<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
OCTOBER 30, 1997
SOURCE MEDIA, INC.
(Exact name of registrant as specified in is charter)
DELAWARE 0-21894 13-3700438
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
5400 LBJ FREEWAY, SUITE 680
DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 701-5400
<PAGE> 2
Item 2 Acquisition or Disposition of Assets
(a) BRITE VOICE ASSET ACQUISITION. On October 30, 1997, the Company,
through a subsidiary, acquired certain of the electronic publishing
assets of Brite Voice, Inc. ("Brite") pursuant to the terms of an Asset
Purchase Agreement included as Exhibits 2.1 and 2.2 hereto. These
assets consisted primarily of contract rights and equipment used in the
Company's voice information services business. The purchase price for
these assets was approximately $35.6 million in cash.
VNN ASSET ACQUISITION. On October 30, 1997, the Company, through a
subsidiary, acquired the electronic publishing assets of Voice News
Network, Inc. ("VNN") pursuant to the terms of an Asset Purchase
Agreement included as Exhibit 2.3 hereto. These assets consisted
primarily of contract rights and equipment used in the Company's voice
information services business. The purchase price for these assets was
$9.0 million in cash.
Both of these acquisitions were funded with cash acquired in a private
placement described below, which was made in reliance upon Rule 506 of
Regulation D and Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act").
2
<PAGE> 3
Item 5 Other Events
THE OFFERING
Issuer..................... Source Media, Inc.
Use of Proceeds............ The net proceeds from the Offering were
approximately $113.6 million. Of the net proceeds,
the Company used or will use (i) approximately
$35.6 million to finance the Brite acquisition,
(ii) $9.0 million to finance the VNN acquisition,
(iii) approximately $22.3 million to retire
existing debt, (iv) approximately $22.3 million to
fund the interest escrow account, (v) approximately
$6.4 million to pay fees and expenses and (vi)
approximately $24.4 million for general corporate
purposes, including working capital.
THE NOTES
Securities Offered......... $100,000,000 aggregate principal amount of 12%
Senior Secured Notes due 2004.
Maturity Date.............. November 1, 2004.
Interest Payment Dates..... May 1 and November 1 of each year, commencing on
May 1, 1998.
Optional Redemption........ Except as described below and under "Change of
Control", the Company may not redeem the Notes
prior to November 1, 2001. On or after such date,
the Company may redeem the Notes, in whole or in
part, at any time at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time and from time to time on or
prior to November 1, 2000, the Company may, subject
to certain requirements, redeem up to 35% of the
aggregate principal amount of the Notes with the
cash proceeds received from one or more equity
offerings at a redemption price equal to 112% of
the principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the date of
redemption, provided that at least $65 million of
the aggregate principal amount of the Notes remain
outstanding immediately after each such redemption.
Change of Control.......... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase the Notes at a price equal to 101% of
the principal amount thereof, together with accrued
and unpaid interest, if any, to the date of
repurchase.
Ranking.................... The Notes are senior secured obligations of the
Company and rank pari passu in right of payment
with all existing and future Senior Indebtedness
of the Company and rank senior in right of payment
to all existing and future subordinated obligations
of the Company.
Escrow and Disbursement
Agreement................ The Company placed approximately $22.3 million
of the net proceeds realized from the sale of the
Notes, representing funds sufficient to pay the
first four interest payments on the Notes, into an
interest escrow account to be held by the escrow
agent for the benefit of the holders of the Notes.
Until disbursed in accordance with the Escrow and
Disbursement Agreement, the interest escrow account
is designed to secure a portion of the Company's
obligations under the Notes. Funds will be
disbursed from the interest escrow account only to
pay interest on the Notes and, upon certain
repurchases or redemptions of the Notes, to pay
principal of and premium, if any, thereon. Pending
such disbursement, all funds contained in the
interest escrow account will be invested in cash
equivalents.
3
<PAGE> 4
Security................... The collateral securing the Notes consists of
substantially all the assets of the Company, all
the capital stock of the subsidiary guarantors and
the interest escrow account. The collateral
securing the Guarantees consists of substantially
all of the assets of the subsidiary guarantors.
Guarantees................. The Notes are unconditionally guaranteed, jointly
and severally, by each of the Subsidiary
guarantors (which are all of the Company's
subsidiaries). The Guarantees are senior
obligations of the subsidiary guarantors and are
secured by substantially all of the assets of the
Subsidiary guarantors. The Guarantees rank pari
passu in right of payment with all existing and
future senior indebtedness of the subsidiary
guarantors and rank senior in right of payment to
all existing and future subordinated obligations of
the subsidiary guarantors. The Guarantees may be
released upon the occurrence of certain events.
The guarantee executed by IT Network contain a
covenant that restricts payments of dividends on
its capital stock to an amount sufficient to cover
debt service on the Notes, redemptions or
repurchases of the Notes or the Preferred Stock,
dividends on the Preferred Stock and corporate
overhead.
Restrictive Covenants...... The indenture under which the Notes are issued
(the "Indenture") contains certain covenants that,
among other things, limit (i) the incurrence of
additional indebtedness by the Company and its
subsidiaries, (ii) the payment of dividends on, and
redemption of, capital stock of the Company and the
redemption of certain subordinated obligations of
the Company, (iii) investments, including
investments over a certain amount in Interactive
Channel by the Company or any restricted
subsidiary, (iv) sales of assets and subsidiary
stock, (v) transactions with affiliates and (vi)
consolidations, mergers and transfers of all or
substantially all of the assets of the Company. The
Indenture also prohibits certain distributions from
subsidiaries. However, all the limitations and
prohibitions are subject to a number of important
qualifications and exceptions.
Exchange Offer and
Registration Rights...... The Company must use its best efforts to (i) file,
within 45 days after the date of original issuance
of the Notes (the "Issue Date") (such date of
filing, the "Filing Date"), a registration
statement (the "Exchange Offer Registration
Statement") with respect to an offer to exchange
the Notes (the "Exchange Offer") for a series of
notes of the Company with terms substantially
identical to the Notes (the "Exchange Notes"), (ii)
cause such Exchange Offer Registration Statement to
be declared effective within 120 days after the
Filing Date and (iii) consummate the Exchange Offer
within 180 days after the Filing Date. Such
Exchange Notes, if issued, will bear the same rate
of interest as the Notes. In the event that the
Company does not comply with certain covenants set
forth in an Exchange and Registration Rights
Agreement between the Company and the initial
purchasers, the Company will be obligated to pay
certain liquidated damages to the holders of the
Notes.
4
<PAGE> 5
Transfer Restrictions;
Absence of a Public
Market for the Notes..... The Notes have not been registered under the
Securities Act and are subject to restrictions on
transferability and resale. The Notes are new
securities and there is currently no established
market for the Notes. If issued, the Exchange Notes
will generally be freely transferable (subject to
the restrictions discussed elsewhere herein) but
will be new securities for which there will not
initially be a market. The Notes have been
designated for trading in the PORTAL market. The
initial purchasers have advised the Company that
they may make a market in the Notes. However, the
initial purchasers are not obligated to do so, and
any market making with respect to the Notes may be
discontinued at any time without notice. The
Company does not intend to apply for a listing of
the Notes, or, if issued, the Exchange Notes, on
any securities exchange or on any automated dealer
quotation system.
THE UNITS
Securities Offered......... 800 Units each consisting of 1,000 shares of
13 1/2% Senior PIK Preferred Stock with a
liquidation preference of $25.00 per share and
558.75 Warrants to purchase one share of Common
Stock each. In the aggregate, the Warrants
represent the right to purchase 447,000 shares of
Common Stock, or 3% of the Company's Common Stock
on a fully diluted basis.
Issue Price................ $25,000 per Unit.
Separability............... The Preferred Stock and the Warrants are detachable
and were immediately separated upon sale by the
Initial Purchasers (the "Separability Date").
Allocation of Issue
Price...................... The Company intends to allocate $18,089 of the
issue price of a Unit to the Preferred Stock and
$6,911 of such issue price to the Warrants.
PREFERRED STOCK
Shares Offered............. 800,000
Liquidation Preference..... $25.00 per share, plus accumulated and unpaid
dividends
Optional Redemption........ At any time and from time to time on or prior to
November 1, 2000, the Company may, subject to
certain requirements, redeem up to 35% of the
Preferred Stock with cash proceeds from one or more
equity offerings at a redemption price equal to
113.50% of the liquidation preference thereof, plus
accumulated and unpaid dividends to the date of
redemption. After November 1, 2000 and prior to
November 1, 2002, the Preferred Stock is not
redeemable. On or after November 1, 2002, the
Company may redeem the Preferred Stock, in whole or
in part, at any time at the redemption prices set
forth herein, together with all accumulated and
unpaid dividends to the date of redemption.
Mandatory Redemption....... The Company is required, subject to certain
conditions, to redeem all of the Preferred Stock
outstanding on November 1, 2007 at a redemption
price equal to 100% of the liquidation preference
thereof, plus accumulated and unpaid dividends to
the date of redemption.
Dividends.................. At a rate equal to 13 1/2% per annum of the
liquidation preference per share, payable quarterly
beginning February 1, 1998 and accumulating from
the Preferred Stock Issue Date (as defined). The
Company, at its option, may pay dividends on any
Dividend Payment Date occurring on or before
November 1, 2002 either in cash or by the issuance
of additional Preferred Stock with a liquidation
preference equal to the amount of such dividends;
thereafter, dividends will be paid in cash. The
indenture limits the amount of cash dividends that
may be paid on the preferred stock of the Company,
including the Preferred Stock.
Dividend Payment Dates..... February 1, May 1, August 1 and November 1 of each
year (each, a "Dividend Payment Date").
Voting..................... The Preferred Stock is non-voting, except as
otherwise required by law and except in certain
circumstances described herein, including
5
<PAGE> 6
(i) amending certain rights of the holders of the
Preferred Stock and (ii) the issuance of any class
of equity securities that ranks on a parity with or
senior to the Preferred Stock. In addition, if the
Company (i) after November 1, 2002 fails to pay
cash dividends in any dividend period, (ii) fails
to make a mandatory redemption or an offer to
purchase upon a Change of Control, or (iii) fails
to comply with certain covenants or make certain
payments on its indebtedness, holders of a majority
of the shares of the Preferred Stock, voting as a
class, will be entitled to elect two directors to
the Company's board of directors.
Ranking.................... The Preferred Stock, with respect to dividend
rights and rights on liquidation, winding-up and
dissolution of the Company, ranks senior to all
classes of common stock and to all other classes of
preferred stock of the Company subject to certain
exceptions.
Change of Control.......... Upon the occurrence of a Change of Control, the
Company is required to make an offer to repurchase
the Preferred Stock at a price equal to 101% of the
liquidation preference thereof, plus accumulated
and unpaid dividends to the date of repurchase.
Restrictive Covenants...... The Certificate of Designation contains certain
restrictive provisions that, among other things,
limit (i) the incurrence of additional indebtedness
by the Company and its subsidiaries, (ii) the
issuance of preferred stock of the Company's
subsidiaries, (iii) payment of dividends on, and
redemption of, capital stock of the Company and the
redemption of certain subordinated obligations of
the Company, (iv) investments, including
investments over a certain amount in Interactive
Channel by the Company or any restricted
subsidiary, (v) transactions with affiliates and
(vi) consolidations, mergers and transfers of all
or substantially all of the assets of the Company.
However, all of the limitations and prohibitions
are subject to a number of important qualifications
and exceptions.
Exchange Offer and
Registration Rights........ The Company must use its best efforts to (i) file,
within 45 days after the date of original issuance
of the Preferred Stock (the "Preferred Stock Issue
Date") (such date of filing, the "Preferred Stock
Filing Date"), a registration statement (the
"Preferred Stock Exchange Offer Registration
Statement") with respect to an offer to exchange
the Preferred Stock (the "Preferred Stock Exchange
Offer") for a series of preferred stock of the
Company with terms substantially identical to the
Preferred Stock (the "Exchange Preferred Stock"),
(ii) cause such Preferred Stock Exchange Offer
Registration Statement to be declared effective
within 120 days after the Preferred Stock Filing
Date and (iii) consummate the Preferred Stock
Exchange Offer within 180 days after the Preferred
Stock Filing Date. Such Exchange Preferred Stock,
if issued, will bear the rate of interest specified
on the cover page hereof for the Preferred Stock.
In the event that the Company does not comply with
certain covenants set forth in the Preferred Stock
Exchange and Registration Rights Agreement (as
defined) to be executed by the Company and the
initial purchasers, the Company will be obligated
to pay certain liquidated damages to the holders of
the Preferred Stock.
6
<PAGE> 7
Transfer Restrictions;
Absence of a Public Market
for the Preferred
Stock.................... The Preferred Stock has not been registered under
the Securities Act and is subject to restrictions
on transferability and resale. The Preferred Stock
is a new security and there is currently no
established market for the Preferred Stock. If
issued, the Exchange Preferred Stock will generally
be freely transferable (subject to the restrictions
discussed elsewhere herein) but will be a new
security for which there will not initially be a
market.
WARRANTS
Total Number of Warrants... Warrants, which entitle the holders thereof to
acquire an aggregate of 447,000 shares of Common
Stock (the "Warrant Shares"), representing
approximately 3% of the Company's Common Stock to
be outstanding on a fully-diluted basis upon the
consummation of the Offering.
Expiration Date............ November 1, 2007.
Exercise................... Each Warrant entitles the holder to acquire, on
or after the next business day after the sale of
the Units (the "Exercise Date") and prior to
November 1, 2007, one share of Common Stock at a
price equal to $0.01 per share, subject to
adjustment from time to time upon the occurrence of
certain changes in Common Stock, certain Common
Stock distributions, certain issuances of options
or convertible securities, certain dividends and
distributions and certain other increases in the
number of shares of Common Stock.
Rights as Shareholders..... Holders of Warrants do not, by virtue of being
such holders, have any rights of stockholders of
the Company.
Registration Rights........ Within six months of the date of issuance, the
Company will file and use its best efforts to cause
to become effective a shelf registration statement
covering resales of the Warrant Shares, and shall
keep such shelf registration statement effective
for a minimum period of two years from issuance of
the Warrants.
Transfer Restrictions...... The Warrants may not be sold in reliance upon Rule
144A of the Securities Act. The Warrant Shares for
which they are exercisable have not been registered
under the Securities Act and are subject to certain
restrictions on transfer and may not be offered or
sold except pursuant to an exemption from, or in a
transaction not subject to, the registration
requirements of the Securities Act.
7
<PAGE> 8
Item 7 Financial Statements and Exhibits
<TABLE>
(a) Historical Financial Statements.
<S> <C>
(i) Historical Financial Statements of Electronic Publishing Division of Brite Voice Systems, Inc.
Report of Independent Public Accountants
Statements of Assets, Liabilities and Divisional Equity at December 31, 1996 and 1995
Statements of Revenues and Expenses for the Years Ended December 31, 1996 and 1995
Statements of Changes in Divisional Equity For the Years Ended December 31, 1996 and 1995
Statements of Cash Flows For the Years Ended December 31, 1996 and 1995
Notes to Financial Statements
Statements of Assets, Liabilities and Divisional Equity at December 31, 1996 and June 30, 1997 (unaudited)
Statements of Revenues and Expenses for the Six Months Ended June 30, 1997 and 1996 (unaudited)
Statements of Changes in Divisional Equity For the Year Ended December 31, 1996 and Six Months Ended June
30, 1997 (unaudited)
Statements of Cash Flows For the Six Months Ended June 30, 1997 and 1996 (unaudited)
Condensed Notes to Financial Statements
(ii) Historical Financial Statements of Voice News Network, Inc.
Report of Independent Accountants
Balance Sheet at December 31, 1996
Statement of Operations For the year ended December 29, 1996
Statement of Cash Flows For the year ended December 29, 1996
Statement of Owner's Equity For the year ended December 29, 1996
Notes to Financial Statements
Balance Sheet at June 29, 1997 and June 30, 1996 (unaudited)
Statement of Operations For the six months ended June 29, 1997 and June 30, 1996 (unaudited)
Statement of Cash Flows For the six months ended June 29, 1997 and June 30, 1996 (unaudited)
Notes to Financial Statements
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C>
(b) Unaudited Pro Forma Condensed Consolidated Financial Statements.
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Year Ended December 31, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six Months Ended June 30, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits.
Exhibit 2.1 - Asset Purchase Agreement dated September 23, 1997 between IT Network, Inc. and
Brite Voice Systems, Inc.
Exhibit 2.2 - Amendment dated October 7, 1997 between IT Network, Inc. and Brite Voice Systems,
Inc. to Asset Purchase Agreement dated September 23, 1997 between IT Network, Inc. and
Brite Voice Systems, Inc.
Exhibit 2.3 + Asset Purchase Agreement dated September 30, 1997 between Source Media, Inc. and IT
Network, Inc. and Voice News Network, Inc.
Exhibit 4.1 - Indenture dated as of October 30, 1997 between Source Media, Inc. and U.S. Trust
Company of Texas, N.A.
Exhibit 4.2 - Certificate of Designation for Senior PIK Preferred Stock
Exhibit 4.3 - Warrant Agreement dated as of October 30, 1997 between Source Media, Inc. And
ChaseMellon Shareholder Services
Exhibit 4.4 - Unit Agreement dated as of October 30, 1997 between Source Media, Inc. and ChaseMellon
Shareholder Services
Exhibit 10.1 - Exchange and Registration Rights Agreement for Senior Secured Notes dated as of
October 30, 1997 between Source Media, Inc. and certain of its subsidiaries and
NatWest Capital Markets Limited and Prudential Securities Incorporated
Exhibit 10.2 - Preferred Stock Registration Rights Agreement dated as of October 30, 1997 between
Source Media, Inc. and NatWest Capital Markets Limited and Prudential Securities
Incorporated.
Exhibit 10.3 - Common Stock Registration Rights Agreement dated as of October 30, 1997 by and among Source Media, Inc.
and NatWest Capital Markets Limited on Prudential Securities Incorporated.
</TABLE>
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<TABLE>
<S> <C>
Exhibit 23.1 - Consent of Arthur Andersen LLP
Exhibit 23.2 - Consent of Price Waterhouse LLP
</TABLE>
+ To be filed by amendment.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 12, 1997 SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
-----------------------------------------
Michael G. Pate, Chief Financial Officer
11
<PAGE> 12
SOURCE MEDIA, INC.
INDEX TO FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C> <C>
Item 7.(a)(i) Historical Financial Statements of Electronic Publishing
Division of Brite Voice Systems, Inc.
Report of Independent Public Accounts F-3
Statements of Assets,Liabilities and Divisional Equity at
December 31, 1996 and 1995 F-4
Statements of Revenues and Expenses for the Years Ended December
31, 1996 and 1995 F-5
Statements of Changes in Divisional Equity For the Years Ended
December 31, 1996 and 1995 F-6
Statements of Cash Flows For the Years Ended December 31, 1996
and 1995 F-7
Notes to Financial Statements F-8
Statements of Assets, Liabilities and Divisional Equity at
December 31, 1996 and June 30, 1997 (unaudited) F-11
Statements of Revenues and Expenses for the Six Months Ended
June 30, 1997 and 1996 (unaudited) F-12
Statements of Changes in Divisional Equity For the Year Ended
December 31, 1996 and Six Months Ended June 30, 1997 (unaudited) F-13
Statements of Cash Flows For the Six Months Ended June 30, 1997
and 1996 (unaudited) F-14
Condensed Notes to Financial Statements F-15
Item 7.(a)(ii) Historical Financial Statements of Voice News Network, Inc.
