k) Copyrights.
(i) The Grantor (either itself or through licensees) will (a) employ
each Copyright with appropriate copyright notice consistent with its past
practice and (b) not knowingly (and not permit any licensee or sublicensee
thereof knowingly to) do any act or knowingly omit to do any act whereby
any Copyright or any portion of the Copyright may become invalidated.
(ii) The Grantor will not (either itself or through licensees)
knowingly do any act, or omit to do any act, whereby any Copyright or any
portion of the Copyrights may become injected into the public domain.
(iii) The Grantor shall notify the Collateral Agent immediately if it
knows, or has reason to know, that any Copyright or any portion of the
Copyrights may become injected into the public domain or of any adverse
determination (including, without limitation, the institution of, or any
such determination or development in, any court or tribunal in the United
States or any other country) regarding the Grantor's ownership of any
Copyright or any portion of the Copyrights.
(iv) The Grantor will, with respect to any Copyright that the Grantor
registers after the Closing Date or any Copyright License that the Grantor
knowingly acquires after the Closing Date, promptly (i) take all actions
necessary so that the Collateral Agent shall obtain a perfected security
interest in such Copyright or Copyright License and (ii) provide to the
Collateral Agent a revised Schedule I hereto listing all registered
Copyright and all Copyright Licenses owned by the Grantor.
(v) On each December 31 of each year following the Date of the Initial
Closing (or, if the Collateral Agent so requests in writing, more often),
the Grantor either itself or through any agent, employee, licensee or
designee, shall provide to the Collateral Agent a document confirming the
Collateral Agent's security interest in all Copyrights and Copyright
Licenses acquired by the Grantor during the preceding calendar year. Upon
request of the Collateral Agent, the Grantor shall execute and deliver any
and all additional agreements, instruments, documents, and papers as the
Collateral Agent may reasonably request to confirm the Collateral Agent's
security interest in such Copyrights and Copyright Licenses, and the
Grantor hereby constitutes the Collateral Agent its attorney-in-fact to
file all such writings for the foregoing purposes, all lawful acts of such
attorney being hereby ratified and confirmed; such power
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being coupled with an interest is irrevocable until the Obligations are
paid in full.
(vi) The Grantor will take all reasonable and necessary steps as it
shall deem appropriate under the circumstances, to maintain and pursue
each application (and to obtain the relevant registration) and to maintain
each registration of each Copyright owned by the Grantor including,
without limitation, filing of applications for renewal, where necessary.
(vii) The Grantor will promptly notify the Collateral Agent of any
infringement of any Copyright or any portion of the Copyrights of which it
becomes aware and will take all appropriate steps to stop the infringement
as are reasonably mutually agreed upon by the Grantor and the Collateral
Agent.
(1) Trademarks.
(i) The Grantor (either itself or through licensees) will, with
respect to each Trademark, (i) continue to use such Trademark to the extent
necessary to maintain such Trademark in full force free from any claim of
abandonment for non-use, if consistent with its overall business plan or if to
do otherwise would be an unsound commercial and business judgment, (ii) maintain
as in the past the quality of products and services offered under such
Trademark, (iii) employ such Trademark with the appropriate notice of
registration, (iv) not (and not permit any licensee or sublicensee thereof to)
do any act or knowingly omit to do any act whereby any Trademark may become
invalidated other than solely (x) through the discontinuance of the sale of
goods or the provision of services or (y) the abandonment of a Trademark where,
in each such case covered by (x) and (y) above, the Collateral Agent shall have
received not less than fifteen (15) days' prior written notice of any such
discontinuance or abandonment and the Grantor shall have acted in a manner
consistent with its overall business plan and the exercise of sound commercial
and business judgment. Nothing in this Amended and Restated Security Agreement
shall restrict the Grantor from adding new goods and services to its business
or, upon not less than fifteen (15) days' prior written notice to the Collateral
Agent and in a manner consistent with the Grantor's overall business plan and
the exercise of sound commercial and business judgment, discontinuing the
provision of goods or services and thereby abandoning any Trademark relating
thereto.
(ii) The Grantor will notify the Collateral Agent immediately if it
knows, or has reason to know, that any application or registration relating to
any Trademark may become abandoned, or of any adverse determination or
development (including, without limitation, the institution of, or any such
determination
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or development in, any proceeding in the United States Patent and Trademark
Office or any court or tribunal in any country) regarding the Grantor's
ownership of any Trademark or its right to register the same or to keep and
maintain the same.
(iii) The Grantor will, with respect to any Trademark that the Grantor
registers after the Closing Date or any Trademark License that the Grantor
acquires after the Closing Date, promptly (i) take all actions necessary so that
the Collateral Agent shall obtain a perfected security interest in such
Trademark or Trademark License and (ii) provide to the Collateral Agent a
revised Schedule II hereto listing all registered Trademarks and all Trademark
Licenses owned by the Grantor.
(iv) On each December 31 of each year following the Date of the
Initial Closing (or, if the Collateral Agent so requests in writing, more
often), the Grantor either itself or through any agent, employee, licensee or
designee, shall provide to the Collateral Agent, a document confirming the
Collateral Agent's security interest in any Trademark with respect to which the
Grantor has filed an application for registration during the preceding calendar
year. Upon request of the Collateral Agent, the Grantor shall execute and
deliver any and all agreements, instruments, documents, and papers as the
Collateral Agent may request to evidence the Collateral Agent's security
interest in any Trademark and the goodwill and general intangibles of the
Grantor relating thereto or represented thereby, and the Grantor hereby
constitutes the Collateral Agent its attorney-in-fact to execute and file all
such writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power being coupled with an interest is irrevocable
until the Obligations are paid in full.
(v) The Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of the
Trademarks, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability. Notwithstanding the
foregoing, the Grantor may decline to maintain and pursue each application and
decline to maintain each registration as aforesaid upon not less than fifteen
(15) days' prior written notice to the Collateral Agent and if so to decline is
consistent with the Grantor's overall business plan and is an exercise of sound
commercial and business judgment.
(vi) In the event that any Trademark included in the Collateral is
infringed, misappropriated or diluted by a third party, the Grantor shall
promptly notify the Collateral Agent
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<PAGE> 15
after it learns thereof and shall promptly take all appropriate steps to stop
the infringement as are reasonably mutually agreed upon by the Grantor and the
Collateral Agent.
(m) Patents
(i) The Grantor will notify the Collateral Agent immediately if it
knows, of has reason to know, that any application relating to any Patent may
become abandoned or of any adverse determination or development (including,
without limitation, the institution of, or any such determination or development
in, any proceeding in the United States Patent and Trademark Office or any court
or tribunal in any country) regarding the Grantor's ownership of any Patent.
(ii) The Grantor will, with respect to any Patent that the Grantor
obtains after the Date of the Initial Closing or any Patent License that the
Grantor acquires after the Date of the Initial Closing, promptly (i) take all
actions necessary so that the Collateral Agent shall obtain a perfected security
interest in such Patent or Patent License and (ii) provide to the Collateral
Agent a revised Schedule II hereto listing all Patents and all Patent Licenses
owned by the Grantor.
(iii) On each December 31 of each year following the Date of the
Initial Closing (or, if the Collateral Agent so requests in writing, more
often), the Grantor either itself or through any agent, employee, licensee or
designee, shall provide to the Collateral Agent, a document confirming the
Collateral Agent's security interest in any Patent or Patent License which the
Grantor has obtained during the preceding calendar year. Upon request of the
Collateral Agent, the Grantor shall execute and deliver any and all agreements,
instruments, documents, and papers as the Collateral Agent may request to
evidence the Collateral Agent's security interest in such Patents or Patent
Licenses, and the Grantor hereby constitutes the Collateral Agent its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations are
paid in full.
(iv) The Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each patent or
application for patent and to maintain each Patent, including, without
limitation, payment of maintenance fees. Notwithstanding the foregoing, the
Grantor may decline to maintain and pursue each patent and application for
patent and decline to maintain each Patent as aforesaid upon not less than
fifteen (15) days' prior written notice to the Collateral Agent and if so to
decline is
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<PAGE> 16
consistent with the Grantor's overall business plan and is an exercise of sound
commercial and business judgment.
(v) In the event that any Patent included in the Collateral is infringed
by a third party, the Grantor shall promptly notify the Collateral Agent after
it learns thereof and shall promptly take all appropriate steps to stop the
infringement as are reasonably mutually agreed upon by the Grantor and the
Collateral Agent.
(n) Patent Licenses
The Grantor shall comply with its obligations under each of its
Patent License Agreements.
6. Collateral Agent's Appointment as Attorney-in-Fact.
(a) Powers. The Grantor hereby irrevocably constitutes and appoints
the Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of the
Grantor or in its own name, from time to time (in the Collateral Agent's
discretion) for the purpose of carrying out the terms of this Amended and
Restated Security Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Amended and Restated Security
Agreement, and, without limiting the generality of the foregoing, the Grantor
hereby gives the Collateral Agent the power and right, on behalf of the Grantor,
without notice to or assent by the Grantor, except any notice required by law
referred to in Section 9 hereof, to do the following:
(i) at any time when any Event of Default shall have occurred and is
continuing, in the name of the Grantor or its own name, or otherwise, to
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Account, Instrument, General Intangible or Contract or with respect to any
other Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate
by the Collateral Agent for the purpose of collecting any and all such
moneys due under any Account, Instrument, General Intangible or Contract
or with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this
16
<PAGE> 17
Amended and Restated Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
(iii) upon the occurrence and during the continuance of any Event of
Default, (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Collateral Agent or as the Collateral Agent
shall direct; (B) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral; (C) to
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any thereof and to enforce any other right in
respect of any Collateral; (E) to defend any suit, action or proceeding
brought against the Grantor with respect to any Collateral; (F) to settle,
compromise or adjust any suit, action or proceeding described in clause
(E) above and, in connection therewith, to give such discharges or
releases as the Collateral Agent may deem appropriate; (G) to assign any
Copyright or Trademark (along with the goodwill of the business to which
any such Copyright or Trademark pertains), throughout the world for such
term or terms, on such conditions, and in such manner, as the Collateral
Agent shall in its sole discretion determine; and (H) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the
Collateral Agent were the absolute owner thereof for all purposes, and to
do, at the Collateral Agent's option and the Grantor's expense, at any
time, or from time to time, all acts and things which the Collateral Agent
deems necessary to protect, preserve or realize upon the Collateral and
the Collateral Agent's Liens thereon and to effect the intent of this
Amended and Restated Security Agreement, all as fully and effectively as
the Grantor might do.
The Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until the Obligations are paid in full.
(b) Other Powers. The Grantor also authorizes the Collateral Agent,
at any time and from time to time, to execute, in connection with the sale
provided for in Section 9 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
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<PAGE> 18
(c) No Duty on Collateral Agent's Part. The powers conferred on the
Collateral Agent hereunder are solely to protect the Collateral Agent's
interests in the Collateral and shall not impose any duty upon the Collateral
Agent to exercise any such powers. The Collateral Agent shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees or agents
shall be responsible to the Grantor for any act or failure to act hereunder,
except for their own gross negligence or willful misconduct.
7. Performance by Collateral Agent of Grantor's Obligations. If the
Grantor fails to perform or comply with any of its agreements contained herein
and the Collateral Agent, as provided for by the terms of this Amended and
Restated Security Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Collateral
Agent incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum specified in the last sentence of the first
paragraph of the Notes, shall be payable by the Grantor to the Collateral Agent
on demand and shall constitute Obligations secured hereby.
8. Proceeds. In addition to the rights of the Collateral Agent
specified in Section 3(d) with respect to payments of Accounts, it is agreed
that if an Event of Default shall occur and be continuing (a) all Proceeds
received by the Grantor consisting of cash, checks and other instruments shall
be held by the Grantor in trust for the Collateral Agent, segregated from other
funds of the Grantor, and shall, forthwith upon receipt by the Grantor, be
turned over to the Collateral Agent in the exact form received by the Grantor
(duly indorsed by the Grantor to the Collateral Agent, if required), and (b) any
and all such Proceeds received by the Collateral Agent (whether from the Grantor
or otherwise) may, in the sole discretion of the Collateral Agent, be held by
the Collateral Agent as collateral security for, and/or then or at any time
thereafter may be applied by the Collateral Agent against, the Obligations
(whether matured or unmatured), such application to be in such order as the
Collateral Agent shall elect. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full shall have been terminated shall be
paid over to the Grantor or to whomsoever may be lawfully entitled to receive
the same.
9. Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise, in addition to all other rights and remedies
granted to them in this Amended and Restated Security Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Collateral Agent, without demand of performance
or other demand, present-
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<PAGE> 19
ment, protest, advertisement or notice of any kind (except any notice required
by law referred to below) to or upon the Grantor or any other Person (all and
each of which demands, defenses, advertisements and notices are, to the extent
permitted by applicable law, hereby waived), may in such circumstances forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give option or options to
purchase, or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any exchange, broker's board or office of the
Collateral Agent or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Collateral Agent
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
the Grantor, which right or equity is hereby waived, to the extent permitted by
applicable law, or released. The Grantor further agrees, at the Collateral
Agent's request, to assemble the Collateral and make it available to the
Collateral Agent at places which the Collateral Agent shall reasonably select,
whether at the Grantor's premises or elsewhere. The Collateral Agent shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Collateral Agent hereunder, including, without limitation, reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the Obligations,
in such order as the Collateral Agent may elect, and only after such application
and after the payment by the Collateral Agent of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Collateral Agent account for the surplus, if any, to the Grantor.
To the extent permitted by applicable law, the Grantor waives all claims,
damages and demands it may acquire against the Collateral Agent arising out of
the exercise by them of any rights hereunder. If any notice of a proposed sale
or other disposition of Collateral shall be required by law, such notice shall
be deemed reasonable and proper if given at least 10 days before such sale or
other disposition. The Grantor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Collateral Agent to collect such deficiency.
In furtherance, but not in limitation of, the foregoing, if an Event
of Default shall occur and be continuing, the Grantor shall assign, license, or
sublicense, as requested by
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<PAGE> 20
Collateral Agent, any or all of the Patent Licenses to the Collateral Agent.
10. Limitation on Duties Regarding Preservation of Collateral. The
Collateral Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Collateral Agent deals with similar property for its own account. Neither the
Collateral Agent, nor any of its directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Grantor or
otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest until the Obligations are indefeasibly paid in full.