Report of Independent Accountants F-16
Balance Sheet at December 31, 1996 F-17
Statement of Operations For the year ended December 29, 1996 F-18
Statement of Cash Flows For the year ended December 29, 1996 F-19
Statement of Owner's Equity For the year ended December 29, 1996 F-20
Notes to Financial Statements F-21
Balance Sheet at June 29, 1997 and June 30, 1996 (unaudited) F-24
</TABLE>
F-1
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<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C> <C>
Statement of Operations For the six months ended June 29, 1997
and June 30, 1996 (unaudited) F-25
Statement of Cash Flows For the six months ended June 29, 1997
and June 30, 1996 (unaudited) F-26
Notes to Financial Statements F-27
Item 7(b) Unaudited Pro Form Condensed Consolidated Financial Statements F-28
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1997 F-29
Unaudited Pro Forma Condensed Consolidated Statement of
Operations For the Year Ended December 31, 1996 F-30
Unaudited Pro Forma Condensed Consolidated Statement of
Operations For the Six Months Ended June 30, 1997 F-31
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements F-32
</TABLE>
F-2
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Brite Voice Systems, Inc.:
We have audited the accompanying statements of assets, liabilities and
divisional equity of the Electronic Publishing Division of Brite Voice Systems,
Inc. (the Division -- Note 2), as of December 31, 1996 and 1995, and the related
statements of revenues and expenses, changes in divisional equity, and cash
flows for the years then ended. These statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the assets and liabilities of the Electronic Publishing
Division of Brite Voice Systems, Inc., as of December 31, 1996 and 1995, and its
revenues and expenses, changes in divisional equity and cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Kansas City, Missouri,
September 10, 1997
F-3
<PAGE> 15
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
STATEMENTS OF ASSETS, LIABILITIES AND DIVISIONAL EQUITY
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $214,671 and $164,263 for 1996 and 1995............. $ 3,085,364 $2,522,993
Prepaid expenses and other................................ -- 3,700
----------- ----------
Total current assets.............................. 3,085,364 2,526,693
PROPERTY AND EQUIPMENT:
Furniture and equipment................................... 1,427,482 1,338,202
Less-Accumulated depreciation............................. (1,053,584) (768,316)
----------- ----------
Total property and equipment...................... 373,898 569,886
GOODWILL.................................................... 338,291 --
----------- ----------
Total assets...................................... $ 3,797,553 $3,096,579
=========== ==========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 317,502 $ 77,497
Accrued salaries and wages................................ 89,959 72,186
Deferred revenue.......................................... 12,001 46,360
Customer deposits......................................... 24,830 26,150
----------- ----------
Total current liabilities......................... 444,292 222,193
----------- ----------
COMMITMENTS AND CONTINGENCIES
DIVISIONAL EQUITY........................................... 3,353,261 2,874,386
----------- ----------
Total liabilities and divisional equity........... $ 3,797,553 $3,096,579
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 16
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
STATEMENTS OF REVENUES AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
NET REVENUES................................................ $9,412,006 $7,273,221
COSTS AND EXPENSES:
Costs of sales/services................................... 4,685,011 3,148,626
Sales and marketing....................................... 250,638 396,635
General and administrative................................ 163,750 141,385
Allocation of general overhead............................ 1,377,614 1,084,161
---------- ----------
6,477,013 4,770,807
---------- ----------
REVENUES IN EXCESS OF EXPENSES.............................. $2,934,993 $2,502,414
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 17
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
BALANCE, beginning of year.................................. $ 2,874,386 $ 2,487,948
Revenues in excess of expenses............................ 2,934,993 2,502,414
Cash transfers to parent, net............................. (2,456,118) (2,115,976)
----------- -----------
BALANCE, end of year........................................ $ 3,353,261 $ 2,874,386
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 18
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Revenues in excess of expenses............................ $2,934,993 $2,502,414
Items not requiring cash --
Depreciation and amortization.......................... 306,794 295,629
Loss on disposal of fixed assets....................... 4 491
Changes in --
Accounts receivable.................................... (562,371) (492,831)
Accounts payable and accrued expenses.................. 257,778 47,376
Other current assets and liabilities................... (31,979) (40,540)
---------- ----------
Net cash provided by operating activities......... 2,905,219 2,312,539
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (110,810) (196,563)
Increase in other assets.................................. (338,291) --
---------- ----------
Net cash used in investing activities............. (449,101) (196,563)
---------- ----------
NET CASH TRANSFERS TO PARENT................................ $2,456,118 $2,115,976
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 19
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SALE OF THE BUSINESS:
Brite Voice Systems, Inc., has entered into an agreement in principle to
sell the net assets of its Electronic Publishing Division to Source Media, Inc.
(SMI), for approximately $35,000,000, subject to post-closing adjustments, as
agreed. Closing of the transaction is contingent on many factors including,
among other things, the success of SMI obtaining funds to close the transaction
and any waiting periods imposed by the Hart Scott Rodino Antitrust Improvements
Act of 1976.
2. ORGANIZATION:
Basis of Presentation
The accompanying financial statements include the accounts of certain
products sold and delivered by the Electronic Publishing Division (the Division)
of Brite Voice Systems, Inc. (the Parent), the Parent company of the Division.
These financial statements reflect the assets, liabilities, revenues and
expenses related to: (i) the management of audiotex systems installed on the
premises of newspaper and yellow pages publishers, including daily programming
changes and the production of monthly reports reflecting system usage, messages
played and advertisements heard; (ii) the creation and transmission by satellite
of a wide variety of general information suitable for dissemination in any
location for access by telephone callers through audiotex systems owned or
operated by newspaper and yellow pages publishers, broadcasters and network
operators; (iii) the creation and provision to yellow pages publishers over the
Internet of a variety of information; (iv) the sale of advertising sponsorships
to various categories of audiotex information made available through yellow
pages publishers' audiotex systems, including creation of printed material
designed for inclusion in the publishers' directories, and (v) advertiser
management services provided on behalf of yellow pages publishers whereby
advertising entities are contacted from an outbound call center for periodic
updating of their audiotex sponsorships and advertisements.
These financial statements reflect the revenues and expenses of the
Division, including direct and indirect expenses of the Division that are paid
by the Parent and charged directly to the Division. Allocation of the general
overhead from the Parent includes charges for marketing, general corporate
management, accounting and payroll services, legal services and certain
communication functions. In addition, the taxable income of the Division is
included in the consolidated tax return of the Parent. No income tax expense or
related current or deferred tax assets or liabilities have been allocated to the
Division by the Parent as the Division is not an income tax reporting entity
nor does it have a tax sharing agreement with the Parent.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from three to ten years.
Goodwill
Goodwill of $338,291 at December 31, 1996 (none at December 31, 1995),
represents the cost in excess of net tangible assets acquired in a business
combination accounted for as a purchase, and is being amortized over five years.
(See Note 4.)
F-8
<PAGE> 20
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Divisional Equity
The Parent utilizes a centralized cash management system for certain of its
operations, including the Division. Cash distributed to or advanced from the
Parent has been reflected as a decrease or increase in divisional equity in the
accompanying statements.
Revenue Recognition
Revenues are generally recognized when the services are provided. Billings
in advance of the service being provided are recorded as deferred revenues in
the accompanying financial statements.
Credit Risk
The Division extends unsecured credit to customers throughout the United
States and Canada and in certain foreign countries.
4. ACQUISITIONS:
On December 13, 1996, the Parent issued 15,000 shares of its common stock
and paid $195,000 in cash for certain assets of Harrison & Associates, L.L.C.
The terms of the Asset Purchase Agreement provide for additional consideration
of up to 55,000 shares of the Parent's common stock provided certain operating
results are achieved. The contingent consideration has not been recorded as of
December 31, 1996, as there is no assurance that the operating results will be
achieved.
Had the acquisition occurred on January 1 of 1996 and 1995, revenues and
division net income would not differ materially from the amounts included in the
accompanying statements of revenue and expenses.
In the event that the transaction contemplated with SMI is consummated, the
Parent will be required to issue the remainder of the shares reserved for
issuance under the Asset Purchase Agreement.
5. EMPLOYEE BENEFITS:
The Parent sponsors various benefit programs which cover substantially all
of its employees, including those of the Division. Benefits under these programs
include medical, dental, vision and pharmaceutical coverage, life and accidental
death and dismemberment insurance, vacation and sick pay programs, and a 401(k)
plan, under which the Parent contributes a percentage of employee contributions
at rates determined by the Board of Directors of the Parent.
Expenses related to these programs are allocated to all of the Parent's
operations, including the Division, based on a percentage of base salary. The
Division recorded expenses of $422,803 and $331,283 for the years ended December
31, 1996 and 1995, respectively, relating to these programs.
Management of the Parent believes that the expenses charged to the Division
are not materially different from the costs that would have been incurred had
the Division borne such expenses on a direct basis.
6. COMMITMENTS AND CONTINGENCIES:
The Parent leases office space under noncancellable agreements expiring at
various times in future years. The Division is not a party to any of these
agreements, but is allocated expenses based on the costs incurred by the Parent
for rent, utilities, maintenance, property taxes and insurance. The Division was
allocated $350,238 and $267,996 for the years ended December 31, 1996 and 1995,
respectively. The facilities allocation is based on the number of employees
employed by the Division, and the management of the Parent believes that the
F-9
<PAGE> 21
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expenses charged to the Division are not materially different from the costs
that would have been incurred had the Division borne such expenses on a direct
basis.
The Division is subject to claims and litigation from time to time arising
in the normal operation of its business. Management believes that the ultimate
resolution of any pending claim will not be material to the results of
operations or the financial position of the Division.
7. SIGNIFICANT CUSTOMERS:
For the years ended December 31, 1996 and 1995, one customer and its
affiliates accounted for revenues of $2,624,161 and $1,528,775, respectively.
F-10
<PAGE> 22
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
STATEMENTS OF ASSETS, LIABILITIES AND DIVISIONAL EQUITY
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $271,289 and $214,671 for 1997 and 1996,
respectively........................................... $ 2,767,316 $ 3,085,364
Prepaid expenses and other................................ 9,800 --
----------- -----------
Total current assets.............................. 2,777,116 3,085,364
PROPERTY AND EQUIPMENT:
Furniture and equipment................................... 1,402,616 1,427,482
Less- Accumulated depreciation............................ (1,120,014) (1,053,584)
----------- -----------
Total property and equipment 282,602 373,898
GOODWILL 303,321 338,291
----------- -----------
Total Assets...................................... $ 3,363,039 $ 3,797,553
=========== ===========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 201,157 $ 317,502
Accrued salaries and wages................................ 118,805 89,959
Deferred revenue.......................................... 49,980 12,001
Customer deposits......................................... 21,930 24,830
----------- -----------
Total current liabilities......................... 391,872 444,292
----------- -----------
COMMITMENT AND CONTINGENCIES
DIVISIONAL EQUITY 2,971,167 3,353,261
----------- -----------
Total liabilities and divisional equity........... $ 3,363,039 $ 3,797,553
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 23
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
STATEMENTS OF REVENUES AND EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
NET REVENUES................................................ $6,402,667 $4,496,092
COSTS AND EXPENSES
Costs of sales/services................................... 3,161,011 2,198,651
Sales and marketing....................................... 680,818 94,294
General and administrative................................ 74,320 81,875
Allocation of general overhead............................ 1,028,525 688,807
---------- ----------
4,944,674 3,063,627
---------- ----------
REVENUES IN EXCESS OF EXPENSES.............................. $1,457,993 $1,432,465
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 24
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
(UNAUDITED)
<TABLE>
<S> <C>
BALANCE, December 31, 1995.................................. $ 2,874,386
Revenues in excess of expenses............................ 2,934,993
Cash transfers to parent, net............................. (2,456,118)
-----------
BALANCE, December 31, 1996.................................. 3,353,261
Revenues in excess of expenses............................ 1,457,993
Cash transfers to parent, net............................. (1,840,087)
-----------
BALANCE, June 30, 1997...................................... $ 2,971,167
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 25
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Revenues in excess of expenses............................ $1,457,993 $1,432,465
Items not requiring cash-
Depreciation and amortization.......................... 158,030 158,288
Loss on disposal of fixed assets....................... 13,704 --
Changes in-
Accounts receivable.................................... 318,048 (911,519)
Accounts payable and accrued expenses.................. (87,499) 6,548
Other current assets and liabilities................... 25,279 (37,480)
---------- ----------
Net cash provided by operating activities......... 1,885,555 648,302
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (45,468) (108,191)
---------- ----------
Net cash used in investing activities............. (45,468) (108,191)
---------- ----------
NET CASH TRANSFERS TO PARENT................................ $1,840,087 $ 540,111
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 26
ELECTRONIC PUBLISHING DIVISION OF
BRITE VOICE SYSTEMS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the statements of
assets, liabilities and divisional equity as of June 30, 1997, and the
statements of revenues and expenses, changes in divisional equity, and cash
flows for the six months ended June 30, 1997 and 1996. Such adjustments made to
the financial statements are of a normal, recurring nature. Although management
believes that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures, including significant
accounting policies, normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). These financial statements should be read in conjunction
with the audited financial statements of Electronic Publishing Division of Brite
Voice Systems, Inc. for the year ended December 31, 1996. The revenues and
expenses for the six months ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year.
On September 23, 1997, Brite Voice Systems, Inc., entered into an agreement
in principal to sell the net assets of its Electronic Publishing Division to
Source Media, Inc. (SMI), for approximately $35,000,000, subject to post-closing
adjustments, as agreed. Closing of the transaction is contingent on many factors
including, among other things, the success of SMI obtaining funds to close the
transaction and any waiting periods imposed by the Hart Scott Rodino Antitrust
Improvements Act of 1976.
F-15
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
October 1, 1997
To the Board of Directors and
Shareholders of Tribune Company
In our opinion, the accompanying balance sheet and the related statement of
operations, of cash flows and of owner's equity present fairly, in all material
respects, the financial position of Voice News Network, Inc. at December 29,
1996, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
- ------------------------------------
Price Waterhouse LLP
Chicago, Illinois
F-16
<PAGE> 28
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 29,
1996
------------
<S> <C>
Current assets:
Accounts receivable (net of allowance for doubtful
accounts of $33,704)................................... $299,117
Deferred income taxes..................................... 25,737
Other current assets...................................... 16,897
--------
Total current assets.............................. 341,751
--------
Properties:
Leasehold improvements.................................... 57,319
Furniture and equipment................................... 732,160
Construction in progress.................................. 160,769
--------
950,248
Accumulated depreciation.................................... (386,167)
--------
Net properties.................................... 564,081
--------
Total assets...................................... $905,832
========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 81,613
Accrued compensation...................................... 61,999
Subscriber deposits....................................... 16,025
--------
Total current liabilities......................... 159,637
Deferred income taxes....................................... 59,748
Commitments and contingencies (Note 5)......................
--------
Total liabilities................................. 219,385
--------
Owner's equity............................................ 686,447
--------
Total liabilities and owner's equity.............. $905,832
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 29
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 29,
1996
------------
<S> <C>
Operating revenues.......................................... $2,424,875
Operating expenses:
Cost of sales............................................. 1,592,334
General and administrative................................ 271,613
----------
Total operating expenses.......................... 1,863,947
----------
Operating income............................................ 560,928
Provision for income taxes.................................. 222,969
----------
Net income.................................................. $ 337,959
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 30
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 29,
1996
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 337,959
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation........................................... 148,228
Deferred income taxes.................................. (10,381)
Changes in assets and liabilities:
Accounts receivable, net............................. (103,640)
Other current assets................................. (5,567)
Accounts payable..................................... 12,068
Accrued compensation................................. 21,094
Other liabilities.................................... 3,888
---------
Net cash provided by operating activities................. 403,649
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (205,717)
---------
Net cash used for investing activities.................... (205,717)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net distribution to owner................................. (197,932)
---------
Net cash used for financing activities.................... (197,932)
---------
Net increase in cash and cash equivalents................... --
Cash and cash equivalents, beginning of period.............. --
---------
Cash and cash equivalents, end of period.................... $ --
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 31
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
STATEMENT OF OWNER'S EQUITY
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 29,
1996
------------
<S> <C>
Owner's equity at January 1, 1996........................... $ 546,420
Net income.................................................. 337,959
Net cash distributions to owner............................. (197,932)
---------
Owner's equity at December 29, 1996......................... $ 686,447
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 32
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 29, 1996
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Voice News Network (VNN or the Company) is owned and operated by Tribune
Media Services, a wholly owned subsidiary of Tribune Company (Tribune).
VNN produces and distributes, via satellite or telephone line transmission,
daily audiotex programs containing news, entertainment and consumer information
to its subscribers, primarily newspaper and other media companies. VNN's
subscribers generally sell and attach voice advertisements at the beginning and
end of the audiotex messages and provide customers access to these programs
through local phone service. Audiotex programs are provided to subscribers based
primarily on annual service agreements.
Certain corporate general and administrative expenses of Tribune have been
allocated to the Company (Notes 3 and 4) on various bases which, in the opinion
of management, are reasonable. However, such expenses are not necessarily
indicative of, and it is not practicable for management to estimate, the nature
and level of expenses which might have been incurred had the Company operated as
a stand-alone company.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized on a straight line basis over each subscriber's
service agreement term.
Properties
Properties (including transmission equipment, office and studio equipment
and leasehold improvements) are stated at cost. Depreciation is computed using
the straight-line method over the properties' estimated useful lives, which
range from three to ten years. Expenditures for maintenance and repairs are
charged to expense as incurred.
Income Taxes
The Company's operations are included in Tribune's consolidated United
States federal and state income tax returns. Based on Tribune's tax-sharing
policy, the Company computes taxes as if it were filing separate tax returns.
Income taxes are provided based on the liability method of accounting pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The liability method measures the expected tax impact of future taxable
income or deductions resulting from differences in the tax and financial
reporting bases of assets and liabilities reflected in the balance sheet and the
expected tax impact of carryforwards for tax purposes.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
Actual results could differ from those estimates.
Statement of Cash Flows
Information related to cash paid for taxes has been omitted since these
costs are charged to the Company by Tribune.
Fiscal Year
The Company's fiscal year ends on the last Sunday in December. The 1996
fiscal year included 52 weeks.
F-21
<PAGE> 33
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS
VNN is dependent on Tribune for financing. The Company participates in
Tribune's centralized cash management program with respect to accounts
receivable, accounts payable, payroll and employee benefits. All disbursements
and receipts related to the cash management program are recorded as owner
contributions/distributions in the accompanying financial statements. Interest
is not recorded on these balances.
Tribune also provides the Company with certain information systems,
insurance and administrative services. Charges for these services are based on
allocations of Tribune's actual direct and indirect costs using varying
allocation bases as appropriate (e.g., payroll, headcount, etc.) designed to
estimate the actual cost incurred by Tribune to render these services to the
Company. This allocation process is consistent with the methodology used by
Tribune to allocate the cost of similar services provided to its other business
units. The allocated costs of these services are included in the accompanying
statement of operations and totaled $82,792 in 1996.
Tribune Media Services leases certain office space from Tribune Properties,
Inc., a wholly owned subsidiary of Tribune. Tribune Media Services allocates a
portion of the lease expense to VNN. The 1996 expense related to allocated
office lease expense included in the statement of operations is $57,959.
Certain Tribune subsidiaries are VNN subscribers. Revenues from these
related parties totaled $61,827 in 1996.
Treasury, legal and tax services provided by Tribune are not allocated to
the Company because these costs are not significant.
NOTE 4 -- EMPLOYEE BENEFIT PLANS
VNN participates in several Tribune-sponsored benefit plans, including an
employee stock ownership plan with annual allocations based on payroll, an
employee share purchase plan and a qualified savings incentive plan. The savings
incentive plan provides for uniform employer contributions to eligible employees
of $.25 for each $1.00 contributed by participants up to 4 percent of the
participants' compensation. VNN also participates in certain Tribune-sponsored
medical and life insurance plans and certain VNN employees are participants in
various Tribune incentive and deferred compensation plans. The total 1996
expense related to these employee benefits included in the statement of
operations is $90,393.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company has entered into a contract with a satellite uplink provider
through November, 1998. Future commitments under this non-cancelable contract
are $30,000 and $27,500 in 1997 and 1998, respectively.
The Company is involved in litigation from time to time incidental to the
conduct of its business; however, the Company is not currently a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the financial position or results of operations of
the Company.
NOTE 6 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the current assets and liabilities approximate fair
value because of the short maturity of these instruments.
F-22
<PAGE> 34
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES
The provision for income taxes (all currently payable) for the year ended
December 29, 1996 was $208,261. The provision for income taxes approximates
39.8% of pre-tax income and is higher than Tribune's federal statutory tax rate
of 35% due to state income taxes. Significant components of VNN's net deferred
tax liability as of December 26, 1996 are as follows:
<TABLE>
<S> <C>
Accounts receivable................................ $13,396
Accrued employee compensation...................... 12,341
-------
Deferred tax assets.............................. 25,737
Net properties..................................... 59,748
-------
Deferred tax liabilities......................... 59,748
-------
Net deferred tax liability....................... $34,011
=======
</TABLE>
NOTE 8 -- SUBSEQUENT EVENT -- PROPOSED SALE OF VNN
On October 1, 1997, the Company entered into an agreement with Source
Media, Inc. (Source) whereby Source will acquire VNN for approximately $9
million.