12. Severability. Any provision of this Amended and Restated
Security Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in this Amended
and Restated Security Agreement are for convenience of reference only and are
not to affect the construction hereof or be taken into consideration in the
interpretation hereof.
14. No Waiver; Cumulative Remedies. The Collateral Agent shall not
by any act (except by a written instrument pursuant to Section 15 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Collateral Agent, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Collateral Agent of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Collateral Agent would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised
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<PAGE> 21
singly or concurrently and are not exclusive of any rights or remedies provided
by law.
15. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Amended and Restated Security Agreement may be
waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Grantor and the Collateral Agent, provided that any
provision of this Amended and Restated Security Agreement may be waived by the
Collateral Agent in a written letter or agreement executed by the Collateral
Agent or by facsimile transmission from the Collateral Agent. This Amended and
Restated Security Agreement shall be binding upon the successors and assigns of
the Grantor and shall inure to the benefit of the Collateral Agent and its
successors and assigns.
16. Termination of Security Interest; Release of Collateral. (a)
Upon the repayment in full of all Obligations, the security interest granted in
the Collateral pursuant to this Agreement (the "Security Interest") shall
terminate and all rights to the Collateral shall revert to the Grantor.
(b) Upon any such termination of the Security Interest or release of
Collateral pursuant to this Section , the Collateral Agent will, at the expense
of the Grantor, execute and deliver to the Grantor such documents as the Grantor
shall reasonably request to evidence the termination of the Security Interest
and deliver to the Grantor all Collateral so released then in its possession.
17. Notices. All notices or other communications provided for
hereunder shall be in writing and sent by first class mail or nationwide
overnight delivery service, if to Grantor, addressed to it at 8140 Walnut Hill
Lane, Suite 1000, Dallas, Texas 75321, Attention: Michael G. Pate, or at such
other address as the Grantor shall have specified to the Collateral Agent in
writing, with a copy to Thompson & Knight, P.C., 1700 Pacific Avenue, Suite
3300, Dallas, Texas 75201, Attention: Michael L. Bengston, and (ii) if to the
Collateral Agent, addressed to it at One Rockefeller Plaza, Suite 900, New York,
New York 10020, Attention: Robert J. Cresci, with a copy to Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York
10022-4677, Attention: William J. Grant, Jr.
18. Grant of Access to Trademark. Copyright, Patent or Patent
License or Collateral. For the purposes of enabling the Collateral Agent to
exercise rights and remedies under Sections 6 and 9 hereof at such time as the
Collateral Agent shall be lawfully entitled to exercise such rights and
remedies, the Grantor hereby grants to the Collateral Agent during the
continuance of an Event of Default access to all media in which any Trademark,
Copyright, Trademark License, Copyright Patent or
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<PAGE> 22
Patent License may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof to
the extent that the Grantor may lawfully do so.
19. Integration. This Amended and Restated Security Agreement
represents the agreement of the Grantor and the Collateral Agent with respect to
the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent relative to subject matter
hereof not expressly set forth or referred to herein or in the other Note
Purchase Documents.
20. GOVERNING LAW. THIS AMENDED AND RESTATED SECURITY AGREEMENT AND
THE RIGHTS AND OBLIGATIONS OF THE GRANTOR UNDER THIS AMENDED AND RESTATED
SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE
PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY
INTEREST CREATED HEREBY, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
22
<PAGE> 23
IN WITNESS WHEREOF, the Grantor has caused this Amended and Restated
Security Agreement to be duly executed and delivered as of the date first above
written.
IT NETWORK, INC.
By:_________________________________
Michael G. Pate
Chief Financial Officer
and Treasurer
Accepted and Agreed:
PECKS MANAGEMENT PARTNERS LTD.,
as Collateral Agent
By:_____________________________
Robert J. Cresci
Managing Director
<PAGE> 24
IT NETWORK
SCHEDULE I
Copyrights and Copyright Licenses
Development and Licensing Agreement entered into as of April 1, 1995, between
IT Network, Inc., Source Media, Inc., Interactive Channel Technologies, Inc.,
Cable Share International Inc., Cableshare (U.S.) Limited and Cableshare B.V.
First Amendment to Development and Licensing Agreement, dated October 31, 1996.
Second Amendment to Development and Licensing Agreement, dated March 17, 1997.
<PAGE> 25
CABLESHARE (U.S.) LIMITED
SCHEDULE II
Patents and Patent Licenses
Development and Licensing Agreement entered into as of April 1, 1995, between
IT Network, Inc., Source Media, Inc., Interactive Channel Technologies, Inc.,
Cable Share International Inc., Cableshare (U.S.) Limited and Cableshare B.V.
First Amendment to Development and Licensing Agreement, dated October 31, 1996.
Second Amendment to Development and Licensing Agreement, dated March 17, 1997.
<PAGE> 26
IT NETWORK
SCHEDULE III
Trademarks and Trademark Licenses
There are presently five (5) registered U.S. trademarks, TEACHERS
ASSISTANTS PROGRAM (TAP)(R), THE IT NETWORK(R) & Design and TELEHOME &
DESIGN(R), INTERACTIVE CHANNEL & DESIGN(R), and TOUCHING TOMORROW TODAY(R) and
four (4) pending U.S. applications "IT NETWORK GUIDE", "CHANNELINK", "ADLINK"
AND "LOCAL SOURCE." There is one (1) Canadian registered trademark for "THE IT
NETWORK."
<PAGE> 27
IT NETWORK
SCHEDULE IV
Location of Records Regarding Accounts
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
<PAGE> 28
IT NETWORK
SCHEDULE V
----------
Bank Accounts
Texas Bank & Trust, N.A.
1999 Bryan Street
Dallas, Texas 75201
- ----------------------------------------
Account #80-1363-3 Money Market
Account #1219-5 Operating
Account #1220-3 Payroll
Account #1375-5 Escrow
Texas Commerce Bank
2200 Ross Avenue
Dallas, Texas 75201
- ----------------------------------------
Account #08805147244 Operating
Account #60320878 Money Market
Account #319473 Investment
<PAGE> 29
IT NETWORK
SCHEDULE VI
-----------
Location of Inventory and Equipment
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
5601 Executive Drive
Suite 200
Irving, Texas 75038-2508
5400 LBJ Freeway
Suite 680
Dallas, Texas 75240
Arizona
Arkansas
California
Colorado
District of Columbia
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Michigan
Minnesota
Nebraska
North Carolina
Ohio
Oklahoma
South Carolina
Tennessee
Texas
Utah
Washington
Wisconsin
<PAGE> 1
Execution Copy
EXHIBIT 10.39
AMENDED AND RESTATED
PLEDGE AGREEMENT
AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of April 9, 1997,
made by IT NETWORK, INC., a Texas corporation (the "Pledgor"), in favor of PECKS
MANAGEMENT PARTNERS LTD., in its capacity as Collateral Agent (in such capacity,
the "Collateral Agent") for the ratable benefit of the Investors as defined in
and pursuant to the Intercreditor Agreement dated as of the date hereof, among
the Source Media, Inc., a Delaware corporation ("Source Media"), the Pledgor,
Northstar High Total Return Fund ("Northstar"), the Pecks Investors listed on
Schedule 1 attached thereto, the Guarantors listed on Schedule 2 attached
thereto and the Collateral Agent (the "Intercreditor Agreement").
W I T N E S S E T H
WHEREAS, pursuant to the terms of the Note Agreement dated as of
March 28, 1996, between Source Media and Northstar, the Pledgor entered into and
delivered to Northstar a Pledge Agreement dated as of April 3, 1996 (the
"Original Pledge Agreement"); and
WHEREAS, Source Media, the Pledgor and the Investors have entered
into an Amended and Restated Note Agreement dated as of the date hereof (the
"Amended and Restated Note Agreement"), pursuant to which, among other things,
(i) the Investors have agreed to purchase the 1997 Notes (as defined in the
Amended and Restated Note Agreement) from the Pledgor and Source Media and (ii)
Northstar has agreed to the amendment and restatement of the Original Notes (as
defined in the Amended and Restated Note Agreement); and
WHEREAS, the Pledgor is the legal and beneficial owner of the shares
of Pledged Stock (as hereinafter defined) issued by each of the companies listed
on Schedule I hereto (each an "Issuer", together, the "Issuers"); and
WHEREAS, it is a condition precedent to the obligations of the
Investors to purchase the 1997 Notes under the Amended and Restated Note
Agreement and the obligation of Northstar to agree to the amendment and
restatement of the Original Notes under the Amended and Restated Note Agreement,
that the Pledgor shall have executed and delivered this Amended and Restated
Pledge Agreement to the Collateral Agent, amending and restating the Original
Pledge Agreement in its entirety;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and to induce the
Investors to enter into the Amended and Restated Note Agreement and to purchase
the 1997 Notes and to induce Northstar to agree to the amendment and restatement
of the Original Notes, all as provided in the Amended and Restated Note
Agreement, the Pledgor hereby agrees with the Collateral Agent, as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Amended and Restated Note Agreement and used herein are so used
as so defined, and the meanings assigned to terms defined herein or in the
Amended and Restated Note Agreement shall be equally applicable to both the
singular and plural forms of such terms; and the following terms shall have the
following meanings:
"Amended and Restated Pledge Agreement" means this Amended and
Restated Pledge Agreement, as further amended, supplemented or otherwise
modified from time to time.
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" means the unpaid principal of, any premium applicable
to, and interest on the Notes (including, without limitation, interest
accruing after the maturity of the Notes and interest accruing after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Pledgor,
whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) and all other obligations and liabilities of
the Pledgor to the Investors, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the Amended and
Restated Note Agreement, the Notes, the other Note Purchase Documents,
this Amended and Restated Pledge Agreement (in each such case as the same
may be amended, supplemented or modified from time to time) and any other
document made, delivered or given in connection therewith or herewith,
whether on account of principal, premium, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees and disbursements of counsel to the Investors (or the
Collateral Agent) that are required to be paid by the Pledgor pursuant to
the terms of the Amended and Restate Note Agreement or this Amended and
Restated Pledge Agreement) or otherwise.
"Pledged Stock" means the shares of capital stock of each Issuer
listed on Schedule I hereto, together with all stock certificates, options
or rights of any nature whatsoever that may be issued or granted by such
Issuer to the Pledgor in respect of the Pledged Stock while this Amended
and Restated Pledge Agreement is in effect.
2
<PAGE> 3
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the State of New York
on the date hereof and, in any event, shall include, without limitation,
all dividends or other income from the Pledged Stock, collections thereon
or distributions with respect thereto.
"UCC" means the Uniform Commercial Code from time to time in effect
in the State of New York.
2. Pledge; Grant of Security Interest; Endorsement. The Pledgor
hereby delivers to the Collateral Agent all the Pledged Stock and hereby grants
to the Collateral Agent a first priority security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
3. Perfection of Security. The Pledgor authorizes the Collateral
Agent to file such financing statements and other documents and do such acts,
matters and things as the Collateral Agent may consider appropriate to perfect
and continue the Collateral Agent's security interest in the Collateral, to
protect and preserve the Collateral Agent's security interest in the Collateral
and to realize upon the Collateral Agent's security interest in the Collateral.
4. Stock Powers. Concurrently with the delivery to the Collateral
Agent of each certificate representing one or more shares of Pledged Stock to
the Collateral Agent, the Pledgor shall deliver an undated stock power covering
such certificate, duly executed in blank by the Pledgor with signature
guaranteed.
5. Representations and Warranties. The Pledgor represents and
warrants that:
(a) the shares of Pledged Stock listed on Schedule I constitute (i)
all the issued and outstanding shares of all classes of the capital stock
of each Issuer that are owned by the Pledgor and (ii) the percentage
listed on Schedule I of the aggregate number of the issued and outstanding
shares of capital stock of such Issuer;
(b) all the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable, except as described in
Schedule II;
(c) the Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Stock listed on Schedule I, free of
any and all Liens or options in favor of, or claims of, any other Person,
except the Lien created by this Amended and Restated Pledge Agreement; and
3
<PAGE> 4
(d) upon delivery to the Collateral Agent of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Amended
and Restated Pledge Agreement will constitute a valid, perfected first
priority Lien on the Pledged Stock, enforceable as such against all
creditors of the Pledgor.
6. Covenants. The Pledgor covenants and agrees with the Collateral
Agent that, from and after the date of this Amended and Restated Pledge
Agreement until the Obligations are paid in full:
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate or any certificate or other instrument evidencing ownership of
any partnership interest (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights, whether
in addition to, in substitution for, as a conversion of, or in exchange
for any shares of the Pledged Stock, or otherwise in respect thereof, the
Pledgor shall accept the same as the agent of the Collateral Agent, hold
the same in trust for the Collateral Agent and deliver the same forthwith
to the Collateral Agent in the exact form received, duly indorsed by the
Pledgor to the Collateral Agent, if required, together with an undated
stock power covering such certificate duly executed in blank by the
Pledgor and with signature guaranteed, to be held by the Collateral Agent,
subject to the terms hereof, as additional collateral security for the
Obligations. Any sums paid upon or in respect of the Pledged Stock upon
the liquidation or dissolution of any Issuer shall be paid over to the
Collateral Agent, and in case any distribution of capital shall be made on
or in respect of the Pledged Stock or any property shall be distributed
upon or with respect to the Pledged Stock pursuant to the recapitalization
or reclassification of the capital of any Issuer or pursuant to the
reorganization thereof, the property so distributed shall be delivered to
the Collateral Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of the Pledged Stock shall be received by the
Pledgor, the Pledgor shall, until such money or property is paid or
delivered to the Collateral Agent, hold such money or property in trust
for the Investors, segregated from other funds of the Pledgor, as
additional collateral security for the Obligations.