F-23
<PAGE> 35
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 29, JUNE 30,
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Current assets:
Accounts receivable (net of allowance for doubtful
accounts of $42,705 and $26,889)....................... $ 291,011 $ 224,357
Deferred income taxes..................................... 26,704 20,022
Other current assets...................................... 18,863 9,025
--------- ---------
Total current assets.............................. 336,578 253,404
--------- ---------
Properties:
Leasehold improvements.................................... 57,319 57,319
Furniture and equipment................................... 806,172 709,171
Construction in progress.................................. 129,710 101,791
--------- ---------
993,201 868,281
Accumulated depreciation.................................. (459,996) (310,372)
--------- ---------
Net properties.................................... 533,205 557,909
--------- ---------
Total assets...................................... $ 869,783 $ 811,313
========= =========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 60,381 $ 28,210
Accrued compensation...................................... 34,353 34,617
Subscriber deposits....................................... 14,235 14,355
--------- ---------
Total current liabilities......................... 108,969 77,182
Deferred income taxes..................................... 57,771 59,094
Commitments and contingencies............................. -- --
--------- ---------
Total liabilities................................. 166,740 136,276
--------- ---------
Owner's equity............................................ 703,043 675,037
--------- ---------
Total liabilities and owner's equity.............. $ 869,783 $ 811,313
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 36
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating revenues.......................................... $1,314,825 $1,167,275
Operating expenses:
Cost of sales............................................. 765,417 780,429
General and administrative................................ 158,202 102,721
---------- ----------
Total operating expenses.......................... 923,619 883,150
---------- ----------
Operating income............................................ 391,206 284,125
Provision for income taxes.................................. 155,504 112,940
---------- ----------
Net income.................................................. $ 235,702 $ 171,185
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 37
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 29, 1997 JUNE 30, 1996
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 235,702 $ 171,185
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation........................................... 80,308 72,344
Deferred income taxes.................................. (2,944) (5,320)
Changes in assets and liabilities:
Accounts receivable, net............................. 8,106 (28,880)
Other current assets................................. (1,966) 2,305
Accounts payable..................................... (21,232) (41,335)
Accrued compensation................................. (27,646) (6,288)
Other liabilities.................................... (1,790) 2,218
--------- ---------
Net cash provided by operating activities................. 268,538 166,229
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (49,432) (123,661)
--------- ---------
Net cash used for investing activities.................... (49,432) (123,661)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net distribution to owner................................. (219,106) (42,568)
--------- ---------
Net cash used for financing activities.................... (219,106) (42,568)
--------- ---------
Net increase in cash and cash equivalents................... -- --
Cash and cash equivalents, beginning of period.............. -- --
--------- ---------
Cash and cash equivalents, end of period.................... $ -- $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 38
VOICE NEWS NETWORK, INC.
(WHOLLY OWNED BY TRIBUNE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Voice News Network, Inc. (VNN or the Company) is owned and operated by
Tribune Media Services, a wholly owned subsidiary of Tribune Company (Tribune).
VNN produces and distributes, via satellite or telephone line transmission,
daily audiotex programs containing news, entertainment and consumer information
to its subscribers, primarily newspaper and other media companies. VNN's
subscribers generally sell and attach voice advertisements at the beginning and
end of the audiotex messages and provide customers access to these programs
through local phone service. Audiotex programs are provided to subscribers based
primarily on annual service agreements.
Certain corporate general and administrative expenses of Tribune have been
allocated to the Company on various bases which, in the opinion of management,
are reasonable. However, such expenses are not necessarily indicative of, and it
is not practicable for management to estimate, the nature and level of expenses
which might have been incurred had the Company operated as a stand-alone
company.
NOTE 2 -- BASIS OF PRESENTATION
Unaudited interim financial period -- The accompanying financial
information as of June 29, 1997 and June 30, 1996 and for the six months ended
June 29, 1997 and June 30, 1996 is unaudited. The interim financial statements
have been prepared on the same basis as the annual financial statements. In the
opinion of management, such interim financial information reflects adjustments
consisting only of normal and recurring adjustments necessary for a fair
presentation of such financial information. The unaudited results of operations
for the interim periods ended June 29, 1997 and June 30, 1996 are not
necessarily indicative of the results of operations to be expected for any other
period or for the full year.
NOTE 3 -- SUBSEQUENT EVENT -- PROPOSED SALE OF VNN
On October 1, 1997, the Company entered into an agreement with Source
Media, Inc. (Source) whereby Source will acquire VNN for approximately $9
million.
F-27
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements as of and for the six-month period ended June 30, 1997 have been
derived from the unaudited consolidated financial statements of the Company and
the unaudited financial statements of Brite and VNN. The Unaudited Pro Forma
Condensed Consolidated Statements of Operations for the year ended December 31,
1996 are based on the historical audited consolidated financial statements of
the Company and the audited financial statements of Brite and VNN. The Unaudited
Pro Forma Condensed Consolidated Financial Statements give effect to the
Transactions (as defined below) and the application of the net proceeds
therefrom and the January 14, 1997 purchase by the Company of all of the
outstanding shares of Interactive Channel Technologies Inc. ("ICT") held by the
minority shareholders of ICT (the "ICT Purchase"), as described in the
accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1997 was prepared as though the acquisition of certain electronic publishing
assets of Brite and VNN (the "Acquisitions") and related offering of Senior
Secured Notes and units of Senior PIK Preferred Stock and Warrants (the
"Offering" and, together with the Acquisitions, the "Transactions") occurred on
such date. The Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the six-month period ended June 30, Transactions and the ICT
Purchase had occurred as of January 1, 1996 and give effect to the elimination
of certain costs of sales and selling, general and administrative expenses.
The Unaudited Pro Forma Condensed Consolidated Financial Statements reflect
pro forma adjustments that are based upon available information and factually
supportable assumptions that the Company believes are reasonable and do not
necessarily reflect the results of operations or the financial position of the
Company that actually would have resulted had the Transactions or ICT Purchase
to which pro forma effect is given, been consummated as of the date or for the
periods indicated. In preparing the Unaudited Pro Forma Condensed Consolidated
Financial Statements, the Company believes it has utilized reasonable methods
to conform the basis of presentation.
The Acquisitions will be accounted for by the purchase method of
accounting, under which the purchase prices of Brite and VNN will be allocated
to the tangible and intangible assets and liabilities of Brite and VNN,
respectively, based upon their respective fair values. The Unaudited Pro Forma
Condensed Consolidated Financial Statements have been prepared based upon
certain assumptions made by management regarding the Transactions and a
preliminary estimate of the purchase price allocation. Actual accounting
adjustments for the Transactions may differ from the pro forma adjustments based
on the balances of the assets and liabilities of Brite and VNN and the final
purchase price allocation.
F-28
<PAGE> 40
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
HISTORICAL PRO FORMA
------------------------ ADJUSTING PRO FORMA
SOURCE BRITE VNN ENTRIES SOURCE
-------- ------ ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 8,627 $ -- $ -- $25,357(1) $ 33,984
Restricted cash and restricted cash
equivalents.......................... -- -- -- 11,504(2) 11,504
Accounts receivable..................... 1,305 2,767 291 (3,058)(3) 1,305
Deferred expenses....................... 803 -- 27 (27)(3) 803
Prepaid expenses and other current
assets............................... 800 10 19 (29)(3) 800
-------- ------ ---- ------- --------
Total current assets............ 11,535 2,777 337 33,747 48,396
Noncurrent portion of restricted cash and
restricted cash equivalents............. -- -- -- 10,840(2) 10,840
Property and equipment, net............... 5,987 283 533 550(4) 7,353
Intangible assets, net.................... 11,626 303 -- 43,881(4) 55,810
Other non-current assets.................. 1,029 -- -- 4,221(5) 5,250
-------- ------ ---- ------- --------
Total assets.................... $ 30,177 $3,363 $870 $93,239 $127,649
======== ====== ==== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................. $ 986 $ 201 $ 60 $ (261)(6) $ 986
Accrued payroll......................... 371 119 35 (154)(6) 371
Other accrued liabilities............... 2,019 22 14 (708)(7) 1,347
Amounts payable related to
acquisitions......................... 750 -- -- 1,000(8) 1,750
Unearned income......................... 3,178 50 -- (50)(6) 3,178
Current portion of capital lease
obligations.......................... 22 -- -- -- 22
-------- ------ ---- ------- --------
Total current liabilities....... 7,326 392 109 (173) 7,654
Other non-current liabilities............. -- -- 58 (58)(6) --
Long-term debt, net of discount........... 18,280 -- -- 81,720(9) 100,000
Capital lease obligations................. 12 -- -- -- 12
Minority interests in consolidated
subsidiaries, net of note receivable and
accrued interest from minority
stockholder............................. 3,144 -- -- -- 3,144
Senior PIK Preferred Stock................ -- -- -- 13,321(10) 13,321
Stockholders' equity:
Common stock............................ 12 -- -- -- 12
Less treasury stock, at cost............ (3,758) -- -- -- (3,758)
Capital in excess of par value.......... 73,333 -- -- 5,529(10) 78,862
Retained earnings (accumulated
deficit)............................. (68,027) 2,971 703 (7,100)(11) (71,453)
Foreign currency translation............ (40) -- -- -- (40)
Notes receivable and accrued interest
from stockholders.................... (105) -- -- -- (105)
-------- ------ ---- ------- --------
Total stockholders' equity...... 1,415 2,971 703 (1,571) 3,518
-------- ------ ---- ------- --------
Total liabilities and
stockholders' equity.......... $ 30,177 $3,363 $870 $93,239 $127,649
======== ====== ==== ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-29
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- ADJUSTING PRO FORMA
SOURCE BRITE VNN ENTRIES SOURCE
---------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Monetary revenues.................... $ 8,575 $9,412 $2,425 $ 250(12) $ 20,662
Nonmonetary revenues................. 9,944 -- -- -- 9,944
---------- ------ ------ -------- --------
Total revenues............... 18,519 9,412 2,425 250 30,606
Monetary cost of sales............... 3,485 4,685 1,592 (1,137)(13) 8,625
Nonmonetary cost of sales............ 9,944 -- -- -- 9,944
---------- ------ ------ -------- --------
Total cost of sales.......... 13,429 4,685 1,592 (1,137) 18,569
Gross profit......................... 5,090 4,727 833 1,387 12,037
Selling, general and administrative
expenses........................... 11,747 1,792 272 (1,759)(14) 12,052
Amortization of intangible assets.... 1,031 -- -- 11,105(15) 12,136
Research and development expenses.... 6,332 -- -- -- 6,332
---------- ------ ------ -------- --------
Operating income (loss).............. (14,020) 2,935 561 (7,959) (18,483)
Interest (income) expense, net....... (175) -- -- 12,160(16) 11,985
Other (income) expense, net.......... 10 -- -- (46)(17) (36)
---------- ------ ------ -------- --------
Income (loss) before income taxes.... (13,855) 2,935 561 (20,073) (30,432)
Provision for income taxes........... -- -- 223 (223)(18) --
---------- ------ ------ -------- --------
Net income (loss).................... (13,855) 2,935 338 (19,850) (30,432)
Preferred stock dividends............ -- -- -- 3,392(19) 3,392
---------- ------ ------ -------- --------
Net income (loss)
attributable to common
stockholders............... $ (13,855) $2,935 $ 338 $(23,242) $(33,824)
========== ====== ====== ======== ========
Net loss per common share.... $ (1.39) $ (3.40)
========== ========
Weighted average common shares
outstanding ....................... 9,935,455
==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-30
<PAGE> 42
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------ ADJUSTING PRO FORMA
SOURCE BRITE VNN ENTRIES SOURCE
----------- ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Monetary revenues...................... $ 5,336 $ 6,403 $1,315 $ 125(12) $ 13,179
Nonmonetary revenues................... 3,411 -- -- -- 3,411
----------- ------- ------ ------- ---------
Total revenues................. 8,747 6,403 1,315 125 16,590
Monetary cost of sales................. 2,902 3,161 765 (494)(13) 6,334
Nonmonetary cost of sales.............. 3,411 -- -- -- 3,411
----------- ------- ------ ------- ---------
Total cost of sales............ 6,313 3,161 765 (494) 9,745
Gross profit........................... 2,434 3,242 550 619 6,845
Selling, general and administrative
expenses............................. 9,074 1,784 158 (1,289)(14) 9,727
Amortization of intangible assets...... 1,844 -- -- 4,418(15) 6,262
Research and development expenses...... 1,844 -- -- -- 1,844
----------- ------- ------ ------- ---------
Operating income (loss)................ (10,328) 1,458 392 (2,510) (10,988)
Interest (income) expense, net......... 825 -- -- 5,409(16) 6,234
Other (income) expense, net............ (58) -- -- -- (58)
----------- ------- ------ ------- ---------
Income (loss) before income taxes...... (11,095) 1,458 392 (7,919) (17,164)
Provision for income taxes............. -- -- 156 (156)(18) --
----------- ------- ------ ------- ---------
Net income (loss).............. (11,095) 1,458 236 (7,763) (17,164)
Preferred stock dividends.............. -- -- -- 1,852(19) 1,852
----------- ------- ------ ------- ---------
Net income (loss) attributable
to common stockholders....... $ (11,095) $ 1,458 $ 236 $(9,615) $ (19,016)
=========== ======= ====== ======= =========
Net loss per common share...... $ (0.99) $ (1.69)
=========== =========
Weighted average common shares
outstanding.......................... 11,220,586
===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-31
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On January 14, 1997, the Company acquired all of the outstanding shares of
ICT held by minority shareholders in exchange for approximately 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
transaction of approximately $795,000. The aggregate purchase price for the
acquisition of the ICT minority interest was approximately $11.3 million, and
the acquisition was accounted for by the purchase method of accounting.
On October 30, 1997, the Company acquired certain of the electronic
publishing assets of Brite. The purchase price of the Brite acquisition was
approximately $35.6 million in cash. The Brite acquisition was accounted for
by the purchase method of accounting.
On October 30, 1997, the Company acquired the electronic publishing assets
of VNN. The purchase price of the VNN acquisition was $9.0 million in cash. The
VNN acquisition was accounted for by the purchase method of accounting.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect
to the following unaudited pro forma adjustments:
(1) Represents the (i) receipt of gross proceeds of $120.0 million from the
Offering, (ii) payment of $6.4 million issuance costs related to the
Offering, (iii) payment of approximately $44.6 million as the purchase
price in the Acquisitions, (iv) payment of approximately $21.3 million in
connection with the repayment of the Company's senior secured notes plus
accrued interest thereon and (v) deposit of approximately $22.3 million
into the interest escrow account for the first four interest payments on
the Notes.
(2) Represents the establishment of the interest escrow account to service the
first four interest payments of the Notes.
(3) Represents the elimination of Brite and VNN accounts receivable, deferred
expenses and prepaid expenses, which were not included in the purchased
assets of Brite and VNN.
(4) Represents the elimination of Brite's historical intangible assets of
$303,000 plus management's estimated value of property and equipment,
contract rights and goodwill based on a preliminary allocation of the
purchase price of the Acquisitions in accordance with the purchase method
of accounting as follows:
<TABLE>
<S> <C>
Initial purchase price...................................... $44,550,000
Estimated fees and expenses associated with exiting
activities, terminating employees and relocating certain
employees of the acquired companies....................... 1,000,000
-----------
Total purchase price.............................. $45,550,000
===========
</TABLE>
The Company is currently in the process of obtaining an independent
appraisal of the allocation of the purchase price. The preliminary
allocation is as follows:
<TABLE>
<CAPTION>
AMORTIZATION
DESCRIPTION BRITE VNN PERIOD
----------- ----------- ---------- ------------
<S> <C> <C> <C>
Property and equipment........................ $ 833,000 $ 533,000 3 years
Contract rights............................... 16,000,000 3,400,000 5 years
Goodwill...................................... 19,515,000 5,269,000 5 years
</TABLE>
(5) Represents the (i) write-off of the Company's historical deferred financing
fees of approximately $1.0 million which will be charged to earnings as an
extraordinary item upon the early repayment of its
F-32
<PAGE> 44
historical debt as part of the Transactions plus (ii) the recording of
deferred financing fees and expenses associated with the Notes in the
amount of approximately $5.3 million.
(6) Represents the elimination of Brite and VNN accounts payable, accrued
payroll, unearned income and other non-current liabilities which were not
assumed in the purchase of Brite and VNN.
(7) Represents the (i) payment of approximately $672,000 in accrued interest
associated with the Company's senior secured notes, which was repaid as
part of the Transactions plus (ii) the elimination of Brite and VNN accrued
liabilities which were not assumed in the purchase of Brite and VNN.
(8) Represents the accrual of $1.0 million of estimated costs associated with
exiting activities, terminating employees and relocating certain employees
of the acquired companies.
(9) Represents the (i) repayment of approximately $20.7 million of the
Company's senior secured notes, net of approximately $2.4 million of note
discount, as a result of the Offering and (ii) addition of $100.0 million
in Notes pursuant to the Offering.
(10) Represents the issuance of $20.0 million in Preferred Stock pursuant to the
Offering, net of (i) warrants with an approximate value of $5.5 million
which was recorded against capital in excess of par value and (ii)
financing fees and expenses of approximately $1.2 million associated with
the Units.
(11) Represents the (i) write-off of approximately $2.4 million of note discount
charged to earnings as an extraordinary item in connection with the
repayment of approximately $20.7 million of the Company's senior secured
notes, (ii) write-off of approximately $1.0 million of the Company's
historical deferred financing charges and (iii) elimination of Brite and
VNN historical retained earnings which were not assumed as part of the
Brite acquisition.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
give effect to the following unaudited pro forma adjustments:
(12) Represents rental revenues associated with certain voice information
services equipment purchased as part of the Transactions which are not
included in the historical revenues of Brite.
(13) Represents the (i) elimination of certain historical expenses totaling
$989,000 and $427,000 for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively, associated with subscriptions to
certain wire services and programming transmission which are non-recurring
due to the termination of the related agreements upon closing of the
Transactions, and (ii) the elimination of certain historical expenses
associated with the allocation of general corporate overhead to VNN by
Tribune Media Services, Inc. totaling $148,000 and $67,000 for the year
ended December 31, 1996 and the six months ended June 30, 1997,
respectively, which are non-recurring subsequent to the Transactions.
(14) Represents the elimination of certain historical expenses associated with
(i) allocation of general corporate overhead to Brite by Brite Voice
Systems, Inc., and to VNN by Tribune Media Services, Inc., totaling
$1,359,000 and $1,018,000 for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively, which is non-recurring subsequent
to the Transactions, and (ii) rent, advertising and trade promotional
expenses totaling $400,000 and $271,000 for the year ended December 31,
1996 and the six months ended June 30, 1997, respectively, which are
non-recurring because these costs relate to functions which will either be
provided by existing Company personnel or are not required by the Company
due to the termination of related agreements or obligations upon closing of
the Transactions.
(15) Represents (i) the amortization of intangible assets resulting from the
Acquisitions totaling $8,837,000 and $4,418,000 for the year ended December
31, 1996 and the six months ended June 30, 1997, respectively, and (ii) the
amortization of intangible assets (patents) resulting from the ICT Purchase
F-33
<PAGE> 45
totaling $2,268,000 for the year ended December 31, 1996. The estimated
value of the patents, $11.3 million, will be amortized over a five-year
period on the straight-line method.
(16) Represents pro forma interest expense and amortization of deferred
financing costs as shown below based upon pro forma debt levels and the
applicable interest rates. The table below presents pro forma interest
expense, noted with the respective interest rates, and pro forma
amortization of deferred financing costs:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Senior Secured Notes (12%)............................. $12,000 $6,000
Reduction of interest expense on current notes
outstanding (13%).................................... (590) (966)
Pro forma amortization of deferred financing costs..... 750 375
------- -------
Total pro forma interest expense
adjustments................................ $12,160 $5,409
======= =======
</TABLE>
Pro forma interest expense does not include approximately $935,000 and
$215,000 of interest income for the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively, which would have been
realized on the net excess proceeds of the Offering assuming the
Transactions had taken place on January 1, 1996.
(17) Represents the elimination of minority interest in the gains or losses of
consolidated subsidiaries resulting from the ICT Purchase.
(18) Represents the elimination of income tax provision due to the Company's net
operating loss carryforwards, which are available to reduce income tax
provisions. No income tax provision related to Brite is included as the
Electronic Publishing Division is not an income tax reporting entity nor
does it have a tax sharing agreement with its parent company, Brite
Voice Systems, Inc.
(19) Represents (i) preferred stock dividends on the Preferred Stock at a rate
equal to 13.5% per annum per share, payable quarterly, (ii) amortization of
discount related to warrants associated with the Units, and (iii)
amortization of approximately $1.1 million in financing costs associated
with the issuance of the Units.
(20) EBITDA should not be considered in isolation from or as a substitute for
net income, cash flows from operating activities or other consolidated
income or cash flows statement data prepared in accordance with generally
accepted accounting principles or as a measure of profitability or
liquidity.
(21) the ratio of earnings to cover combined fixed charges and preferred stock
dividends is not a meaningful figure due to the fact that in the periods
presented fixed charges, which include interest expense, and preferred
stock dividends, exceeded earnings by an amount equal to the net loss.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
give effect to the following unaudited further adjustments:
(22) Represents (i) the elimination of certain employee expenses totaling $1.8
million and $1.0 million for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively, as these costs relate to
functions that will either be provided by existing Company personnel or
will not be required by the Company subsequent to the Acquisitions and (ii)
the elimination of additional wire service fees totaling $195,000 and
$133,000 for the year ended December 31, 1996 and the six months ended June
30, 1997, respectively, reflecting the Company's selection of those
contracts containing the most favorable economic terms.
F-34
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
Exhibit 2.1 - Asset Purchase Agreement dated September 23, 1997 between IT
Network, Inc. and Brite Voice Systems, Inc.
Exhibit 2.2 - Amendment dated October 7, 1997 between IT Network, Inc. and
Brite Voice Systems, Inc. to Asset Purchase Agreement dated
September 23, 1997 between IT Network, Inc. and Brite Voice
Systems, Inc.
Exhibit 2.3+ - Asset Purchase Agreement dated September 30, 1997 between
Source Media, Inc. and IT Network, Inc. and Voice News
Network, Inc.
Exhibit 4.1 - Indenture dated as of October 30, 1997 between Source Media,
Inc. and U.S. Trust Company of Texas, N.A.
Exhibit 4.2 - Certificate of Designation for Senior PIK Preferred Stock
Exhibit 4.3 - Warrant Agreement dated as of October 30, 1997 between Source
Media, Inc. And ChaseMellon Shareholder Services
Exhibit 4.4 - Unit Agreement dated as of October 30, 1997 between Source
Media, Inc. and ChaseMellon Shareholder Services
Exhibit 10.1 - Exchange and Registration Rights Agreement for Senior Secured
Notes dated as of October 30, 1997 between Source Media, Inc.
and certain of its subsidiaries and NatWest Capital Markets
Limited and Prudential Securities Incorporated
Exhibit 10.2 - Preferred Stock Registration Rights Agreement dated as of
October 30, 1997 between Source Media, Inc. and NatWest
Capital Markets Limited and Prudential Securities
Incorporated.
Exhibit 10.3 - Common Stock Registration Rights Agreement dated as of October
30, 1997 by and among Source Media, Inc. and NatWest Capital
Markets Limited on Prudential Securities Incorporated.
Exhibit 23.1 - Consent of Arthur Andersen LLP
Exhibit 23.2 - Consent of Price Waterhouse LLP
</TABLE>
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
IT NETWORK, INC.
AND
BRITE VOICE SYSTEMS, INC.
SEPTEMBER 23, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I -- TERMS OF THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Certain Additional Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Assets to be Transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Instruments of Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.6 Purchase Price and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.7 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.8 Liabilities Assumed by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.9 Liabilities Not Assumed by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II -- DEPOSIT SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 The Deposit Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Disposition of Deposit Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Certain Sales Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III -- CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Deliveries by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Deliveries by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Authority Relative to This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.10 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.11 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.12 Sufficiency and Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.13 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.14 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.15 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.16 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.18 Brokerage Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.19 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.20 Representations and Warranties on Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Authority Relative to This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.4 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.5 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.6 Brokerage Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.7 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.8 Representations and Warranties on Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI -- CONDUCT OF BUSINESS PENDING CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Conduct and Preservation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Restrictions on Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII -- ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Access to Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.6 HSR Act Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.8 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.9 Employee and Employee Benefit Plan Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.10 Transfer of Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.11 Amendment of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.12 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.13 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.15 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.16 Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VIII -- CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.1 Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.2 Covenants and Agreements Performed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.3 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.4 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.5 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IX -- CONDITIONS TO OBLIGATIONS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1 Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.2 Covenants and Agreements Performed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<TABLE>
<S> <C>
9.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.6 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.7 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE X -- TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI -- SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 31
11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.3 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.4 Procedure for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE XII -- MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.3 Binding Effect; Assignment; No Third Party Benefit . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.7 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.8 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.9 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.11 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.12 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.13 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.14 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.15 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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<PAGE> 5
INDEX OF SCHEDULES AND EXHIBITS
Schedules
<TABLE>
<CAPTION>
Number Name
- ------ ----
<S> <C>
1.1(a) Contracts
1.1(b) Permitted Encumbrances
1.3(a) Furniture and Equipment; Computer Equipment
1.3(c) Intellectual Property
1.3(g) Prepaid Revenues
1.7 Allocation of Purchase Price
1.9 Liabilities Not Assumed by Buyer
4.4 Noncontravention
4.5 Government Approvals - Seller
4.6 Title to Assets
4.7 Financial Statements
4.8 Absence of Certain Changes
4.9 Tax Matters
4.11 Legal Proceedings
4.12 Sufficiency and Condition of Assets
4.13 Intellectual Property
4.14 Permits
4.15 Agreements
4.16 Employees
4.17 Insurance
5.4 Government Approvals - Buyer
Exhibits
--------
1.1(a) Lease and Services Agreement
1.1(b) Reseller Agreement
1.5 Bill of Sale
3.2(k) Legal Opinion
3.3(b) Assignment and Assumption Agreement
</TABLE>
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<PAGE> 6
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of September 23,
1997, between IT Network, Inc., a Texas corporation ("Buyer") and Brite Voice
Systems, Inc., a Kansas corporation ("Seller").
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the Assets (as hereinafter defined), which are all the
assets relating to the Business (as hereinafter defined), upon the terms and
subject to the conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Seller and Buyer hereby agree as follows:
ARTICLE I
TERMS OF THE TRANSACTION
1.1 Certain Defined Terms. As used in this Agreement,
each of the following terms has the meaning given it below:
"Affiliate" means, with respect to any person, any other
person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control
with, such person. For the purposes of this definition, "control",
when used with respect to any person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership
of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
"Ancillary Documents" means each agreement, instrument and
document (other than this Agreement) executed or to be executed by
Seller or Buyer in connection with the transactions contemplated by
this Agreement.
"Applicable Law" means any statute, law, rule or regulation or
any judgment, order, writ, injunction or decree of any Governmental
Entity to which a specified person or property is subject.
"Business" shall mean Seller's electronic publishing business
consisting of: (i) the management of audiotex systems installed on
the premises of newspaper and yellow pages publishers, including daily
programming changes and the production of monthly reports reflecting
system usage, messages played and advertisements heard; (ii) the
creation and provision by satellite transmission of a wide variety of
general information suitable for dissemination in any location for
access by telephone callers through audiotex systems owned or operated
by newspaper and yellow pages publishers, broadcasters and network
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<PAGE> 7
operators and consisting of the information described in Seller's BDR,
CityLine, and Telco Information Services, Consumer Tips and Consumer
Notes Catalogs and the associated Guides, copies of which have been
provided to Buyer; (iii) the creation and provision to yellow pages
publishers over the Internet of a variety of information described in
Seller's Internet Network Catalog, a copy of which has been provided
to Buyer; (iv) the sale of advertising sponsorships to various
categories of audiotex information made available through yellow pages
publishers' audiotex systems, including creation of printed material
designed for inclusion in the publishers' directories; and (v)
advertiser management services provided on behalf of yellow pages
publishers whereby advertising entities are contacted from an outbound
call center for periodic updating of their audiotex sponsorships and
advertisements.
"Business Day" means a day on which national banks are
generally open for business in New York City.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.001 per
share, of Parent.
"Contracts " means all advertising sales, audio feed and
services contracts and agreements as listed or described on Schedule
1.1(a) and any additional agreements or contracts entered into by
Seller in connection with the Business from the date of this Agreement
to the Closing.
"Encumbrances" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions,
easements and other encumbrances of every type and description,
whether imposed by law, agreement, understanding or otherwise.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state, municipal or
other governmental body, agency, authority, department, commission,
board, bureau or instrumentality (domestic or foreign).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Intellectual Property" means patents, trademarks, service
marks, trade names, service names, brand names, copyrights, trade
secrets, know-how, inventions, computer software (including
documentation and object and source codes) and similar rights, and all
registrations, applications, licenses and rights with respect to any
of the foregoing.
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<PAGE> 8
"IRS" means the Internal Revenue Service.
"Lease and Services Agreement" means the lease and services
agreement covering the real property and providing for the telephone
and long distance services described in and containing the terms set
forth in the lease and services agreement attached hereto as Exhibit
1.1(a).
"Material Adverse Effect" means a material adverse effect on
the business, assets, results of operations, condition (financial or
otherwise) or prospects of the Business or the ownership or operation
of the Assets or any material portion thereof or on the ability of
Seller to perform on a timely basis any material obligation of Seller
under this Agreement or any agreement, instrument or document entered
into or delivered in connection herewith.
"Parent" means Source Media, Inc., a Delaware corporation, the
owner of all the outstanding capital stock of Buyer.
"Permits" means licenses, permits, franchises, consents,
approvals, variances, exemptions and other authorizations of or from
Governmental Entities.
"Permitted Encumbrances" means (i) Encumbrances created by
Buyer and (ii) the Encumbrances set forth on Schedule 1.1(b);
provided, however, that at the Closing "Permitted Encumbrances" shall
not include a lien of record against the Assets.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization or Governmental Entity.
"Proceedings" means all proceedings, actions, claims, suits,
investigations and inquiries by or before any arbitrator or
Governmental Entity.
"Reasonable Best Efforts" means a party's reasonable best
efforts in accordance with reasonable commercial practice and without
the incurrence of unreasonable expense.
"Reseller Agreement " means the Reseller Agreement attached
hereto as Exhibit 1.1(b).
"Securities Act" means the Securities Act of 1933, as amended.
"Taxes" means any income taxes or similar assessments or any
sales, excise, occupation, use, ad valorem, property, production,
severance, transportation, employment, payroll, franchise or other tax
imposed by any United States federal, state or local (or any foreign
or provincial) taxing authority, including any interest, penalties or
additions attributable thereto.
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<PAGE> 9
"Tax Return" means any return or report, including any related
or supporting information, with respect to Taxes.
"to the best knowledge" (or similar references to a party's
knowledge) means the knowledge of or receipt of notice (oral or
written) by such party or any of such party's officers or other
employees having responsibility over the relevant subject matter, as
such knowledge has or should have been obtained in the normal conduct
of the business of such party or in connection with the preparation of
the Schedules to this Agreement and the furnishing of information as
contemplated by this Agreement.
1.2 Certain Additional Defined Terms. In addition to
such terms as are defined in the opening paragraph of and the recitals to this
Agreement and in Section 1.1, the following terms are used in this Agreement as
defined in the Sections set forth opposite such terms:
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Acquired Business Balance Sheet 4.7
Acquired Business Statement of Cash Flows 4.7
Acquired Business Statement of Operations 4.7
Acquisition Proposal 7.3
Assets 1.3
Assumed Liabilities 1.8
Buyer Claims 11.2
Buyer Representatives 7.2
Buyer's Notice 11.4
Closing 3.1
Closing Date 3.1
Confidential Information 7.2
Consent Required Contract 7.11
Damages 11.2
Deposit Shares 2.1
Employees 4.16
Employment Arrangements 7.9
Escrow Agent 2.1
Escrow Agreement 2.1
Financial Statements 4.7
GAAP 4.7
Purchase Price 1.6
Registration Rights Agreement 2.1
Retained Employees 7.9
Seller Claims 11.3
Survival Date 11.1
Termination Date 10.1
Transfer 1.3
</TABLE>
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<PAGE> 10
1.3 Assets to be Transferred. At the Closing, and on the
terms and subject to the conditions set forth in this Agreement, Seller shall
sell, assign, transfer, deliver and convey (collectively, "Transfer"), or cause
to be Transferred, to Buyer, and Buyer shall purchase from Seller, all the
following assets and properties (together with any additions thereto which are
related to the operation of the Business or replacements thereof between the
date hereof and the Closing):
(a) All furniture, equipment, machinery, materials,
apparatus, spare parts, supplies and other tangible personal property listed or
described on Schedule 1.3(a);
(b) Seller's computer equipment and hardware, central
processing units, terminals, disk drives, tape drives, electronic memory units,
printers, keyboards, screens, peripherals (and other input/output devices),
modems and other communication controllers, and any and all parts and
appurtenances thereto listed or described on Schedule 1.3(a). Within ten days
after the date of this Agreement, the parties shall jointly conduct and prepare
an itemized inventory of the assets described in Section 1.3(a) and this
Section 1.3(b), which inventory shall be set forth as an amendment to Schedule
1.3(a) and constitute the final and binding listing of such assets to be
delivered at Closing; provided, however, that to the extent the parties are
unable to agree as to any particular item or items, such dispute shall be
submitted to Paul Yecies whose determination with respect thereto shall be
final and binding. The parties agree that any such submission shall be made
within 10 days after preparation of the inventory and that each party shall be
entitled to simultaneously submit to the arbitrator a written statement in
support of its submission. The parties shall jointly request the arbitrator to
render a decision as to the disputed items within 15 days of his receipt of the
statements with respect to the disputed items.
(c) All Intellectual Property listed or described on Schedule
1.3(c), and all rights to recover for infringement thereon arising subsequent
to the Closing.
(d) All right, title and interest of Seller in and to the
Contracts, to the extent the same exist on the Closing Date, and all rights,
including rights of refund and offset, privileges, deposits, claims, causes of
action and options in favor of Seller relating or pertaining to the Contracts
accruing on or after the Closing Date.
(e) All books, records, papers and instruments of Seller
relating to the purchase of materials, supplies and services, the sale of
services, and dealings with customers, vendors and suppliers of the Business,
including computerized books and records and other computerized storage media
and the software (including documentation and object and source codes) used in
connection therewith (provided that Seller may retain copies of the foregoing
and all the Contracts, subject to Sections 7.2(c) and 7.8).
(f) All customer lists and customer data, vendor lists and
vendor data, supplier lists and supplier data and sales and promotional
material and other sales-related material relating to, or used in connection
with the operation of, the Business.
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<PAGE> 11
(g) An amount of cash equal to prepaid or deferred revenues
relating to services that will be performed by Buyer after the Closing in
connection with the Assets and the Business as set forth on Schedule 1.3(g),
including without limitation all deposits relating to the Business and
pertaining to the Contracts. Within 15 days after the Closing Date, Seller
shall provide to Buyer any necessary adjustments to Schedule 1.3(g) to update
the prepaid or deferred revenues to reflect changes, if any, occurring from the
date through which such amounts are calculated in Schedule 1.3(g) to the
Closing Date.
(h) All rights, claims and causes of action of Seller against
third parties (including Seller's predecessors in title to the Assets) in
respect of the Business or the Assets arising subsequent to Closing, including
without limitation insurance claims, unliquidated rights and rights of recovery.
All the assets and properties being Transferred to Buyer pursuant to this
Agreement are collectively referred to herein as the "Assets".
1.4 Excluded Assets. Except for the Assets, all assets
and properties of Seller shall be excluded from the assets to be Transferred to
Buyer hereunder.
1.5 Instruments of Conveyance. In order to effectuate
the Transfer of the Assets contemplated by Section 1.3, at the Closing, Seller
shall execute and deliver, or cause to be executed and delivered, to Buyer,
dated the Closing Date, all such general warranty bills of sale (which shall be
substantially in the form of Exhibit 1.5) and other documents or instruments of
assignment, transfer or conveyance as Buyer shall reasonably deem necessary or
appropriate to vest in or confirm to Buyer good and marketable title to the
Assets, free and clear of all Encumbrances other than the Permitted
Encumbrances.
1.6 Purchase Price and Payment. In consideration of the
Transfer by Seller to Buyer of the Assets, Buyer shall pay to Seller at the
Closing the aggregate purchase price of $35,000,000 in cash (the "Purchase
Price"). The Purchase Price shall be paid to Seller in immediately available
funds by confirmed wire transfer to a bank account to be designated by Seller
(such designation to occur no later than the fifth business day prior to the
Closing).
1.7 Allocation of Purchase Price. The Purchase Price
shall be allocated among the Assets as set forth on Schedule 1.7. Seller and
Buyer shall report the transactions contemplated hereby on all Tax Returns
(including information returns and supplements thereto required to be filed by
the parties under Section 1060 of the Code) in a manner consistent with such
allocation.
1.8 Liabilities Assumed by Buyer. As further
consideration for the Transfer of the Assets to Buyer, Buyer agrees, upon the
terms and subject to the conditions set forth herein, to assume, at the
Closing, and thereafter to pay, perform and discharge, all liabilities and
obligations of Seller under the Contracts, but only to the extent that such
liabilities and obligations arise and relate to periods beginning on or after
the Closing Date (collectively, the "Assumed Liabilities").
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1.9 Liabilities Not Assumed by Buyer. Buyer shall not
assume or take title to the Assets subject to, or in any way be liable or
responsible for, any liabilities or obligations of Seller (whether or not
referred to in any Schedule or Exhibit hereto), except as specifically provided
in Section 1.8, it being expressly acknowledged that it is the intention of the
parties hereto that all liabilities and obligations that Seller has or may have
in the future (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to Seller, and whether due or to become due),
other than the Assumed Liabilities, shall be and remain the liabilities and
obligations of Seller. Without limiting the generality of the foregoing, Buyer
shall not assume or take title to the Assets subject to, or in any way be
liable or responsible for:
(a) Any liabilities and obligations of Seller in respect
of any claims, Proceedings or other matters described on Schedule 1.9;
(b) Any liabilities and obligations of Seller relating to
the excluded assets described in Section 1.4;
(c) Any liability or obligation of Seller under any
mortgage, deed of trust, security agreement or financing statement, or any
note, bond or other instrument or obligation secured thereby;
(d) Any liability or obligation of Seller in respect of
any express or implied representation, warranty, agreement or guaranty made (or
claimed to have been made) by Seller, or imposed (or asserted to be imposed) by
operation of law, in respect of any service rendered or products produced,
distributed or sold by Seller in connection with the Business on or prior to
the Closing Date;
(e) Any liability or obligation of Seller existing at the
Closing Date under any contracts or agreements included in the Assets which
results from the breach, default or wrongful action or inaction of Seller;
(f) Subject to Section 7.9, any liability or obligation
of Seller resulting from or relating to the employment relationship between
Seller and any of Seller's present or former employees or the termination of
any such employment relationship, including without limitation severance pay,
accrued vacation and other similar benefits, if any, and any claims filed or
which may be filed by or on behalf of any such present or former employee
relating to the employment or termination of employment of any such employee by
Seller, including without limitation any claim for wrongful discharge, breach
of contract, unfair labor practice, employment discrimination, unemployment
compensation or workers' compensation;
(g) Subject to Section 7.9, any liability or obligation
of Seller in respect of any agreement, trust, plan, fund or other arrangement
under which benefits or employment is provided for any of Seller's present or
former employees;
(h) Any income Tax liabilities or deficiencies, whether
federal, state or local of Seller;
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(i) Any ad valorem property Taxes to the extent
applicable to periods ending on or prior to the Closing Date; and
(j) Any environmental liability arising under, or
obligation imposed by, any Applicable Law pertaining to health, safety or the
environment that relates to the occupancy, ownership, operation, control or use
of the Business or Assets prior to the Closing Date or that is connected to the
real property on which the Business is located as of the Closing Date.