(b) Without the prior written consent of the Collateral Agent, the
Pledgor will not (i) permit any Issuer to
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<PAGE> 5
issue any stock or other equity securities of any nature or to issue any
other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of such
Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Collateral, or (iii) create, incur
or permit to exist any Lien or option in favor of, or any claim of any
Person with respect to, any of the Collateral, or any interest therein,
except for the Lien provided for by this Amended and Restated Pledge
Agreement. The Pledgor will defend the right, title and interest of the
Collateral Agent in and to the Collateral against the claims and demands
of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Collateral Agent, and at the sole expense of the Pledgor, the Pledgor
will promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Collateral Agent may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Amended and Restated Pledge Agreement and of the rights
and powers herein granted. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory
note, other instrument or chattel paper, such note, instrument or chattel
paper shall be immediately delivered to the Collateral Agent, duly
endorsed in a manner satisfactory to the Collateral Agent, to be held as
Collateral pursuant to this Amended and Restated Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Collateral Agent
harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by
this Amended and Restated Pledge Agreement.
7. Cash Dividends and Distributions; Voting Rights. Unless an Event
of Default shall have occurred and be continuing, the Pledgor shall be permitted
to receive and retain all cash dividends in respect of the Pledged Stock and to
exercise all voting and corporate rights with respect to the Pledged Stock,
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which results in any violation of any provision of the
Amended and Restated Note Agreement, the Notes, the other Note Purchase
Documents or this Amended and Restated Pledge Agreement.
8. Rights of the Collateral. (a) If an Event of Default shall occur
and be continuing, (i) promptly upon receipt thereof by the Pledgor and without
any request therefor by the
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<PAGE> 6
Collateral Agent, the Pledgor shall deliver to the Collateral Agent any and all
cash dividends paid in respect of the Pledged Stock and the Collateral Agent may
make application thereof to the Obligations in such order as the Collateral
Agent may determine, (ii) all shares of the Pledged Stock shall be registered in
the name of the Collateral Agent or its nominee, and the Collateral Agent or its
nominee may thereafter exercise (A) all voting, corporate and other rights,
privileges or options pertaining to such shares of the Pledged Stock as if it
were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Stock upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of the Issuers, or upon the exercise by the Pledgor or
the Collateral Agent of any right, privilege or option pertaining to such shares
of Pledged Stock, and in connection therewith, the right to deposit and deliver
any and all of the Pledged Stock with any committee, depositary, transfer agent,
registrar or other designated agency upon such terms and conditions as it may
determine), all without liability except to account for property actually
received by it, but the Collateral Agent shall have no duty to the Pledgor to
exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
(b) The rights of the Collateral Agent hereunder shall not be
conditioned or contingent upon the pursuit by the Collateral Agent of any right
or remedy against the Pledgor or any of the Issuers or against any other Person
which may be or become liable in respect of all or any part of the Obligations
or against any collateral security therefor, guarantee therefor or right of
offset with respect thereto. The Collateral Agent shall not be liable for any
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so, nor shall the Collateral Agent be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
9. Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise, in addition to all other rights and remedies
granted in this Amended and Restated Pledge Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the UCC and under similar laws in
effect in other relevant jurisdictions. Without limiting the generality of the
foregoing, the Collateral Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Pledgor, any Issuer or any
other Person (all and each of which demands, defenses, advertisements and
notices are, to the extent permitted by law, hereby waived), may in such
circumstances forthwith collect,
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<PAGE> 7
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange, broker's board or office
of the Collateral Agent or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Collateral Agent
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
the Pledgor, which right or equity is, to the extent permitted by law, hereby
waived or released. The Collateral Agent shall apply any Proceeds from time to
time held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all costs and expenses of
every kind incurred in respect thereof or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Collateral Agent hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Collateral Agent, to the
payment in whole or in part of the Obligations, in such order as the Collateral
Agent may elect, and only after such application and after the payment by the
Collateral Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(l)(c) of the UCC, need the
Collateral Agent account for the surplus, if any, to the Pledgor. To the extent
permitted by applicable law, the Pledgor waives all claims, damages and demands
it may acquire against the Collateral Agent arising out of the exercise by them
of any rights hereunder. If any notice of a proposed sale or other disposition
of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least 10 days before such sale or other disposition. The
Pledgor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Collateral Agent to
collect such deficiency.
10. Registration Rights; Private Sales. (a) If the Collateral Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to paragraph 9 hereof, and if in the opinion of the Collateral Agent it
is necessary or advisable to have the Pledged Stock, or that portion thereof to
be sold, registered under the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Pledgor will use its best efforts to cause
each Issuer to (i) execute and deliver, and cause the directors and officers of
such Issuer to execute and deliver, all such instruments and documents, and do
or cause to
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<PAGE> 8
be done all such other acts as may be, in the opinion of the Collateral Agent,
necessary or advisable to register the Pledged Stock, or that portion thereof to
be sold, under the provisions of the Securities Act, (ii) use its best efforts
to cause the registration statement relating thereto to become effective and to
remain effective for a period of one year from the date of the first public
offering of the Pledged Stock, or that portion thereof to be sold, and (iii)
make all amendments thereto and/or to the related prospectus which, in the
opinion of the Collateral Agent, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to use
its best efforts to cause each Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the Collateral
Agent shall designate and to make available to its security holders, as soon as
practicable, an earnings statement which will satisfy the provisions of Section
11(a) of the Securities Act.
(b) The Pledgor recognizes that the Collateral Agent may be unable
to effect a public sale of the Pledged Stock, or to sell the Pledged Stock as a
control block at more than a stated premium to the "market price" of the Pledged
Stock by reason of certain prohibitions contained in the Securities Act
(Ontario) and applicable securities laws of other jurisdictions, but may be
compelled to resort to one or more private sales of the Pledged Stock to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such Pledged Stock as principal and to comply with certain resale
restrictions provided for in the Securities Act (Ontario) and other applicable
securities laws. The Pledgor acknowledges and agrees that any such private sale
may result in prices and other terms less favorable to the Collateral Agent than
if such sale were a public sale of a control block sale; notwithstanding such
circumstances, the Pledgor agrees that any such private sale shall not be deemed
to have been made in a commercially unreasonable manner solely by reason of its
being such a private sale. The Collateral Agent shall be under no obligation to
delay a sale of the Pledged Stock for a period of time necessary to permit the
Issuer of such Pledged Stock or any other Person to qualify such Pledged Stock
for public sale under the Securities Act (Ontario) or under applicable
securities laws of other jurisdictions even of the issuer would agree to do so
or to permit a prospective purchaser to make a formal offer to all or
substantially all Persons who own property of the same kind as the Pledged
Stock. Upon the occurrence of an Event of Default, the Pledgor hereby consents,
and agrees to cause the issuer of any Pledged Stock to consent, to the
disclosure by the Collateral Agent to the public generally and/or to any
prospective purchaser of the Pledged Stock of any information relating to the
Pledged Stock, whether confidential or not.
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<PAGE> 9
(c) The Pledgor further agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Stock pursuant to this paragraph 10
valid and binding and in compliance with any and all other applicable
Requirements of Law. The Pledgor further agrees that a breach of any of the
covenants contained in this paragraph 10 will cause irreparable injury to the
Collateral Agent, that the Collateral Agent has no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant
contained in this paragraph 10 shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred under the Amended and Restated
Note Agreement.
11. Limitation on Duties Regarding Collateral. The Collateral
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Collateral
Agent deals with similar securities and property for its own account. Neither
the Collateral Agent nor any of its directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Pledgor or
otherwise.
12. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
13. Severability. Any provision of this Amended and Restated Pledge
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. Paragraph Headings. The paragraph headings used in this Amended
and Restated Pledge Agreement are for convenience of reference only and are not
to affect the construction hereof or be taken into consideration in the
interpretation hereof.
15. No Waiver; Cumulative Remedies. The Collateral Agent shall not
by any act (except by a written instrument pursuant to paragraph 16 hereof) be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and condi-
9
<PAGE> 10
tions hereof. No failure to exercise, nor any delay in exercising, on the part
of the Collateral Agent, any right, power or privilege hereunder shall operate
as a waiver thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by the Collateral
Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Collateral Agent would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.
16. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Amended and Restated Pledge Agreement may be
amended, supplemented or otherwise modified except by a written instrument
executed by the Pledgor and the Collateral Agent, provided that any provision of
this Amended and Restated Pledge Agreement may be waived by the Collateral Agent
in a letter or agreement executed by the Collateral Agent or by telecopy from
the Collateral Agent. This Amended and Restated Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Collateral Agent and its respective successors and assigns.
17. Termination of Security Interest; Release of Collateral. (a)
Upon the repayment in full of all Obligations under the Amended and Restated
Note Agreement, the security interest granted in the Collateral pursuant to this
Agreement (the "Security Interest") shall terminate and all rights to the
Collateral shall revert to the Pledgor.
(b) Upon any such termination of the Security Interest, the
Collateral Agent will, at the expense of the Pledgor, execute and deliver to the
Pledgor such documents, as the Pledgor shall reasonably request to evidence the
termination of the Security Interest and deliver to the Pledgor all Collateral
so released then in its possession.
18. Notices. All notices or other communications provided for
hereunder shall be in writing and sent by first class mail or nationwide
overnight delivery service (i) if to the Pledgor, addressed to it at 8140 Walnut
Hill Lane, Suite 1000, Dallas, Texas 75321, Attention: Michael G. Pate, or at
such other address as the Pledgor shall have specified to the Collateral Agent
in writing, with a copy to Thompson & Knight, P.C., 1700 Pacific Avenue, Suite
3300, Dallas, Texas, 75201, Attention: Michael L. Bengston, (ii) if to the
Collateral Agent, addressed to it at One Rockefeller Plaza, Suite 900, New York,
New York 10020, Attention: Robert J. Cresci, or at such other address as the
Collateral Agent shall have specified to the Pledgor in
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<PAGE> 11
writing, with a copy to Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022-4677, Attention: William J. Grant, Jr.,
and (iii) if to any Issuer at its address provided for in the Acknowledgment and
Consent executed by such Issuer in connection herewith.
19. Notices and Other Communications in Respect of Collateral. The
Pledgor shall deliver promptly to the Collateral Agent copies of all notices or
other communications received by the Pledgor in respect of the Collateral. Until
the occurrence of an Event of Default, the Collateral Agent shall deliver
promptly to the Pledgor all notices or other communications received by the
Collateral Agent or its nominee in respect of the Collateral. After the
occurrence of an Event of Default, the Pledgor waives all rights to receive any
notices or communications received by the Collateral Agent or its nominee in
respect of the Collateral.
20. Irrevocable Authorization and Instruction to Issuer. The Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Collateral Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Amended and Restated Pledge Agreement, without any other or further
instructions from the Pledgor, and the Pledgor agrees that each Issuer shall be
fully protected in so complying.
21. Integration. This Amended and Restated Pledge Agreement
represents the agreement of the Pledgor and the Collateral Agent with respect to
the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent relative to subject matter
hereof not expressly set forth or referred to herein or in the other Note
Purchase Documents.
22. GOVERNING LAW. THIS AMENDED AND RESTATED PLEDGE AGREEMENT AND
THE RIGHTS AND OBLIGATIONS OF THE PLEDGOR UNDER THIS AMENDED AND RESTATED PLEDGE
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION
AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED
HEREBY, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
23. Copy Received. The Pledgor hereby acknowledges receipt of a copy
of this Amended and Restated Pledge Agreement and a copy of the financing
statement/verification statement registered under the Personal Property Security
Act (Ontario).
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<PAGE> 12
IN WITNESS WHEREOF, the undersigned has caused this Amended and
Restated Pledge Agreement to be duly executed and delivered as of the date first
above written.
IT NETWORK, INC.
By:_________________________________
Michael G. Pate
Chief Financial Officer
and Treasurer
Accepted and Agreed:
PECKS MANAGEMENT PARTNERS LTD.,
as Collateral Agent
By:_________________________
Robert J. Cresci
Managing Director
<PAGE> 13
ACKNOWLEDGEMENT AND CONSENT
The Issuer referred to in the foregoing Amended and Restated Pledge
Agreement hereby acknowledges receipt of a copy thereof agrees to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. The Issuer agrees to notify the Collateral Agent promptly in
writing of the occurrence of any of the events described in paragraph 6(a) of
the Amended and Restated Pledge Agreement. The Issuer further agrees that the
terms of paragraph 10(c) of the Amended and Restated Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
of it under or pursuant to or arising out of paragraph 10 of the Amended and
Restated Pledge Agreement.
INTERACTIVE CHANNEL TECHNOLOGIES INC.
By:________________________________
Michael G. Pate
Secretary
Address for Notices:
150 Dufferin Avenue
London, Ontario
N6A 5N6 Canada
<PAGE> 14
ACKNOWLEDGEMENT AND CONSENT
The Issuer referred to in the foregoing Amended and Restated Pledge
Agreement hereby acknowledges receipt of a copy thereof agrees to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. The Issuer agrees to notify the Collateral Agent promptly in
writing of the occurrence of any of the events described in paragraph 6(a) of
the Amended and Restated Pledge Agreement. The Issuer further agrees that the
terms of paragraph 10(c) of the Amended and Restated Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
of it under or pursuant to or arising out of paragraph 10 of the Amended and
Restated Pledge Agreement.
997758 ONTARIO INC.
By:________________________________
Michael G. Pate
Secretary
Address for Notices:
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
<PAGE> 1
Exhibit 10.40
Execution Copy
MANAGEMENT LOCK-UP AND VOTING AGREEMENT
MANAGEMENT LOCK-UP AND VOTING AGREEMENT dated as of April 9, 1997
among each of the persons named on Schedule I hereto (individually, a
"Management Stockholders' and collectively, the "Management Stockholder"),
SOURCE MEDIA, INC. (the "Company"), NORTHSTAR HIGH TOTAL RETURN FUND
("Northstar") and each of the investors named on Schedule II attached hereto
(collectively, the "Pecks Investors" and, together with Northstar, individually,
a "Note Purchaser" and collectively, the "Note Purchasers").
The Note Purchasers have entered into an Amended and Restated Note
Agreement, dated as of the date hereof (the "Note Agreement") with the Company
and IT Network, Inc., a wholly-owned subsidiary of the Company ("IT;" and,
together with the Company, the "Note Sellers") pursuant to which, among other
things, each of the Note Purchasers have advanced funds to the Note Sellers in
consideration for the issuance to the Note Sellers of certain secured promissory
notes of the Note Sellers. Except as otherwise defined herein, all capitalized
terms herein used will have the meanings ascribed thereto in the Note Agreement.