ARTICLE II
DEPOSIT SHARES
2.1 The Deposit Shares. Simultaneously with the
execution of this Agreement, Buyer, Seller and Texas Bank & Trust, N.A. (the
"Escrow Agent") have executed and delivered the escrow agreement dated of even
date herewith among Parent, Seller and the Escrow Agent (the "Escrow
Agreement"), and Buyer has delivered to the Escrow Agent (i) a certificate
representing 250,000 shares of the Common Stock registered in the name of
Seller (together with any additional shares that may be deposited pursuant to
Section 10.2, the "Deposit Shares") and (ii) the registration rights agreement
of even date herewith between Parent and Seller (the "Registration Rights
Agreement"). Buyer and Seller agree that the Escrow Agent shall hold and
deliver the certificate representing the Deposit Shares and the Registration
Rights Agreement in accordance with the terms and conditions set forth in the
Escrow Agreement.
2.2 Disposition of Deposit Shares.
(a) If the Closing does not occur on or before the
Termination Date by reason of Buyer's default under the terms of this
Agreement, Seller shall be entitled to receive the Deposit Shares and the
Registration Rights Agreement without right on the part of Buyer to a return
thereof. Buyer shall be deemed in default for the purpose of this Section 2.2
(and for no other purpose) if Buyer (i) shall have insufficient funds to pay
the Purchase Price or (ii) elects to terminate this Agreement due to a material
adverse change in the cash flow of the Business based solely on the status of
the Contracts, taken as a whole, on the Termination Date, in each case when the
Seller (A) has performed all covenants and agreements of Seller hereunder and
(B) has shown itself able and willing to satisfy each of the conditions set
forth in Article IX on the Termination Date. Notwithstanding anything to the
contrary contained in this Agreement, if the Closing does not occur on or
before the Termination Date by reason of Buyer's default under the terms of
Section 2.2(a), Seller's sole and exclusive remedy against Buyer and its
Affiliates shall be to retain the Deposit Shares which the parties stipulate
shall be liquidated damages.
(b) In the event the Closing shall occur or the Closing
shall not occur and Seller shall not be entitled to receive the Deposit Shares
pursuant to Section 2.2(a), the certificate representing the Deposit Shares and
the Registration Rights Agreement shall be returned to Buyer in the manner
specified in the Escrow Agreement.
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2.3 Certain Sales Restrictions.
(a) Seller agrees (subject to any requirement of law that
the disposition of its property remains within its control) that it will not,
directly or indirectly, sell, assign, transfer, pledge, encumber or otherwise
dispose of any Deposit Shares except:
(i) In accordance with the registration
rights set forth in the Registration Rights Agreement;
(ii) In compliance with Rule 144 under
the Securities Act; provided, however, that Seller shall provide
Parent with copies of all filings made with the Securities and
Exchange Commission with respect to sales of Deposit Shares under Rule
144;
(iii) Pursuant to a no-action letter or
other interpretive statement or release of the Securities and Exchange
Commission to the effect that the proposed sale or other disposition
of the Deposit Shares may be effected without registration under the
Securities Act; or
(iv) Pursuant to an applicable exemption
(other than Rule 144 under the Securities Act) under the Securities
Act; provided, that Seller shall have furnished Parent with an opinion
of counsel, which opinion shall be reasonably acceptable to Parent, to
the effect that such disposition does not require registration of such
Deposit Shares under the Securities Act.
(b) Notwithstanding Section 2.3(a), Seller may
sell or otherwise dispose of any of the Deposit Shares (i) pursuant to a tender
offer or an exchange offer approved by the Board of Directors of Parent or (ii)
as a result of or in connection with consummation of a merger, consolidation or
sale of all or substantially all the assets of Parent.
ARTICLE III
CLOSING
3.1 Closing. The closing of the transactions
contemplated hereby (the "Closing") shall take place (i) at the offices of
Thompson & Knight, P.C., 1700 Pacific Avenue, Dallas, Texas, at 10:00 a.m.,
local time, on the fifth Business Day after the satisfaction of all the
conditions set forth in Articles VIII and IX or (ii) at such other time or
place or on such other date as the parties hereto shall agree. The date on
which the Closing is required to take place is herein referred to as the
"Closing Date". All Closing transactions shall be deemed to have occurred
simultaneously.
3.2 Deliveries by Seller. At the Closing, Seller shall
make the following deliveries or such deliveries in substitution therefor as
are satisfactory to Buyer:
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(a) Seller shall cause the Escrow Agent to deliver to Buyer
the certificate or certificates representing the Deposit Shares and the
Registration Rights Agreement in the manner specified in the Escrow Agreement.
(b) Seller shall deliver to Buyer the instruments of
conveyance referred to in Section 1.5.
(c) Seller shall deliver to Buyer a certificate of an officer
thereof certifying (i) that attached to such certificate are true and correct
copies of the resolutions adopted by its Board of Directors authorizing the
execution, delivery and performance of this Agreement and the Ancillary
Documents by Seller, and that such resolutions are in full force and effect as
of the Closing and (ii) the incumbency and signatures of their respective
officers who have executed this Agreement and the other certificates,
instruments and documents delivered at the Closing on behalf of Seller.
(d) Seller shall deliver possession of the Assets to Buyer.
(e) Seller shall deliver to Buyer executed copies of all
consents and approvals of third parties required to be obtained by or on the
part of Seller for the consummation of the transactions contemplated hereby, it
being agreed that Seller shall have no obligation to attempt to obtain any
consents or approvals under the Contracts.
(f) Seller shall deliver to Buyer all books and records of
Seller relating to the Assets or the operation of the Business referred to in
Section 1.3(e).
(g) Seller shall deliver to Buyer a Certificate from the
Secretary of State of Kansas as to the legal existence and good standing of
Seller under the laws of such state.
(h) Seller shall deliver to Buyer a certificate executed on
behalf of Seller by the president of Seller, dated the Closing Date,
representing and certifying, in such detail as Buyer may reasonably request,
that the conditions set forth in this Article IX have been fulfilled.
(i) Seller shall have executed and delivered to Buyer the
Lease and Services Agreement.
(j) Seller shall deliver to Buyer such other certificates,
instrument and documents as may be reasonably requested by, and in form and
substance reasonably satisfactory to, Buyer in order to effect the transactions
contemplated by this Agreement to occur at the Closing.
(k) Seller shall cause to be delivered to Buyer the opinion of
Triplett, Woolf & Garretson, LLC, counsel to Seller, in substantially the form
attached as Exhibit 3.2(k).
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3.3 Deliveries by Buyer. At the Closing, Buyer shall
make the following deliveries or such deliveries in substitution therefor as
are satisfactory to Seller:
(a) Buyer shall deliver to Seller the Purchase Price.
(b) Buyer shall deliver to Seller an instrument of assignment
and assumption substantially in the form of Exhibit 3.3(b).
(c) Buyer shall deliver to Seller a certificate of an officer
thereof certifying (i) that attached to such certificate are true and correct
copies of the resolutions adopted by its Board of Directors authorizing the
execution, delivery and performance of this Agreement and the Ancillary
Documents by Buyer, and that such resolutions are in full force and effect as
of the Closing and (ii) the incumbency and signatures of their respective
officers who have executed this Agreement and the other certificates,
instruments and documents delivered at the Closing on behalf of Seller.
(d) Buyer shall deliver to Seller certificates from the
Secretary of State of Texas and the Comptroller of Public Accounts of the State
of Texas as to the legal existence and good standing, respectively, of Buyer
under the laws of such state.
(e) Buyer shall deliver to Seller a certificate executed on
behalf of Buyer by the president or a vice president of Buyer, dated the
Closing Date, representing and certifying, in such detail as Seller may
reasonably request, that the conditions set forth in Article VIII have been
fulfilled.
(f) Buyer shall have executed and delivered to Seller the
Lease and Services Agreement.
(g) Buyer shall deliver to Seller such other certificates,
instruments and documents as may be reasonably requested by, and in form and
substance reasonably satisfactory to, Seller in order to effect the
transactions contemplated by this Agreement to occur at the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
4.1 Corporate Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all requisite corporate power and
corporate authority to own, lease and operate the Assets and to carry on the
Business as now being conducted. No actions or proceedings to dissolve Seller
are pending.
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4.2 Qualification. Seller is duly qualified or licensed to
do business as a foreign corporation and is in good standing in all of the
jurisdictions in which it owns, leases or operates the Assets or in which such
qualification or licensing is required for the conduct of the Business.
4.3 Authority Relative to This Agreement. Seller has full
corporate power and corporate authority to execute, deliver and perform this
Agreement and the Ancillary Documents to which it is a party and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by Seller of this Agreement and the Ancillary Documents to which it
is a party, and the consummation by it of the transactions contemplated hereby
and thereby, have been or by Closing will have been duly authorized by all
necessary corporate action of Seller. This Agreement has been duly executed
and delivered by Seller and constitutes, and each Ancillary Document executed
or to be executed by Seller has been, or when executed will be, duly executed
and delivered by Seller and constitutes, or when executed and delivered will
constitute, a valid and binding obligation of Seller, enforceable against
Seller in accordance with their respective terms.
4.4 Noncontravention. Except as set forth on Schedule 4.4,
the execution, delivery and performance by Seller of this Agreement and the
Ancillary Documents to which it is a party and the consummation by it of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or result in a violation of any provision of the charter or bylaws of
Seller, (ii) conflict with or result in a violation of any provision of, or
constitute (with or without the giving of notice or the passage of time or
both) a default under, or give rise (with or without the giving of notice or
the passage of time or both) to any right of termination, cancellation or
acceleration under, or require any consent, approval, authorization or waiver
of, or notice to, any party to, any bond, debenture, note, mortgage, indenture,
lease, contract, agreement or other instrument or obligation to which Seller is
a party or by which Seller, the Business or any of the Assets may be bound or
any Permit held by Seller for use in connection with the Business, (iii) result
in the creation or imposition of any Encumbrance upon any of the Assets or (iv)
to the best knowledge of Seller, assuming compliance with the matters referred
to in Section 4.5, violate any Applicable Law binding upon Seller, the Business
or any of the Assets. Notwithstanding anything to the contrary in this
Agreement, this Section 4.4 is not intended to make any representation or
warranty of the kind made in this Section 4.4 with respect to any of the
Contracts.
4.5 Governmental Approvals. No consent, approval, order or
authorization of, or declaration, filing or registration with, any Governmental
Entity is required to be obtained or made by Seller in connection with the
execution, delivery or performance by Seller of this Agreement and the
Ancillary Documents to which it is a party or the consummation by it of the
transactions contemplated hereby or thereby, other than (i) compliance with any
applicable requirements of the HSR Act or (ii) as set forth on Schedule 4.5.
4.6 Title to Assets. Seller is the owner of, and has good
and marketable title to, all the Assets, free and clear of all Encumbrances
other than the Permitted Encumbrances. Upon Seller's Transfer of the Assets to
Buyer pursuant to this Agreement, Buyer will have good and marketable title to
all the Assets, free and clear of all Encumbrances other than the Permitted
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Encumbrances. Except as disclosed on Schedule 4.6, no financing statement (or
other instrument sufficient or effective as a financing statement) under the
Uniform Commercial Code with respect to any of the Assets has been filed and is
effective in any jurisdiction, and Seller has not signed any such financing
statement (or other instrument) or any mortgage or security agreement
authorizing any secured party thereunder to file any such financing statement
(or other instrument).
4.7 Financial Statements. Seller has delivered to Buyer
accurate and complete copies of (i) an audited balance sheet for the Assets and
the Business (an "Acquired Business Balance Sheet") as of December 31, 1996 and
1995, an audited statement of operations for the Assets and the Business (an
"Acquired Business Statement of Operations") for the years ended December 31,
1996 and 1995, and an audited statement of cash flows for the Assets and the
Business (the "Acquired Business Statement of Cash Flows") for the years ended
December 31, 1996 and 1995, together with the manually signed accountants'
report of Arthur Andersen & Co. covering such financial statements, and (ii) an
unaudited Acquired Business Balance Sheet as of June 30, 1997, an unaudited
Acquired Business Statement of Operations for the six month periods ended June
30, 1997 and 1996 and an unaudited Acquired Business Statement of Cash Flows
for the six month periods ended June 30, 1997 and 1996 (collectively, the
"Financial Statements"). The Financial Statements (i) have been prepared from
the books and records of Seller in conformity with Regulation S-X under the
Securities Act and generally accepted accounting principles ("GAAP") applied on
a basis consistent with preceding years throughout the periods involved and
(ii) accurately, completely, and fairly present the financial position of the
Business as of the respective dates thereof and its results of operations and
cash flows for the respective periods then ended. Except as disclosed on
Schedule 4.7, the statements of income included in the Financial Statements do
not contain any material items of special or nonrecurring income, and the
balance sheets included in the Financial Statements do not reflect any write-up
or revaluation increasing the book value of any assets, nor have there been any
transactions since the respective dates thereof giving rise to special or
nonrecurring income or any such write-up or revaluation.
4.8 Absence of Certain Changes. Except as disclosed on
Schedule 4.8, since December 31, 1996, (i) there has not been any material
adverse change in the business, assets, results of operations, condition
(financial or otherwise) or prospects of the Business or the ownership or
operation of the Assets or any material portion thereof, which has resulted or
is reasonably likely to result in a Material Adverse Effect, (ii) the Business
has been conducted only in the ordinary course consistent with past practice,
(iii) Seller has not, in respect of the Business, incurred any material
liability, engaged in any material transaction, or entered into any material
agreement outside the ordinary course of business consistent with past
practice, (iv) Seller has not suffered any material loss, damage, destruction
or other casualty to any of the Assets which are tangible assets (whether or
not covered by insurance) and (v) Seller has not, in respect of the Business,
taken any of the actions set forth in Section 6.2 except as permitted
thereunder.
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4.9 Tax Matters. Except as disclosed on Schedule 4.9:
(a) Seller has (and as of the Closing Date will have) duly
filed all federal, state, local, and foreign Tax Returns required to be filed
by or with respect to it with the IRS or other applicable Taxing authority in
connection with the Assets or the operation of the Business, and no extensions
with respect to such Tax Returns have (or as of the Closing Date will have)
been requested or granted;
(b) Seller has (and as of the Closing Date will have) paid,
or adequately reserved, all Taxes due, or claimed by any Taxing authority to be
due, from or with respect to it relating to the Assets or the operation of the
Business, except Taxes that are being contested in good faith by appropriate
legal proceedings and for which adequate reserves have been set aside as
disclosed on Schedule 4.9;
(c) There has been no issue raised or adjustment proposed
(and none is pending) by the IRS or any other Taxing authority in connection
with any Tax Returns relating to the Assets or the operation of the Business;
(d) Seller has (and as of the Closing Date will have) made
all deposits required with respect to Taxes relating to the Assets or the
operation of the Business; and
(e) No waiver or extension of any statute of limitations as
to any federal, state, local, or foreign Tax matter relating to the Assets or
the operation of the Business has been given by or requested from Seller.
4.10 Compliance With Laws. Seller has complied with all
Applicable Laws relating to the ownership or operation of the Assets or the
operation of the Business, except for noncompliance with such Applicable Laws
that, individually or in the aggregate, does not and will not have a Material
Adverse Effect, and Seller has not received any written notice, which has not
been dismissed or otherwise disposed of, that Seller has not so complied.
Seller is not charged or, to the best knowledge of Seller, threatened with, or,
to the best knowledge of Seller, under investigation with respect to, any
violation of any Applicable Law relating to any aspect of the ownership or
operation of the Assets or the operation of the Business.
4.11 Legal Proceedings. Except as set forth on Schedule
4.11, there are no Proceedings pending or, to the best knowledge of Seller,
threatened against or involving Seller relating to the Assets or the operation
of the Business. Except as set forth on Schedule 4.11, no judgment, order,
writ, injunction or decree of any Governmental Entity has been issued or
entered against Seller or any of its Affiliates which continues to be in effect
with respect to or affecting the Assets or the operation of the Business.
There are no Proceedings pending or, to the best knowledge of Seller,
threatened seeking to restrain, prohibit or obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby.
4.12 Sufficiency and Condition of Assets. Except as set
forth on Schedule 4.12, the Assets (i) constitute all the assets and property
used or held for use in connection with the
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operation of the Business and (ii) except for contemplated additions of
inventory in the ordinary course of the Business, constitute all the assets and
properties, the use or benefit of which are reasonably necessary for the
operation of the Business as currently conducted. All the Assets that are
tangible assets are (i) in good operating condition and repair, normal wear and
tear excepted, and have been maintained in accordance with standard industry
practice, (ii) suitable for the purposes used, (iii) owned or otherwise validly
used by Seller in conformity with Applicable Laws and Seller has not received
any notice to the contrary and (iv) in Seller's possession or under its
control. Notwithstanding anything to the contrary herein, this Section 4.12 is
not intended to make any representation as to the sufficiency, adequacy,
enforceability, assignability or status of any of the Contracts. Seller makes
no representation or warranty of the kind made in this Section 4.12 with
respect to any of the Contracts.
4.13 Intellectual Property.
(a) Set forth on Schedule 4.13 is a list of all Intellectual
Property relating to or used or held for use in connection with the Assets or
operation of the Business. Schedule 4.13 specifies, as applicable: (i) the
nature of such Intellectual Property; (ii) the owner of such Intellectual
Property; (iii) the jurisdictions by or in which such Intellectual Property has
been issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers; and (iv) all licenses, sublicenses, and other agreements
to which Seller is a party and pursuant to which Seller or any other Person is
authorized to use such Intellectual Property, including the identity of all
parties thereto, a description of the nature and subject matter thereof, the
applicable royalty, and the term thereof.
(b) The listed Intellectual Property constitutes all
Intellectual Property necessary for the operation of the Business as conducted
by Seller. Seller has good and marketable title to or is validly licensed to
use all such Intellectual Property, free from any restrictions that may
reasonably be expected to materially interfere with the use thereof. Each item
of such Intellectual Property is in full force and effect, Seller is in
compliance with all its obligations with respect thereto, and, to the best
knowledge of Seller, no event has occurred which permits, or upon the giving of
notice or the passage of time or otherwise would permit, the revocation or
termination of any thereof. There are no Proceedings pending or, to the best
knowledge of Seller, threatened against Seller asserting that the use by Seller
of any of such Intellectual Property infringes the rights of any other Person
or seeking revocation, termination, or concurrent use of any of such
Intellectual Property, and there is, to the best knowledge of Seller, no basis
for any such Proceeding. To the best knowledge of Seller, none of such
Intellectual Property is being infringed upon by any other Person. None of
such Intellectual Property is subject to any outstanding judgment, order, writ,
injunction, or decree of any Governmental Entity, or any agreement,
arrangement, or understanding, written or oral, restricting the scope or use
thereof. To the best knowledge of Seller, the conduct of the Business at any
time prior to the Closing Date did not, infringe upon or otherwise
misappropriate any Intellectual Property of any other Person.
4.14 Permits. Set forth on Schedule 4.14 is a list of all
Permits held by Seller which relate to the Assets or the Business. Such
Permits constitute all the Permits necessary or required for the ownership and
operation of the Assets as such Assets are currently owned and
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operated by Seller and the conduct of the Business as it is currently being
conducted by Seller. Each of such Permits is in full force and effect, Seller
is in compliance with all its obligations with respect thereto and, to the best
knowledge of Seller, no event has occurred that permits, or with or without the
giving of notice or the passage of time or both would permit, the revocation or
termination of any thereof. Except as disclosed on Schedule 4.14, no notice
has been issued by any Governmental Entity and no Proceeding is pending or, to
the best knowledge of Seller, threatened with respect to any alleged failure by
Seller to have any Permit the absence of which would have a Material Adverse
Effect.
4.15 Agreements. To Seller's knowledge, after the exercise
of due care and investigation, Seller has delivered to Buyer accurate and
complete copies of written Contracts and a written summary of the principal
terms of Contracts which are oral. Except as set forth on Schedule 4.15, to
the best knowledge of Seller, (i) no other party to any Contract is in breach
of or in default under such Contract nor has any assertion been made by Seller
of any such breach or default, (ii) no other party to any such Contract has
advised Seller of any plan or intention of the other party (A) to exercise any
right of offset with respect to or to cancel any such Contract prior to the
scheduled termination date (either prior to or following the Closing) except as
permitted in the Contracts or (B) to refuse, if requested, to allow such
agreements to be assigned to Buyer, (iii) no facts or circumstances justify the
exercise by any other party to any Contract of any right to cancel or terminate
such Contract, except as permitted in such Contract and (iv) Seller does not
currently contemplate, or have a reason to believe any other Person currently
contemplates, any amendment or change to any Contract which amendment or change
would have a Material Adverse Effect. The foregoing representations are made
as of the date of this Agreement and Buyer acknowledges that, subject to the
performance by Seller of its obligations under Article VI, no change with
respect to any Contract, including but not limited to changes in the terms
thereof, revenue derived therefrom or termination of any such Contract, shall
give rise to any right of Buyer to assert a claim for Damages against Seller.
4.16 Employees. Set forth on Schedule 4.16 is a list of the
name, social security number and dates of employment by Seller of each employee
of the Business (the "Employees"), together with a description of the position
of each such employee and the total amounts of salary, bonuses and other
compensation paid or payable by Seller to each such employee for the current
fiscal year and the immediately preceding fiscal year. Also set forth on
Schedule 4.16 for each Employee is the amount of severance pay to which such
Employee would be entitled from Seller assuming termination of his or her
employment by Seller on October 31, 1997, and the amount of accrued vacation
pay of such employee as of August 31, 1997.
4.17 Insurance. Seller maintains, and there are currently
in full force and effect, policies of insurance with respect to the Assets and
the Business as are listed on Schedule 4.17. All premiums due and payable with
respect to such policies have been timely paid. No notice of cancellation of,
or indication of an intention not to renew, any such policy has been received
by Seller. During the past three years, no application by Seller for insurance
with respect to any of the Assets or operations of the Business has been denied
for any reason.
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4.18 Brokerage Fees. Neither Seller nor any of its
Affiliates has retained any financial advisor, broker, agent or finder or paid
or agreed to pay any financial advisor, broker, agent or finder on account of
this Agreement or any transaction contemplated hereby. Seller shall indemnify
and hold harmless Buyer from and against any and all losses, claims, damages
and liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with respect
to any finder's fee, brokerage commission or similar payment in connection with
any transaction contemplated hereby asserted by any Person on the basis of any
act or statement made or alleged to have been made by Seller or any of its
Affiliates.
4.19 Disclosure. No representation or warranty made by
Seller in this Agreement, and no statement of Seller contained in any document,
certificate, or other writing furnished or to be furnished by Seller pursuant
hereto or in connection herewith, contains or will contain, at the time of
delivery, any untrue statement of a material fact or omits or will omit, at the
time of delivery, to state any fact necessary in order to make the statements
contained therein, in light of the circumstances under which they are made, not
misleading. Seller knows of no matter that has not been disclosed to Buyer
pursuant to this Agreement that has or will have a Material Adverse Effect.
Seller has made available to Buyer accurate and complete copies of all
agreements, documents and other writings referred to or listed in this Article
IV or any Schedule hereto.
4.20 Representations and Warranties on Closing Date. The
representations and warranties made in this Article IV will be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
5.1 Corporate Organization. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
corporate authority to own, lease and operate its properties and to carry on
its business as now being conducted. No actions or proceedings to dissolve
Buyer are pending.
5.2 Authority Relative to This Agreement. Buyer has full
corporate power and corporate authority to execute, deliver and perform this
Agreement and the Ancillary Documents to which it is a party and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by Buyer of this Agreement and the Ancillary Documents to which it
is a party, and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate action of
Buyer. This Agreement
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has been duly executed and delivered by Buyer and constitutes, and each
Ancillary Document executed or to be executed by Buyer has been, or when
executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against Buyer in accordance with their respective terms.
5.3 Noncontravention. The execution, delivery and
performance by Buyer of this Agreement and the Ancillary Documents to which it
is a party and the consummation by it of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or result in a violation of
any provision of the charter or bylaws of Buyer, (ii) conflict with or result
in a violation of any provision of, or constitute (with or without the giving
of notice or the passage of time or both) a default under, any material bond,
debenture, note, mortgage, indenture, lease, contract, agreement or other
instrument or obligation to which Buyer is a party or by which Buyer or any of
its properties may be bound or (iii) to the best knowledge of Buyer, assuming
compliance with the matters referred to in Section 5.4, violate any Applicable
Law binding upon Buyer.
5.4 Governmental Approvals. No consent, approval, order,
or authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by Buyer in connection
with the execution, delivery, or performance by Buyer of this Agreement and the
Ancillary Documents to which it is a party or the consummation by it of the
transactions contemplated hereby or thereby, other than (i) compliance with any
applicable requirements of the HSR Act and (ii) as set forth on Schedule 5.4.
5.5 Legal Proceedings. There are no Proceedings pending
or, to the best knowledge of Buyer, threatened seeking to restrain, prohibit or
obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.
5.6 Brokerage Fees. Neither Buyer nor any of its
Affiliates has retained any financial advisor, broker, agent or finder or paid
or agreed to pay any financial advisor, broker agent or finder on account of
this Agreement or any transaction contemplated hereby. Buyer shall indemnify
and hold harmless Seller from and against any and all losses, claims, damages
and liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with respect
to any finder's fee, brokerage commission or similar payment in connection with
any transaction contemplated hereby asserted by any Person on the basis of any
act or statement made or alleged to have been made by Buyer or any of its
Affiliates.
5.7 Disclosure. No representation or warranty made by
Buyer in this Agreement, and no statement of Buyer contained in any document,
certificate or other writing furnished or to be furnished by Buyer pursuant
hereto or in connection herewith, contains or will contain, at the time of
delivery, any untrue statement of a material fact or omits, or will omit, at
the time of delivery, to state any fact necessary in order to make the
statements contained therein, in the light of the circumstances under which
they are made, not misleading in any material respect.
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5.8 Representations and Warranties on Closing Date. The
representations and warranties made in this Article V will be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
ARTICLE VI
CONDUCT OF BUSINESS PENDING CLOSING
Seller hereby covenants and agrees with Buyer as follows:
6.1 Conduct and Preservation of Business. Except as
expressly provided in this Agreement or as consented to by Buyer in accordance
with Section 6.2, during the period from the date hereof to the Closing, Seller
(i) shall conduct the Business only in the ordinary course consistent with past
practice and in compliance with all Applicable Laws, (ii) shall use its
Reasonable Best Efforts to preserve, maintain and protect the Assets and (iii)
shall use its Reasonable Best Efforts to preserve intact the business
organization of the Business, to keep available the services of the employees
of the Business and to maintain existing relationships with licensors,
licensees, suppliers, contractors, distributors, customers and others having
business relationships with the Business.
6.2 Restrictions on Certain Actions. Except as otherwise
expressly provided in this Agreement, prior to the Closing, Seller shall not,
without the prior consent of Buyer:
(a) Make any material change in the ongoing operations of the
Assets or the Business;
(b) Mortgage or pledge any of the Assets or create or suffer
to exist any Encumbrance thereupon, other than the Permitted Encumbrances;
(c) Sell, lease, Transfer or otherwise dispose of, directly or
indirectly, any of the Assets;
(d) Enter into any contract, agreement, commitment,
arrangement or transaction relating to the Business, except in the ordinary
course of the Business consistent with past practice;
(e) Amend, modify or change any existing contract or agreement
relating to the Business, other than in the ordinary course of the Business
consistent with past practice;
(f) Waive, release, grant or Transfer any rights of value
relating to the Business, other than in the ordinary course of the Business
consistent with past practice;
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(g) Delay payment of any account payable or other liability of
Seller relating to the Business beyond its due date or the date when such
liability would have been paid in the ordinary course of the Business
consistent with past practice;
(h) Permit any current insurance or reinsurance policies to be
canceled or terminated or any of the coverages thereunder to lapse if such
policy covers Assets or insures risks, contingencies or liabilities of the
Business, unless simultaneously with such cancellation, termination or lapse,
replacement policies providing coverage equal to or greater than the coverage
cancelled, terminated or lapsed are in full force and effect and written copies
thereof have been provided to Buyer;
(i) Take any action which would or might make any of the
representations or warranties of Seller contained in this Agreement untrue or
inaccurate as of any time from the date of this Agreement to the Closing or
would or might result in any of the conditions set forth in this Agreement not
being satisfied; or
(j) Authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Accounts Receivable. In the event that, subsequent to
the Closing Date, Buyer shall receive any payment with respect to the accounts
receivable relating to the Assets or the Business and pertaining to periods
ending before the Closing Date, Buyer shall within one week after receipt pay
over and deliver such payment to Seller. Likewise, in the event that,
subsequent to the Closing Date, Seller shall receive any payment with respect
to the accounts receivable relating to the Assets or the Business and
pertaining to periods ending on or after the Closing Date, Seller shall, within
one week after receipt pay over and deliver such payment to Buyer. Amounts
collected from customers shall be applied in payment of the invoice designated
by such customer, or in the absence of such designation, in the order that the
accounts receivable of such customer arose.
7.2 Access to Information; Confidentiality.
(a) Between the date hereof and the Closing, Seller (i)
shall give Buyer and its authorized representatives reasonable access to all
employees, all offices and other facilities, and all books and records,
including work papers and other materials prepared by Seller's independent
public accountants, of Seller relating to the Assets or the Business, (ii)
shall permit Buyer and its authorized representatives to make such inspections
as they may reasonably require and (iii) shall cause Seller's officers and
employees to furnish Buyer and its authorized representatives with such
financial and operating data and other information with respect to the Assets
and the Business as Buyer may from time to time reasonably request; provided,
however, that no investigation pursuant to this Section shall affect any
representation or warranty of Seller contained in this
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Agreement or in any agreement, instrument or document delivered pursuant hereto
or in connection herewith.
(b) Buyer agrees that all Confidential Information (as
defined below) shall be kept confidential by Buyer, shall not be disclosed by
Buyer in any manner whatsoever; provided, however, that (i) any of such
Confidential Information may be disclosed to such directors, officers,
employees and authorized representatives (including without limitation
attorneys, accountants, consultants, investment bankers and financial advisors)
of Buyer (collectively, for purposes of this Section, "Buyer Representatives")
as need to know such information for the purpose of evaluating the transactions
contemplated hereby (it being understood that such Buyer Representatives shall
be informed by Buyer of the confidential nature of such information and shall
be required to treat such information confidentially), (ii) any disclosure of
Confidential Information may be made to the extent to which Seller consents in
writing, (iii) Confidential Information may be disclosed by Buyer or any Buyer
Representative to the extent that Buyer or such Buyer Representative is legally
compelled to do so, provided that, prior to making such disclosure, Buyer or
such Buyer Representative, as the case may be, advises and consults with Seller
regarding such disclosure and provided further that Buyer or such Buyer
Representative, as the case may be, discloses only that portion of the
Confidential Information as is legally required and (iv) any of such
Confidential Information may be disclosed to any banks or other financial
institutions or other prospective investors that may provide the funds
necessary to consummate the transactions contemplated hereby if such banks or
other financial institutions or other prospective investors agree in writing to
be bound by the provisions of this Section 7.2. Buyer agrees that none of the
Confidential Information will be used for any purpose other than in connection
with the transactions contemplated hereby and the Financing. The term
"Confidential Information", as used herein, means all information (irrespective
of the form of communication) obtained by or on behalf of Buyer from Seller or
its representatives pursuant to this Section and all similar information
obtained from Seller or its representatives by or on behalf of Buyer prior to
the date of this Agreement, other than information that (i) was or becomes
generally available to the public other than as a result of disclosure by Buyer
or any Buyer Representative, (ii) was or becomes available to Buyer on a
nonconfidential basis prior to disclosure to Buyer by Seller or its
representatives or (iii) was or becomes available to Buyer from a source other
than Seller and its representatives, provided that such source is not known by
Buyer to be bound by a confidentiality agreement with Seller.
(c) If this Agreement is terminated, Buyer shall promptly
return, and shall use its Reasonable Best Efforts to cause all Buyer
Representatives to promptly return, all Confidential Information to Seller
without retaining any copies thereof, provided that such portion of the
Confidential Information as consists of notes, compilations, analyses, reports,
studies or other documents prepared by Buyer or Buyer Representatives shall be
destroyed.
Buyer acknowledges and agrees that irreparable damage would
occur in the event any confidential information regarding the Assets or the
Business were disclosed to or utilized on behalf of any Person that is in
competition with the Business. Accordingly, Buyer covenants and agrees that
prior to the Closing Date, or for a period of 10 years following the
Termination Date if the Closing does not occur, it will not, directly or
indirectly, without the prior written consent
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of Seller, use or disclose any of such confidential information, except to
Buyer Representatives; provided, however, that confidential information shall
not be deemed to include information that (i) was or becomes generally
available to the public other than as a result of disclosure by Buyer or its
Affiliates or (ii) was or becomes available to Buyer on a nonconfidential basis
from a source other than Seller, provided that such source is not known by
Buyer to be bound by a requirement of confidentiality with respect to such
confidential information. Notwithstanding the foregoing provisions of Section
7.2(d), Buyer and its Affiliates may disclose any confidential information to
the extent that such Person is legally compelled to do so, provided that, prior
to making such disclosure, such Person advises and consults with Seller
regarding such disclosure and provided further that such Person discloses only
that portion of such confidential information as is legally required.
Seller acknowledges and agrees that irreparable damage would
occur in the event any confidential information regarding the Assets or the
Business were disclosed to or utilized on behalf of any Person that is in
competition with the Business. Accordingly, Seller covenants and agrees that
it will not, prior to the Termination Date and, if the Closing occurs, for a
period of 10 years following the Closing, directly or indirectly, without the
prior written consent of Buyer, use or disclose any of such confidential
information, except to Buyer Representatives; provided, however, that
confidential information shall not be deemed to include information that (i)
was or becomes generally available to the public other than as a result of
disclosure by Seller or its Affiliates or (ii) was or becomes available to
Seller on a nonconfidential basis from a source other than Buyer, provided that
such source is not known by Seller to be bound by a requirement of
confidentiality with respect to such confidential information. Notwithstanding
the foregoing provisions of this paragraph, Seller and its Affiliates may
disclose any confidential information to the extent that (i) such Person is
legally compelled to do so or (ii) such disclosure is necessary to fulfill
Seller's obligations under the Contracts; provided that, prior to making any
such disclosure, such Person advises and consults with Buyer regarding such
disclosure and provided further that such Person discloses only that portion of
such confidential information as is legally required or is necessary to fulfill
such contractual obligations.
7.3 Acquisition Proposals. From and after the date of this
Agreement until the earlier of the Closing or the termination of this
Agreement, neither Seller nor any Affiliate, director, officer, employee or
representative of Seller shall, directly or indirectly, (i) solicit, initiate
or knowingly encourage any Acquisition Proposal or (ii) engage in discussions
or negotiations with, or disclose any nonpublic information relating to the
Assets or the Business to, any Person that is considering making or has made an
Acquisition Proposal. Seller shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
Persons conducted heretofore with respect to any Acquisition Proposal and shall
promptly request each such Person who has heretofore entered into a
confidentiality agreement in connection with an Acquisition Proposal to return
to Seller all confidential information heretofore furnished to such Person by
or on behalf of Seller. If Seller or its Affiliates shall hereafter receive
any Acquisition Proposal, Seller shall immediately communicate the terms of
such proposal to Buyer. The term "Acquisition Proposal", as used in this
Section 7.3, means any offer or proposal for, or any indication of interest in,
the acquisition of the Assets or the Business
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or any portion thereof, other than the transactions contemplated or expressly
permitted by this Agreement.
7.4 Third Party Consents. Seller shall use its Reasonable
Best Efforts to obtain all consents, approvals, orders, authorizations and
waivers of, and to effect all declarations, filings and registrations with, all
third parties (including Governmental Entities) that are necessary, required or
deemed by Buyer to be desirable to enable Seller to Transfer the Assets to
Buyer as contemplated by this Agreement and to otherwise consummate the
transactions contemplated hereby; provided, that Seller shall not be obligated
to obtain any consents to assignment for the Contracts. All costs and expenses
of Seller in obtaining or effecting any and all of the consents, approvals,
orders, authorizations, waivers, declarations, filings and registrations
referred to in this Section 7.4 shall be borne by Seller.
7.5 Reasonable Best Efforts. Each party hereto agrees that
it will not voluntarily undertake any course of action inconsistent with the
provisions or intent of this Agreement and will use its Reasonable Best Efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things reasonably necessary, proper or advisable under Applicable Laws to
consummate the transactions contemplated by this Agreement. Seller shall
cooperate with and assist Buyer and its authorized representatives in order to
provide an efficient and orderly Transfer of the control and management of the
Assets and the Business to Buyer and to avoid any undue interruption in the
ongoing operations of the Assets and the Business following the Closing.
7.6 HSR Act Notification. To the extent required by the
HSR Act, each of the parties hereto shall (i) file or cause to be filed, as
promptly as practicable but in no event later than 10 days after the execution
and delivery of this Agreement, with the Federal Trade Commission and the
United States Department of Justice, all reports and other documents required
to be filed by such party under the HSR Act concerning the transactions
contemplated hereby and (ii) promptly comply with or cause to be complied with
any requests by the Federal Trade Commission or the United States Department of
Justice for additional information concerning such transactions, in each case
so that the waiting period applicable to this Agreement and the transactions
contemplated hereby under the HSR Act shall expire as soon as practicable after
the execution and delivery of this Agreement. Each party hereto agrees to
request, and to cooperate with the other party or parties in requesting, early
termination of any applicable waiting period under the HSR Act.
7.7 Financial Statements.
(a) Seller shall prepare, or cause the preparation of, in
accordance with GAAP, and deliver to Buyer within 30 days following the
Closing, such additional audited and unaudited Acquired Business Balance
Sheets, Acquired Business Statements of Operations and Acquired Business
Statements of Cash Flows as may be required to enable Parent to complete and
file its Form 8-K under the Exchange Act relating to the transactions
contemplated by this Agreement, together with, in the case of any audited
Acquired Business Balance Sheet, Acquired Business Statements of Operations and
Acquired Business Statements of Cash Flows, the manually signed accountants'
report of Arthur Andersen L.L.P. covering such audited financial statements.
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(b) Seller shall authorize Arthur Andersen L.L.P. to
execute and deliver to Parent such consents as Parent may request relating to
the inclusion of the reports of Arthur Andersen L.L.P. in any filing made by
Parent under the Securities Act or the Exchange Act. Seller shall also
authorize Arthur Andersen L.L.P. to deliver to Parent, Parent's board of
directors and any investment bank retained by Buyer or Parent in connection
with any financing engaged in relating to the transactions contemplated by this
Agreement one or more comfort letters in such form and covering such items as
are customary in transactions of this nature.
(c) The costs and expenses of Arthur Andersen L.L.P.
relating to the audit of the Financial Statements and the audited financial
statements referred to in Section 7.7(a) shall be borne by Buyer.
7.8 Noncompetition.
(a) Seller acknowledges that in consideration of the
payment of the Purchase Price, Buyer is acquiring the goodwill of the Business,
including complete ownership and control of the Assets. Therefore, Seller
agrees that for a period commencing upon the Closing Date and ending upon the
third anniversary thereof, unless otherwise extended pursuant to the terms of
this Section 7.8, Seller will not, directly or indirectly, either as an
employer, consultant, agent, principal, partner, stockholder, or in any other
capacity, engage or participate in a business that is substantially similar to
that of the Business within the United States or Canada. Seller represents to
Buyer that the enforcement of the restriction contained in this Section 7.8(a)
would not be unduly burdensome to Seller.
(b) Buyer agrees that for a period commencing upon the
Closing Date and ending upon the third anniversary thereof, unless otherwise
extended pursuant to the terms of this Section 7.8, Buyer will not, directly or
indirectly, either as an employer, consultant, agent, principal, partner,
stockholder, or in any other capacity, engage or participate in the business of
manufacturing, supplying or distributing computer equipment to or for customers
of the Business as of the date of the Closing for use in storing, recording or
placing audiotex information in connection with the Electronic Publishing
Business within the United States or Canada. "Electronic Publishing Business"
shall mean the business of providing computer stored audio information to end
users. Notwithstanding the foregoing, this Section 7.8(b) shall not apply to
(i) Buyer's activities pursuant to the Reseller Agreement, (ii) Buyer's
activities authorized in writing by Seller, (iii) Buyer's sale or distribution
of equipment existing in Buyer's inventory on the Closing Date, or (iv) Buyer's
development, manufacture, supply or distribution of equipment used in
television programming services or interactive cable television systems. Buyer
represents to Seller that the enforcement of the restriction contained in this
Section 7.8(b) would not be unduly burdensome to Buyer.
(c) The parties agree that a breach or violation of the
applicable covenant not to compete by it shall entitle the other party, as a
matter of right, to an injunction issued by any court of competent
jurisdiction, restraining any further or continued breach or violation of such
covenant. Such right to an injunction shall be cumulative and in addition to,
and not in lieu of, any other remedies to which a party may show itself justly
entitled. Further, during any period
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in which a party is in breach of such covenant not to compete, the time period
during which such covenant shall be enforceable against such party shall be
extended for an amount of time that such party is in breach hereof.