As a condition precedent to the Note Purchasers entering into the
Note Agreement with the Note Sellers and consummating the transactions
contemplated thereby, and as an inducement to the Note Purchasers so to do, each
of the Management Stockholders has entered into this Management Lock-Up and
Voting Agreement governing certain matters with respect to the Management Shares
(as hereinafter defined) owned by the Management Stockholders.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
SECTION 1. Restrictions on Transfers of Management Shares. Each
Management Stockholder agrees that for the period (the "Restricted Period")
commencing on the date hereof and ending on the date that all of the obligations
of whatever kind and nature of each of the Note Sellers under the Note
Agreement, the Notes and the 1997 Security Documents have been paid and
indefeasibly satisfied in full, such Management Stockholder will not, directly
or indirectly, sell, transfer, assign, pledge, charge, mortgage, encumber,
contract to sell, grant any option to purchase or otherwise dispose of or shift
the economic effect of holding (each of the foregoing actions being hereinafter
called a "Disposition") such Management Shares owned by such Management
Stockholder so that, after giving effect to any and all Dispositions during the
Restricted Period, such Management Stockholder
<PAGE> 2
owns of record and beneficially fewer than 90% of the greatest number of
Management Shares at any time so owned by such Management Stockholder during the
Restricted Period other than as noted on Schedule III - Exceptions to Lock-Up.
Notwithstanding the foregoing each Management Stockholder may carry
out a Disposition of Management Shares owned by such Management Stockholder
during the Restricted Period:
(a) with the prior written consent of the Required
Holders; or
(b) if such Management Stockholder is a natural person, (i)
by will or the laws of descent and distribution or (ii)
by way of transfer or gift to such Management
Stockholder's spouse or lineal descendants or (ii) to a
trust created for the benefit of any one or more of the
foregoing; provided however that any such transferee
shall, as a condition to such transfer, agree in writing
to be bound by all of the provisions of this Agreement
to the same extent as if such transferee were the
Management Stockholder transferring such shares; or
(c) if such Management Stockholder's Management Shares are
held in a trust by way of distribution to one or more
individual beneficiaries under said trust, in which
event each such transferee shall be bound by all of the
provisions of this Agreement to the same extent as if
such transferees were the Management Stockholders and
shall agree in writing to be so bound.
Any Disposition in contravention of the provisions of this Agreement
shall be null and void and shall not be given effect on the stock transfer
records of the Company.
For purposes of this Agreement, the term "Management Shares" shall
include all shares of Common Stock or any and all rights to acquire shares of
Common Stock now owned or hereafter acquired by a Management Stockholder,
including, without limitation, shares of Common Stock described on Schedule I
hereto as being subject to an option or other right of purchase and shares of
Common Stock acquired by way of stock dividend, stock split, subdivision or
shares of any securities of the Company issued in respect of or in exchange for
shares of Common Stock.
Notwithstanding anything to the contrary contained herein, a
Management Stockholder shall cease to be bound by the
2
<PAGE> 3
terms of this Agreement at such time, and only for so long as, such Management
Stockholder ceases entirely to render any services to the Company or any of its
Affiliates, whether as a director, officer, employee, consultant or otherwise.
SECTION 2. Election of the Pecks Investors Designee. For so long as
the number of shares of Common Stock owned of record and beneficially by the
Pecks Investors or any Affiliates of the Pecks Investors is not fewer than
250,000 (appropriately adjusted to reflect stock splits and dividends and stock
combinations after the date hereof and treating for purposes of this Section 2
shares of Common Stock issuable upon exercise of any Warrants held by the Pecks
Investors or any Affiliates of the Pecks Investors as being owned of record and
beneficially by such Pecks Investors or such Affiliates), each Management
Stockholder shall vote all Management Shares owned of record or beneficially by
such Management Stockholder or any other shares of Common Stock which at the
time such Management Stockholder has the right (by proxy or otherwise) to vote
(whether such vote (hereinafter "Vote" or, correlatively, "Voting") is cast at
any regular or special meeting of stockholders of the Company or by an action by
written consent signed by such Management Stockholder) in favor of, and
otherwise shall use its best efforts and take all steps necessary and
appropriate and legally within such Management Stockholder's power to cause, the
election of each Pecks Investor Designee (and each replacement thereof proposed
by the Pecks Investors) to the Board of Directors of the Company. Such steps on
the part of each Management Stockholder shall include, but not be limited to,
Voting all Management Shares owned of record or beneficially by such Management
Stockholder in favor of all amendments to the Company's certificate of
incorporation and by-laws as may be necessary to give effect to the provision of
this Section 2.
SECTION 3. Representations and Warranties. Each Management
Stockholder represents and warrants to each Note Purchaser as follows:
(a) The execution, delivery and performance of this Agreement by
such Management Stockholder will not violate any provision of law, any order of
any court or other agency of government, or any provision of any indenture,
agreement or other instrument to which such Management Stockholder or any of
such Management Stockholder's properties or assets is bound, or conflict with,
result in a 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 hen, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of such Management Stockholder.
3
<PAGE> 4
(b) This Agreement has been duly executed and delivered by such
Management Stockholder and constitutes the legal, valid and binding obligation
of such Management Stockholder, enforceable against such Management Stockholder
in accordance with its terms.
(c) Each Management Stockholder owns, as of the date hereof, of
record and beneficially, that number (and no more) of shares of Common Stock set
opposite his name on Schedule I hereto, free and clear of any and all liens,
pledges, security interests, claims, charges or other encumbrances of any kind
whatsoever, except as so noted on Schedule I hereto.
SECTION 4. Legend on Stock Certificates. Each certificate
representing shares of Common Stock held by any Management Stockholder shall
bear the following legend until such time as the securities represented thereby
are no longer subject to the provisions hereof-
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A LOCK-UP AND VOTING AGREEMENT, DATED AS OF
APRIL 9, 1997, BY AND AMONG SOURCE MEDIA, INC. (THE "COMPANY"),
CERTAIN STOCKHOLDERS OF THE COMPANY AND THE OTHER PARTIES NAMED
THEREIN. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED BY STOCKHOLDERS AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE COMPANY."
The Company covenants that it shall keep a copy of this Agreement on
file at the address listed below for the purpose of furnishing copies to the
holders of record of shares of Common Stock.
SECTION 5. Severability. If any part of this Agreement is held by a
court of competent jurisdiction to be invalid, illegible or incapable of being
enforced in whole or in part by reason of any rule of law or public policy, such
part shall be deemed to be severed from the remainder of this Agreement for the
purpose only of the particular legal proceedings in question and all other
covenants and provisions of this Agreement shall in every other respect continue
in full force and effect and no covenant or provision shall be deemed dependent
upon any other covenant or provision.
SECTION 6. Notices. Any notice or other communications required or
permitted hereunder shall be deemed to be sufficient and received if contained
in a written instrument delivered in person or by nationally recognized
overnight courier or duly sent by first class certified mail, postage prepaid,
or by telecopy addressed to such party at the address or telecopy number set
forth below:
(1) if to any of the Pecks Investors, to them at their addresses
set forth on Schedule II hereto, as the case may be;
4
<PAGE> 5
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Telecopier: (212) 821-8111
Attention: William J. Grant, Jr., Esq.