(d) In addition to the restrictions set forth in Section
7.8(a), Seller shall not, (i) for a period commencing upon the Closing Date and
ending upon the third anniversary thereof, either directly or indirectly, make
known to any Person the names and addresses of any of the customers of the
Business (as customers of the Business and not of the other businesses of
Seller) or contacts of Seller or any other information pertaining to such
customers or contacts or (ii) for the six-month period commencing upon the
Closing Date, recruit or hire or attempt to recruit or hire, directly or by
assisting others, any employee of Buyer.
(e) The parties agree that the limitations contained in
this Section 7.8 with respect to time, geographical area and scope of activity
are reasonable. However, if any court shall determine that the time,
geographical area or scope of activity of any restriction contained in this
Section 7.8 is unenforceable, it is the intention of the parties that such
restrictive covenant set forth herein shall not thereby be terminated but shall
be deemed amended to the extent required to render it valid and enforceable.
(f) The covenants of Seller contained in this Section 7.8
may be assigned by Buyer to any Person to whom the Assets are Transferred
substantially as an entirety, it being the intention of the parties hereto that
such covenants shall inure to the benefit of any successor to the Assets, with
the same force and effect as if such covenants had been made directly to such
successor or successors.
(g) The covenants of Buyer contained in this Section 7.8
may be assigned by Seller to any Person to whom the business described in
Section 7.8(b) is Transferred substantially as an entirety, it being the
intention of the parties hereto that such covenants shall inure to the benefit
of any successor to such business, with the same force and effect as if such
covenants had been made directly to such successor or successors.
7.9 Employee and Employee Benefit Plan Matters.
(a) On or before fourteen (14) days prior to the Closing
Date, Buyer shall deliver to Seller a list of the Employees which Buyer intends
to hire (the "Retained Employees"). Seller will cooperate with Buyer in its
efforts to employ the Retained Employees. At the direction of Buyer, using
releases reasonably acceptable to Seller and prepared by Buyer, Seller will
seek to obtain releases of all claims held by Retained Employees against Seller
relating to termination of employment with Seller. Buyer agrees with Seller
that subject to the receipt of such a release from each Retained Employee,
Buyer will offer to employ such Retained Employee and, if such offer is
accepted, will employ such Retained Employee immediately after the Closing
Date. Seller's employment of all Retained Employees who accept employment with
Buyer will be terminated by Seller on the Closing Date. Seller shall be
responsible for the payment to the Employees of all salaries, wages, benefits
and other sums due and/or accrued through the Closing Date. Buyer agrees to
promptly reimburse Seller for any and all liabilities for severance and
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accrued vacation incurred by Seller arising out of the termination in
connection with the Closing of employment for any Employee; provided, that
Buyer's obligation to reimburse Seller under this Section 7.9(a) shall be
limited to the amount reflected on Schedule 4.16, as of the Closing Date, for
any such Employees.
(b) Seller acknowledges and understands that Buyer is not
hereby, and at no time hereafter will be, adopting, accepting, accepting the
transfer of account balances of or assuming any employee benefit plan
(including any 401(k) plan) or collective bargaining agreement of Seller
relating to any of its employees or any other agreement, trust, plan, fund or
other arrangement of Seller that provides for employee benefits or perquisites
(collectively, "Employment Arrangements"), and Buyer shall have no liability or
obligation whatsoever under any Employment Arrangement to Seller or to any
employees of Seller, whether or not any of such employees are offered
employment by or become employees of Buyer. Buyer is not obligated to replace
any of the Employment Arrangements for any employees of Seller who become
employees of Buyer, nor is Buyer obligated to provide such Persons with any
similar agreements, plans or arrangements.
(c) Seller will comply after the Closing Date with the
requirements of Sections 601 through 608 of ERISA and Section 4980B of the Code
with respect to any employee or former employee of Seller (and any dependent or
former dependent thereof) whose employment with Seller terminates in connection
with Buyer's purchase of the Business.
(d) At the request of Buyer, Seller promptly will make such
notifications to the Employees under the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. Section 2101 et seq. ("WARN Act") as Buyer may
from time to time direct. Any request by Buyer hereunder shall include the
notice to be given and specific instructions as to when and how such notice is
to be given, and Seller shall have no obligation to take any other action with
respect thereto.
7.10 Transfer of Certain Contracts. In the event that prior
to the Closing the consent to the Transfer of any contract which by its terms
requires the consent of any other contracting party thereto (each, a "Consent
Required Contract") has not been obtained from such other contracting party,
the terms of this Section 7.10 shall govern the Transfer of the benefits of
each such contract. Notwithstanding any provision contained in this Agreement
to the contrary, the parties hereto acknowledge and agree that at the Closing
Seller shall not Transfer or cause to be Transferred to Buyer any Consent
Required Contract the consent to which has not been obtained prior to the
Closing Date. With respect to each such unassigned Consent Required Contract,
after the Closing Date Seller shall, at the direction of Buyer, continue to
deal with the other contracting party or parties to such Consent Required
Contract as the prime contracting party, but Buyer shall be entitled to the
benefits of such Consent Required Contract accruing after the Closing Date to
the extent that Seller may provide Buyer with such benefits without violating
the terms of such Consent Required Contract. To the extent permitted under
such Consent
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Required Contract, Buyer agrees to perform at its sole expense all the
obligations of Seller to be performed under such Consent Required Contract
provided that Buyer receives any payments received by Seller relating to such
Consent Required Contract for services provided after the Closing Date; and to
the extent such performance by Buyer is not permitted under such Consent
Required Contract, Buyer agrees to make available to Seller such services as
are necessary to enable Seller to perform Seller's obligations under such
Consent Required Contract and to reimburse Seller for all costs after the
Closing Date related to such services performed by Seller.
7.11 Amendment of Schedules. Seller agrees that, with
respect to the representations and warranties of Seller contained in this
Agreement, Seller shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. For all purposes of this Agreement, including without limitation
for purposes of determining whether the condition set forth in Section 8.1 has
been fulfilled, the Schedules hereto shall be deemed to include only that
information contained therein on the date of this Agreement and shall be deemed
to exclude all information contained in any supplement or amendment thereto;
provided, however, Seller may amend Schedule 1.1(a) until the Closing in order
to add any agreements which Seller unintentionally omitted from such schedule
in good faith.
7.12 Notification of Certain Matters. Seller shall give
prompt notice to Buyer of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would cause any representation or warranty
contained in Article IV to be untrue or inaccurate at or prior to the Closing,
(ii) any failure of Seller to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by Seller hereunder and (iii) any
notice or other communication from any Person alleging that the consent or
approval of such Person is or may be required in connection with the
transactions contemplated by this Agreement (other than those consents and
approvals as stated in Sections 4.4 and 4.5). Buyer shall give prompt notice
to Seller of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would cause any representation or warranty contained in
Article V to be untrue or inaccurate at or prior to the Closing and (ii) any
failure of Buyer to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by Buyer hereunder. In addition, prior to
Closing Buyer shall notify Seller of the discovery of any fact which would
cause any representation or warranty contained in Article IV to be untrue or
inaccurate. The delivery of any notice pursuant to this Section shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, (ii) modify the conditions set forth in Articles VIII
and IX or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.13 Fees and Expenses. Except as otherwise expressly
provided in this Agreement, all fees and expenses, including fees and expenses
of counsel, financial advisors and accountants, incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such fee or expense, whether or not the Closing shall have
occurred. The fees and expenses of the arbitrator under Section 1.3(b) shall
be split between the parties.
7.14 Taxes.
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<PAGE> 33
(a) All sales and use Taxes resulting from the consummation
of the transactions contemplated hereby shall be borne by Seller, and the
parties shall cooperate in obtaining all available exemptions from such Taxes.
All other registration, Transfer, recording and deed and stamp Taxes and fees
incurred in connection with the consummation of the transactions contemplated
hereby shall be borne by Seller; provided, however, that ad valorem taxes on
the Assets shall be prorated as between Buyer and Seller as of the Closing
Date. Seller shall file all necessary documentation with respect to, and make
all payments of, such Taxes and fees when due.
(b) All real and personal property Taxes imposed on or with
respect to the Assets for the year in which the Closing occurs shall be
prorated as between Seller and Buyer based on the number of days in such year
before and after the Closing Date. Seller shall be liable for such Taxes
prorated for the period up to and including the Closing Date, and Buyer shall
be liable for such Taxes prorated for the period subsequent to the Closing
Date. Seller shall be responsible for the actual payment of such Taxes to the
appropriate Governmental Entity that become due and payable prior to the
Closing Date. Buyer shall likewise be responsible for the actual payment of
such Taxes becoming due and payable subsequent to the Closing Date. The
parties shall file all necessary documentation with respect to, and make all
payments of, such Taxes on a timely basis.
7.15 Financing. Buyer shall use its reasonable business
efforts to obtain the funds necessary to pay the Purchase Price.
7.16 Adjustment. If any adjustment is made after the
Closing Date under the terms of Section 1.3(g), then the parties agree to make
such payment, as is necessary to implement such adjustment, within 30 days
after Buyer's acceptance of such adjustment.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the
Closing Date of each of the following conditions:
8.1 Representations and Warranties True. All the
representations and warranties of Buyer contained in this Agreement, and in any
agreement, instrument or document delivered pursuant hereto or in connection
herewith on or prior to the Closing Date, shall be true and correct as of the
date made and (having been deemed to have been made again on and as of the
Closing Date in the same language) shall be true and correct on and as of the
Closing Date, except as affected by transactions permitted by this Agreement
and except to the extent that any such representation or warranty shall have
been true and correct as of such specified date.
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<PAGE> 34
8.2 Covenants and Agreements Performed. Buyer shall have
performed and complied with in all material respects all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing Date.
8.3 HSR Act. All waiting periods (and any extensions
thereof) applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.
8.4 Legal Proceedings. No Proceeding shall, on the Closing
Date, be pending or threatened seeking to restrain, prohibit or obtain damages
or other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
8.5 Closing Deliveries. Seller shall have received from
Buyer the deliveries specified in Section 3.3.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the
Closing Date of each of the following conditions:
9.1 Representations and Warranties True. All the
representations and warranties of Seller contained in this Agreement, and in
any agreement, instrument or document delivered pursuant hereto or in
connection herewith on or prior to the Closing Date, shall be true and correct
as of the date made and (having been deemed to have been made again on and as
of the Closing Date in the same language) shall be true and correct on and as
of the Closing Date, except as affected by transactions permitted by this
Agreement and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty
shall have been true and correct as of such specified date; provided, however,
that the condition in this Section 9.1 shall relate only to matters which, when
considered individually or in the aggregate, constitute a material breach of
such representations and warranties.
9.2 Covenants and Agreements Performed. Seller shall have
performed and complied with in all material respects all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing Date.
9.3 HSR Act. All waiting periods (and any extensions
thereof) applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.
9.4 Legal Proceedings. No Proceeding shall, on the Closing
Date, be pending or threatened seeking to restrain, prohibit or obtain damages
or other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
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<PAGE> 35
9.5 Consents. All consents and approvals of all Persons
necessary for the consummation of the transactions contemplated hereby under
any lease, contract, agreement or other instrument or obligation of Seller
(other than any Contract), or any Applicable Law shall have been received and
delivered to Buyer, all notices to any Person required by any of the foregoing
to be given in respect of such transactions shall have been duly given, and all
necessary action shall have been taken to Transfer to Buyer the contracts and
any other material agreements between Seller and third parties.
9.6 No Material Adverse Effect. Since the date of this
Agreement, there shall not have been any material adverse change in the
business, assets, results of operations, condition (financial or otherwise) or
prospects of the Business or the ownership or operation of the Assets or any
material portion thereof which has resulted or is reasonably likely to result
in a Material Adverse Effect.
9.7 Financing. The proceeds of the financing necessary to
consummate the transactions contemplated hereby shall have been received by
Buyer.
9.8 Closing Deliveries. Buyer shall have received from
Seller the deliveries specified in Section 3.2.
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) By mutual written consent of Seller and Buyer; or
(b) By either Seller or Buyer, if the Closing shall not have
occurred on or before November 21, 1997 (subject to extension by Buyer under
Section 10.2) (as so extended, the "Termination Date"), unless such failure to
close shall be due to a breach of this Agreement by the party seeking to
terminate this Agreement pursuant to this clause (b); or
(c) By either Seller or Buyer, if there shall be any statute,
rule or regulation that makes consummation of the transactions contemplated
hereby illegal or otherwise prohibited or a Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby, and such order, decree, ruling or action
shall have become final and nonappealable.
10.2 Extensions. Buyer may extend the date specified in
Section 10.1(b) by up to 120 days by delivering a certificate representing
25,000 shares of Common Stock to the Escrow Agent for each 30 day extension.
Shares delivered to the Escrow Agent pursuant to this Section 10.2 shall become
Deposit Shares and shall be treated as such in accordance with Article II.
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<PAGE> 36
Buyer shall give Seller written notice of its intention to extend the date in
Section 10.1(b) and deposit the additional Deposit Shares not less than two
Business Days before the then applicable Termination Date.
10.3 Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 10.1 by Seller or Buyer, written notice
thereof shall be given to the other party specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall become
void and have no effect, except that the agreements contained in this Section
and in Sections 7.2, 7.7(c) and 7.13 shall survive the termination hereof.
Nothing contained in this Section 10.3 shall relieve any party from liability
for damages actually incurred as a result of any breach of this Agreement;
provided, however, if Seller receives the Deposit Shares, the Deposit Shares
shall be considered payment of damages to the extent of the value of the
Deposit Shares.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1 Survival. The representations and warranties of the
parties contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto shall survive the Closing, regardless of any
investigation made by or on behalf of any party, until the one year anniversary
of the Closing Date ("Survival Date"). From and after the Survival Date, no
party hereto or any shareholder, director, officer, employee or Affiliate of
such party shall be under any liability whatsoever pursuant to this Article XI
with respect to any representation or warranty to which such Survival Date
relates, unless before the Survival Date for such representation or warranty it
shall have received from the party seeking indemnification written notice of
the existence of the claim for or in respect of which indemnification in
respect of such representation or warranty is sought. The provisions of this
Section shall have no effect upon any other obligation of the parties hereto
under this Agreement, whether to be performed before, at or after the Closing.
11.2 Indemnification by Seller. Subject to the terms and
conditions of this Article XI, Seller shall indemnify, defend and hold harmless
Buyer from and against any and all claims, actions, causes of action, demands,
assessments, losses, damages, liabilities, judgments, settlements, penalties,
costs and expenses (including reasonable attorneys' fees and expenses), of any
nature whatsoever (collectively, "Damages"), asserted against, resulting to,
imposed upon, or incurred by Buyer, directly or indirectly, by reason of or
resulting from:
(a) Any inaccuracy in or breach of any representation or
warranty of Seller contained in this Agreement or in any certificate,
instrument or document delivered pursuant hereto;
(b) Any breach by Seller of any of its covenants or
agreements contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto, if such breach is not cured to Buyer's
satisfaction within 10 Business Days of the notice specifying such breach;
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<PAGE> 37
(c) Any liability or obligation of Seller or any of its
Affiliates (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known to Seller and whether due or to become due) other than the
Assumed Liabilities;
(d) The ownership, management or use of the Assets prior to
the Closing Date;
(e) The operation of the Business prior to the Closing
Date;
(f) Any products distributed or sold by Seller in
connection with the Business on or prior to the Closing Date;
(g) Any acts or omissions of Seller prior to the Closing
Date or any events or occurrences involving the Assets, the operation of the
Business or the employees or former employees of Seller or its Affiliates
taking place prior to the Closing Date (collectively, the "Buyer Claims").
The indemnity obligations of Seller under this Section 11.2 shall not be
affected by the disclosure of a matter on any Schedule to this Agreement or the
fact that the Damages arose or were incurred without an inaccuracy in or breach
of any representation or warranty of Seller contained in this Agreement.
Notwithstanding the foregoing, no indemnification shall be required to be made
by Seller pursuant to subsections (a) and (b) of this Section 11.2 with respect
to any Buyer Claims unless and until the aggregate amount of Damages incurred
by Seller with respect to all such Buyer Claims (whether asserted, resulting,
imposed or incurred before, on or after the Closing Date) exceeds one percent
of the Purchase Price, it being agreed and understood that, if such amount is
exceeded, Seller shall be liable to the full extent of such Damages, including
those not in excess of one percent of the Purchase Price. Notwithstanding the
foregoing, Buyer shall be entitled to recover all Damages, without limitation,
due to an inaccuracy or breach of the representation and warranty of Seller
contained in the first sentence of Section 4.12.
11.3 Indemnification by Buyer. Subject to the terms and
conditions of this Article XI, Buyer shall indemnify and hold harmless Seller
from and against any and all Damages asserted against, resulting to, imposed
upon or incurred by Seller, directly or indirectly, by reason of or resulting
from:
(a) Any inaccuracy in or breach of any representation or
warranty of Buyer contained in this Agreement or in any certificate, instrument
or document delivered pursuant hereto;
(b) Any breach by Buyer of any of its covenants or
agreements contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto;
(c) The Assumed Liabilities;
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<PAGE> 38
(d) The ownership, management or use by Buyer of the Assets
from and after the Closing Date, except to the extent Buyer is indemnified by
Seller with respect to such matters in Section 11.2;
(e) The operation of the Business prior to the Closing
Date;
(f) Any products distributed or sold by Buyer from and
after the Closing Date;
(g) Any acts or omissions of Buyer after the Closing Date
or any events or occurrences involving the Assets, the operation of the
Business or the employees of Buyer or its Affiliates taking place after the
Closing Date, except to the extent Buyer is indemnified by Seller with respect
to such matters pursuant to Section 11.2; and
(h) Subject to Seller's fulfillment of its obligations
under Section 7.9(d), any Damages to Seller that arises under the WARN Act as a
result of the termination of the Employees on the Closing Date (collectively,
"Seller Claims").
The indemnity obligations of Buyer under this Section 11.2 shall not
be affected by the disclosure of a matter on any Schedule to this Agreement or
the fact that the Damages arose or were incurred without an inaccuracy in or
breach of any representation or warranty of Buyer contained in this Agreement.
Notwithstanding the foregoing, no indemnification shall be required to be made
by Buyer pursuant to subsections (a) and (b) of this Section 11.3 with respect
to any Seller Claims unless and until the aggregate amount of Damages incurred
by Buyer with respect to all such Seller Claims (whether asserted, resulting,
imposed, or incurred before, on, or after the Closing Date) exceeds one percent
of the Purchase Price, it being agreed and understood that, if such amount is
exceeded, Buyer shall be liable to the full extent of such Damages, including
those not in excess of one percent of the Purchase Price.
11.4 Procedure for Indemnification. Promptly after receipt
by an indemnified party under Section 11.2 or 11.3 of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under such Section, give
written notice to the indemnifying party of the commencement thereof, but the
failure so to notify the indemnifying party shall not relieve it of any
liability that it may have to any indemnified party except to the extent the
indemnifying party demonstrates that the defense of such action is prejudiced
thereby. In case any such action shall be brought against an indemnified party
and it shall give written notice to the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and,
to the extent that it may wish, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. If the indemnifying party
elects to assume the defense of such action, the indemnified party shall have
the right to employ separate counsel at its own expense and to participate in
the defense thereof. If the indemnifying party elects not to assume (or fails
to assume) the defense of such action, the indemnified party shall be entitled
to assume the defense of such action with counsel of its own choice, at the
expense of the indemnifying party. If the action is asserted against both the
indemnifying party and the indemnified party and there is a conflict of
interests that renders it inappropriate for the same counsel to represent both
the indemnifying party and the indemnified party, the indemnifying party shall
be responsible for paying for separate counsel for the indemnified
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<PAGE> 39
party; provided, however, that if there is more than one indemnified party, the
indemnifying party shall not be responsible for paying for more than one
separate firm of attorneys to represent the indemnified parties, regardless of
the number of indemnified parties. If the indemnifying party elects to assume
the defense of such action, (a) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's written
consent (which shall not be unreasonably withheld) unless the sole relief
provided is monetary damages that are paid in full by the indemnifying party
and (b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its written consent (which
shall not be unreasonably withheld).