(2) if to Northstar, to:
Northstar Investment Management
Two Pickwick Plaza
Connecticut 06830
Telecopier: (203) 862-8602
Attention: Thomas Ole Dial
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Telecopier: (212) 841-5725
Attention: Charles D. Uniman, Esq.
(3) if to the Company, to:
Source Media, Inc.
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
Telecopier: (214) 890-9132
Attention: Michael G. Pate
with a copy to:
Thompson & Knight
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
Telecopier: (214) 969-1751
Attention: Mark C. Gunnin
(4) If to any Management Stockholders, to them at their addresses
set forth on Schedule I hereto, as the case may be;
or, in any case, at such other address or telecopy number as shall have been
furnished in writing by such party to the other parties hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal or courier delivery, on the date of
such delivery, (b) in the case of mailing, on the fifth business day following
the date of such mailing and (c) in the case of telecopy, when received.
5
<PAGE> 6
SECTION 7. Entire Agreement, Modifications. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may not be amended or modified nor any provisions waived
except in a writing signed by the Company and by each of the Management
Stockholders who shall, at such time, be holders of Common Stock.
SECTION 8. Counterparts. This Agreement may be executed in any
number of Counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
SOURCE MEDIA, INC.
By:__________________________
Michael G. Pate
Chief Financial Officer
and Treasurer
NORTHSTAR HIGH TOTAL RETURN FUND
By:__________________________
Thomas Ole Dial
Vice President
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Management Partners Ltd.,
its Investment Advisor
By:__________________________
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.,
its Investment Advisor
By:__________________________
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.,
its Investment Advisor
7
<PAGE> 8
By:__________________________
Robert J. Cresci
Managing Director
J.W. MCCONNELL FAMILY FOUNDATION
By: Pecks Management Partners Ltd.,
its Investment Advisor
By:__________________________
Robert J. Cresci
Managing Director
8
<PAGE> 9
MANAGEMENT STOCKHOLDERS
By:_________________________________________
Timothy P. Peters
By:_________________________________________
John J. Reed
By:_________________________________________
Michael G. Pate
By:_________________________________________
Maryann Walsh
By:_________________________________________
William S. Bedford
<PAGE> 10
SCHEDULE I
MANAGEMENT STOCKHOLDERS
<TABLE>
<CAPTION>
Options to
Purchase
Common
Rights to Stock Common
Common Purchase Exercisable Stock
Stock Common within Beneficially
Owned Stock 60 days Owned
----- --------- ----------- ------------
(1)
<S> <C> <C> <C> <C>
TIMOTHY P. PETERS (2) 641,635 98,930 3,834 744,399
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75230
JOHN J. REED (3) 193,965 24,687 3,377 224,045
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75230
WILLIAM S. BEDFORD 467,437 -- 3,377 470,814
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75230
MICHAEL G. PATE 28,702 -- 32,943 61,645
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75230
MARYANN WALSH (4) 152,369 2,927 -- 155,296
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75230
</TABLE>
(1) Stock which may be purchased pursuant to that certain Stock Purchase and
Rights Agreement dated September 1, 1994 ("SPRA"). Stock may be purchased until
September 1, 1997 at a per share price of approximately $8.35 per share.
(2) Excludes approximately 608,635 shares of common stock as to which Mr. Peters
may, until September 1, 1997, exercise voting control on all matters presented
to the stockholders of the Company, other than matters with respect to which the
stockholders of the Company have dissenters' rights, pursuant to the SPRA. In
addition, Mr. Peters has pledged certain of his shares as collateral against a
margin loan.
(3) Mr. Reed has pledged certain of his shares as collateral against a note
dated June 30, 1993, given by Mr. Reed to IT Network, Inc., as such note has
been amended, and as collateral against a margin loan.
(4) Ms. Walsh has pledged certain of her shares as collateral against a
margin loan.
10
<PAGE> 11
SCHEDULE II
PECKS INVESTORS
DELAWARE STATE EMPLOYEES' RETIREMENT FUND
c/o Pecks Management Partners, Ltd.
One Rockefeller Plaza Suite 900
New York, New York 10020
Telecopier: (212) 332-1334
Attention: Robert J. Cresci
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS INC.
c/o Pecks Management Partners, Ltd.
One Rockefeller Plaza Suite 900
New York, New York 10020
Telecopier: (212) 332-1334
Attention: Robert J. Cresci
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ICI AMERICAN HOLDINGS INC.
c/o Pecks Management Partners, Ltd.
One Rockefeller Plaza
Suite 900
New York, New York 10020
Telecopier: (212) 332-1334
Attention: Robert J. Cresci
J.W. MCCONNELL FAMILY FOUNDATION
c/o Pecks Management Partners, Ltd.
One Rockefeller Plaza
Suite 900
New York, New York 10020
Telecopier: (212) 332-1334
Attention: Robert J. Cresci
11
<PAGE> 12
SCHEDULE III
EXCEPTIONS TO LOCK-UP
A. For any of the Management Stockholders, Management Shares purchased after
the date of the Closing (as such term is defined in the Note Agreement)
and simultaneously pledged solely to secure a non-recourse note the
proceeds of which had been used solely to purchase the Management Shares
pledged;
B. For Mr. Reed those certain Management Shares pledged as collateral against
a note dated June 30, 1993 given by Mr. Reed to IT Network, Inc., as such
note has been amended, and as collateral against a margin loan;
C. For Mr. Peters, those certain Management Shares pledged as collateral
against a margin loan;
D. For Ms. Walsh, those certain Management Shares pledged as collateral
against a margin loan;
E. For Mr. Reed, Mr. Pate and Ms. Walsh, the greater of (i) 30,000 Management
Shares or (ii) up to 10% of the greatest number of his/her respective
Management Shares at any time so owned by him/her during the Restricted
Period.
12
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
Jurisdiction
Name of Organization
- ---- ---------------
IT Network, Inc. Texas
Interactive Channel Technologies Inc. Ontario, Canada
997758 Ontario Inc. Ontario, Canada
Cable Share International Inc. Barbados
Cableshare B.V. Netherlands
Cableshare (U.S.) Limited Illinois
1229501 Ontario Inc. Ontario, Canada
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 33-00142 and Form S-8 No. 33-00144) of our
report dated February 7, 1997 (except for Note 5 and the last paragraph of Note
6, for which the date is April 9, 1997), with respect to the consolidated
financial statements of Source Media, Inc. included in this Annual Report
(Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Dallas, Texas
April 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,914,125
<SECURITIES> 0
<RECEIVABLES> 956,078
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,897,020
<PP&E> 8,538,448
<DEPRECIATION> 3,576,999
<TOTAL-ASSETS> 15,896,733
<CURRENT-LIABILITIES> 8,233,688
<BONDS> 4,612,021
0
0
<COMMON> 10,327
<OTHER-SE> 19,858
<TOTAL-LIABILITY-AND-EQUITY> 15,896,773
<SALES> 18,518,905
<TOTAL-REVENUES> 18,518,905
<CGS> 13,429,127
<TOTAL-COSTS> 19,109,237
<OTHER-EXPENSES> (778,327)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 614,037
<INCOME-PRETAX> (13,855,169)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,855,169)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,855,169)
<EPS-PRIMARY> $(1.39)
<EPS-DILUTED> $(1.39)
</TABLE>