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices, requests, demands and other
communications required or permitted to be given or made hereunder by any party
hereto shall be in writing and shall be deemed to have been duly given or made
if delivered personally, or transmitted by first class registered or certified
mail, postage prepaid, return receipt requested, or sent by prepaid overnight
delivery service, or sent by cable, telegram, telefax or telex, to the parties
at the following addresses (or at such other addresses as shall be specified by
the parties by like notice):
If to Buyer or Parent:
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
Attention: Mike Pate and Maryann Walsh
Fax: (214) 890-9099
with a copy to:
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: Michael Bengtson
Fax: (214) 969-1751
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<PAGE> 40
If to Seller:
250 International Parkway
Suite 300
Heathrow, Florida 32746
Attention: President and Chief Financial Officer
Fax: (407) 357-1410
with a copy to:
Triplett, Woolf & Garretson, LLC
Centre City Plaza
151 North Main, Suite 800
Wichita, Kansas 67202-1409
Attention: Thomas P. Garretson
Fax: (316) 265-6165
12.2 Entire Agreement. This Agreement, together with the
Schedules, Exhibits, Annexes and other writings referred to herein or delivered
pursuant hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
12.3 Binding Effect; Assignment; No Third Party Benefit.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Except as
otherwise expressly provided in this Agreement, neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either
of the parties hereto without the prior written consent of the other party,
except that Buyer may assign to any wholly owned subsidiary or Affiliate of
Buyer any of Buyer's rights, interests or obligations hereunder, upon notice to
Seller, provided that no such assignment shall relieve Buyer of its obligations
hereunder. Except as expressly provided in this Agreement, nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
(including any Employee) other than the parties hereto, and their respective
successors and permitted assigns, any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
12.4 Severability. If any provision of this Agreement is
held to be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.
12.5 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Kansas,
without regard to the principles of conflicts of laws thereof.
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<PAGE> 41
12.6 Further Assurances. From time to time following the
Closing, at the request of either party hereto and without further
consideration, the other party hereto shall execute and deliver to such
requesting party such instruments and documents and take such other action (but
without incurring any material financial obligation) as such requesting party
may reasonably request in order to consummate more fully and effectively the
transactions contemplated hereby.
12.7 Descriptive Headings. The descriptive headings herein
are inserted for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect in any manner the meaning or
interpretation of this Agreement.
12.8 Gender. Pronouns in masculine, feminine and neuter
genders shall be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
12.9 References. All references in this Agreement to
Articles, Sections and other subdivisions refer to the Articles, Sections and
other subdivisions of this Agreement unless expressly provided otherwise. The
words "this Agreement", "herein", "hereof ", "hereby", "hereunder" and words of
similar import refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. Whenever the words "include",
"includes" and "including" are used in this Agreement, such words shall be
deemed to be followed by the words "without limitation". Each reference herein
to a Schedule refers to the item identified separately in writing by the
parties hereto as the described Schedule to this Agreement. All Schedules are
hereby incorporated in and made a part of this Agreement as if set forth in
full herein.
12.10 Counterparts. This Agreement may be executed by the
parties hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.
12.11 Disclosure. The disclosures in the Schedules to this
Agreement, and those in any supplements thereto, shall relate only to the
representations and warranties in the Section of this Agreement to which they
expressly relate and to no other representation or warranty in this Agreement.
In the event of any inconsistency between the statements in the body of this
Agreement and those in the Schedules (other than an exception expressly set
forth as such in the Schedules in relation to a specifically identified
representation or warranty), those in this Agreement shall control.
12.12 Survival. Except for any covenant or agreement that by
its terms expressly terminates as of a specific date, the covenants and
agreements of the parties hereto contained in this Agreement shall survive the
Closing without contractual limitation.
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<PAGE> 42
12.13 Amendment. This Agreement may not be amended except by
an instrument in writing signed by or on behalf of Buyer and Seller.
12.14 Waiver. Each of Seller and Buyer may (i) waive any
inaccuracies in the representations and warranties of the other contained
herein or in any document, certificate or writing delivered pursuant hereto or
(ii) waive compliance by the other with any of the other's agreements or
fulfillment of any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such waiver shall be valid only
if set forth in an instrument in writing signed by or on behalf of such party.
No failure or delay by a party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
12.15 Remedies Not Exclusive. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law. The rights and remedies of any party based upon, arising out
of or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
IN WITNESS WHEREOF, the parties have executed this Agreement, or
caused this Agreement to be executed by their duly authorized representatives,
all as of the day and year first above written.
IT NETWORK, INC
By: /s/ DAN D. MAITLAND
--------------------------------------
Dan D. Maitland
Executive Vice President
BRITE VOICE SYSTEMS, INC.
By: /s/ DONALD R. WALSH
--------------------------------------
Donald R. Walsh
Executive Vice President
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<PAGE> 1
EXHIBIT 2.2
AMENDMENT TO
ASSET PURCHASE AGREEMENT
AMENDMENT TO ASSET PURCHASE AGREEMENT ("Amendment"), dated as of
October 7, 1997, between IT Network, Inc. a Texas corporation ("Buyer") and
Brite Voice System, Inc., a Kansas corporation ("Seller").
WHEREAS, Seller and Buyer have entered into an Asset Purchase
Agreement dated as of September 23, 1997 (the "Agreement") and the parties
desire to enter into this Amendment for the purpose of clarifying the
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Seller and Buyer agree as follows:
1. Amendment. The terms of the Agreement shall remain unchanged
and in full force and effect, unless expressly amended by this Amendment.
2. Definition Clarification. The definition of the term
"Business" as set forth in Section 1.1 of the Agreement is amended to include
the following sentence at the end thereof:
"Such term shall not include either the sale of advertising
sponsorships to various categories of CityLine audiotex information
made available through audiotex systems owned or leased to CityLine
customers or the management of such audiotex systems and advertisers
for such CityLine customers.
3. Schedule 1.1(a).
3.1 The list of written contracts attached to Schedule
1.1(a) is amended by adding under the category "Suppliers" at page 14
thereof, the following contracts:
<TABLE>
<CAPTION>
Customer Name Type Agreement Date
- ------------- -------------- ----
<S> <C> <C>
ACCU Weather Agreement January 6, 1995
BPI Entertainment News Wire Letter Amendment October 1, 1997
Commodity Quotations, Inc. Comstock Service Marketing November 6, 1990
Representative Agreement
The Western Information Network Amendment to Letter Agreement January 9, 1997
</TABLE>
<PAGE> 2
3.2 Schedule 1.1(a) is amended by adding new paragraphs 5
and 6 at page 1 thereof as follows:
"5. Seller has an oral agreement with BPI Entertainment
News Wire for the use of BPI's Billboard Charts.
Seller currently pays BPI Entertainment News Wire a
monthly fee of $560.00.
6. Seller has an oral agreement with Network Music for
the use of music in connection with audiotex
information. Seller currently pays Network Music a
monthly fee of $172.50."
3.3 Schedule 1.1(a) shall be deemed amended as of the
date of the Agreement, as if said Schedule had originally contained
references to the foregoing contracts.
IN WITNESS WHEREOF, the parties have executed this Amendment, or
caused this Amendment to be executed by their duly authorized representatives,
as of the day and year first above written.
IT NETWORK, INC.
By: /s/ Dan D. Maitland
-----------------------------------------
Dan D. Maitland
Executive Vice President
BRITE VOICE SYSTEMS, INC.
By: /s/ Donald R. Walsh
-----------------------------------------
Donald R. Walsh
Executive Vice President
2
<PAGE> 1
EXHIBIT 4.1
================================================================================
_________________________________
SOURCE MEDIA, INC.
as Issuer,
and
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
$100,000,000
12% SENIOR SECURED NOTES DUE 2004, SERIES A
12% SENIOR SECURED NOTES DUE 2004, SERIES B
____________________
INDENTURE
Dated as of October 30, 1997
____________________
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05;7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.02
</TABLE>
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<TABLE>
<S> <C>
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.19
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
_______________________
*This Cross-Reference Table is not part of the Indenture.
N.A. means not applicable.
(ii)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. OTHER DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . 24
SECTION 1.04. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 2 THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.02. EXECUTION AND AUTHENTICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.03. REGISTRAR AND PAYING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.05. SECURITYHOLDER LISTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.06. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.07. REPLACEMENT SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.08. OUTSTANDING SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.09. TREASURY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.10. TEMPORARY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.11. CANCELLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.12. DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.13. CUSIP NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.14. DEPOSIT OF MONEYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.15. RESTRICTIVE LEGENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.17. SPECIAL TRANSFER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.18. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2.19. RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 3 REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.01. NOTICES TO TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.03. NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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<TABLE>
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SECTION 3.06. SECURITIES REDEEMED IN PART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.07. OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.08. MANDATORY REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS . . . . . . . . . . . . . . . . . . 41
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 4.01. PAYMENT OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.03. SEC REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.04. COMPLIANCE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 4.05. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 4.06. STAY, EXTENSION AND USURY LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.08. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES . . . . . . . . 50
SECTION 4.09. LIMITATION ON INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 4.10. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK . . . . . . . . . . . . . . . . . . . 54
SECTION 4.11. LIMITATION ON AFFILIATE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 4.12. LIMITATION ON LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.13. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.14. CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 4.15. LIMITATION ON ISSUANCES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES . . . . . . . . . . 59
SECTION 4.16. CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 4.17. LIMITATION ON SALE/ LEASEBACK TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 4.18. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. . . . . . . . . . . . . . . . . 60
SECTION 4.19. FURTHER INSTRUMENTS AND ACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 5 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS . . . . . . . . . . . . . . . . . 62
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 6 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 6.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
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<TABLE>
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SECTION 6.02. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.03. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 6.04. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 6.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 6.06. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 6.08. COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 6.10. PRIORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 6.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 7.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 7.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 7.04. TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 7.05. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 7.07. COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 7.08. REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY . . . . . . . . . . . . . . . . . 76
ARTICLE 8 DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE . . . . . . . . . . . . . . . . . . . . 76
SECTION 8.02. CONDITIONS TO DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 8.03. APPLICATION OF TRUST MONEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 8.04. REPAYMENT TO THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 8.06. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE 9 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . 84
</TABLE>
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<TABLE>
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SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 10.01. TRUST INDENTURE ACT CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 10.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 10.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER SECURITYHOLDERS . . . . . . . . . . . . . . 87
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . 87
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . . . . . . . . . . . . . . . . 87
SECTION 10.06. RULES BY TRUSTEE AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 10.07. LEGAL HOLIDAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 10.08. NO RECOURSE AGAINST OTHERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 10.09. DUPLICATE ORIGINALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 10.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 10.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.12. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.13. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.14. COUNTERPART ORIGINALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 10.15. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
<TABLE>
<S> <C> <C>
EXHIBIT A - FORM OF INITIAL SECURITY
EXHIBIT B - FORM OF EXCHANGE SECURITY
EXHIBIT C - FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS TO NON-QIB
ACCREDITED INVESTORS
EXHIBIT D - FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO
REGULATION S
</TABLE>
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<PAGE> 8
INDENTURE, dated as of October 30, 1997, among Source Media,
Inc., a Delaware corporation (the "Company"), and U.S. Trust Company of Texas,
N.A., a banking corporation organized and existing under the laws of the State
of Texas, in its capacity as trustee (the "Trustee").
The Company has duly authorized the creation of an issue of
12% Senior Secured Notes due 2004, Series A (the "Initial Securities") and 12%
Senior Secured Notes due 2004, Series B (the "Exchange Securities") and, to
provide therefor, the Company has duly authorized the execution and delivery of
this Indenture. All things necessary to make the Securities (as defined), when
duly issued and executed by the Company, and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this Indenture a
valid and binding agreement of the Company, have been done.
The Company and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the
Securities:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquisitions" means the September 1997 acquisitions by the
Company of certain of the electronic publishing assets of Brite Voice, Inc. for
approximately $35.6 million and of certain of the assets of Voice News Network,
Inc. for approximately $9.0 million.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or a Restricted Subsidiary of
the Company; (iii) Capital Stock constituting a minority interest in any Person
that at such time is a Restricted Subsidiary of the Company; or (iv) Permitted
Investments of the type and in the amounts described in clause (viii) of the
definition thereof; provided, however, that, in the case of clauses (ii) and
(iii), such Restricted Subsidiary is primarily engaged in a Permitted Business.
"Adjusted Consolidated Net Income" means, for any period,
Consolidated Net Income minus (plus) the net income (loss) of Interactive
Channel, Inc. for such period,
<PAGE> 9
plus an amount equal to the corporate overhead allocated to Interactive
Channel, Inc., on an after-tax basis, unless otherwise included in the net
income of Interactive Channel, Inc., for such period (as determined in good
faith by senior management of the Company), plus an amount equal to the
amortization of intangible assets relating to the Acquisition.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date
shall mean the lesser of the amount by which (x) the fair value of the property
of such Subsidiary Guarantor exceeds the total amount of liabilities,
including, without limitation, the probable liability of such Subsidiary
Guarantor with respect to its contingent liabilities (after giving effect to
all other fixed and contingent liabilities incurred or assumed on such date),
but excluding liabilities under the Subsidiary Guarantee, of such Subsidiary
Guarantor at such date and (y) the present fair salable value of the assets of
such Subsidiary Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Subsidiary Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities Incurred or assumed
on such date and after giving effect to any collection from any Subsidiary by
such Subsidiary Guarantor in respect of the obligations of such Subsidiary
under the Subsidiary Guarantee), excluding debt in respect of the Subsidiary
Guarantee, as they become absolute and matured.
"Affiliate" of any specified person means any other Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Disposition" means any sale, lease, transfer, issuance
or other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of
(or any other equity interests in) a Restricted Subsidiary (other than
directors' qualifying shares) or of any other property or other assets (each
referred to for the purposes of this definition as a "disposition") by the
Company or any of its Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of
inventory in the ordinary course of business and for which adequate reserves
have been established in accordance with GAAP, (iii) a disposition of obsolete
or worn out equipment or equipment that is no longer useful in the conduct of
the business of the Company and its Restricted Subsidiaries and that is
disposed of in each case in the ordinary course of business, (iv) dispositions
of property for net proceeds which, when taken collectively with the net
proceeds of any other such dispositions under
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this clause (iv) that were consummated since the beginning of the calendar year
in which such disposition is consummated, do not exceed $1 million, and (v)
transactions permitted under Section 5.01. Notwithstanding anything to the
contrary contained above, a Restricted Payment made in compliance with Section
4.07 shall not constitute an Asset Disposition except for purposes of
determinations of the Consolidated Coverage Ratio.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Securities, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the product of the numbers of years (rounded upwards to
the nearest month) from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or redemption or
similar payment with respect to Preferred Stock multiplied by the amount of
such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means loans made by banks, trust companies
and other institutions principally engaged in the business of lending money to
businesses to the Company or a Restricted Subsidiary under a credit facility,
loan agreement or similar agreement.
"Bankruptcy Code" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person or any committee of the Board of Directors of
such Person duly authorized, with respect to any particular matter, to exercise
the power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however
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designated) equity of such Person, including any Preferred Stock, but excluding
any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is
required to be classified and accounted for as a capitalized lease for
financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with GAAP, and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date such lease may be terminated without
penalty.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully Guaranteed or insured by the United
States government or any agency or instrumentality thereof, (iii) certificates
of deposit, time deposits and eurodollar time deposits with maturities of one
year or less from the date of acquisition, bankers' acceptances with maturities
not exceeding one year and overnight bank deposits, in each case with any
commercial bank having capital and surplus in excess of $500 million, (iv)
repurchase obligations for underlying securities of the types described in
clauses (ii) and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper rated A-1
or the equivalent thereof by Moody's or S&P and in each case maturing within
one year after the date of acquisition, (vi) investment funds investing 95% of
their assets in securities of the types described in clauses (i)-(v) above,
(vii) readily marketable direct obligations issued by any state of the United
States of America or any political subdivision thereof having one of the two
highest rating categories obtainable from either Moody's or S&P and (viii)
Indebtedness or Preferred Stock issued by Persons with a rating of "A" or
higher from S&P or "A2" or higher from Moody's.
"Change of Control" means (i) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company and its Subsidiaries; or (ii)
a majority of the Board of Directors of the Company or of any direct or
indirect holding company thereof shall consist of Persons who are not
Continuing Directors of the Company; or (iii) the acquisition by any Person or
group of related Persons for purposes of Section 13 (d) of the Exchange Act, of
the power, directly or indirectly, to vote or direct the voting of securities
having more than 50% of the ordinary voting power for the election of directors
of the Company or of any direct or indirect holding company thereof.
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"Commission" means the U.S. Securities and Exchange Commission
or its successor.
"Common Stock" of any Person means Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Company" means Source Media, Inc., a Delaware corporation,
until a successor replaces it in accordance with Article 5 hereof and
thereafter means the successor.
"Consolidated Cash Flow" for any period means the Consolidated
Net Income for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization
expense, (v) exchange or translation losses on foreign currencies, and (vi) all
other non-cash items reducing Consolidated Net Income (excluding any noncash
item to the extent it represents an accrual of or reserve for cash
disbursements for any subsequent period prior to the Stated Maturity of the
Securities) and less, to the extent added in calculating Consolidated Net
Income, (x) exchange or translation gains on foreign currencies and (y)
non-cash items (excluding such non-cash items to the extent they represent an
accrual for cash receipts reasonably expected to be received prior to the
Stated Maturity of the Securities), in each case for such period.
Notwithstanding the foregoing, the income tax expense, depreciation expense and
amortization expense of a Subsidiary of the Company shall be included in
Consolidated Cash Flow only to the extent (and in the same proportion) that the
net income of such Subsidiary was included in calculating Consolidated Net
Income.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination and as to which financial statements are available
to (ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any of its Restricted Subsidiaries has
Incurred any Indebtedness since the beginning of such period and through the
date of determination of the Consolidated Coverage Ratio that remains
outstanding or if the transaction giving rise to the need to calculate
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to (A) such Indebtedness
as if such Indebtedness had been Incurred on the first day of such period
(provided that if such Indebtedness is Incurred under a revolving credit
facility (or similar arrangement or under any predecessor revolving credit or
similar arrangement) only that portion of such Indebtedness that constitutes
the one year projected average balance of such
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Indebtedness (as determined in good faith by the Board of Directors of the
Company) shall be deemed outstanding for purposes of this calculation), and (B)
the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if since the
beginning of such period any Indebtedness of the Company or any of its
Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and the underlying commitment terminated and has not been replaced),
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Indebtedness had been repaid, repurchased,
defeased or otherwise discharged on the first day of such period, (3) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Asset Disposition,
Consolidated Cash Flow for such period shall be reduced by an amount equal to
the Consolidated Cash Flow (if positive) attributable to the assets which are
the subject of such Asset Disposition for such period or increased by an amount
equal to the Consolidated Cash Flow (if negative) attributable thereto for such
period, and Consolidated Interest Expense for such period shall be (i) reduced
by an amount equal to the Consolidated Interest Expense attributable to any
Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary of the Company is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale) and (ii) increased by
interest income attributable to the assets which are the subject of such Asset
Disposition for such period, (4) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company as a result
thereof) or an acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder which constitutes all or
substantially all of an operating unit of a business, Consolidated Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary of the Company or was merged with or into the
Company or any Restricted Subsidiary of the Company since the beginning of such
period) shall have made any Asset Disposition, Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary of the Company during
such period, Consolidated Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto
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as if such Asset Disposition, Investment or acquisition occurred on the first
day of such period. For purposes of this definition, whenever pro forma effect
is to be given to an acquisition of assets, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated
with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate
of interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its Restricted Subsidiaries
determined in accordance with GAAP, plus, to the extent not included in such
interest expense (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount, (iii) capitalized interest,
(iv) non-cash interest expense, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by the Company or any such Restricted
Subsidiary under any Guarantee of Indebtedness or other obligation of any other
Person, (vii) net payments (whether positive or negative) pursuant to Interest
Rate Agreements, (viii) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust and (ix) cash and
Disqualified Stock dividends in respect of all Preferred Stock of Subsidiaries
and Disqualified Stock of the Company held by Persons other than the Company or
a Wholly-Owned Subsidiary and less (a) to the extent included in such interest
expense, the amortization of capitalized debt issuance costs and (b) interest
income. Notwithstanding the foregoing, the Consolidated Interest Expense with
respect to any Restricted Subsidiary of the Company, that was not a
Wholly-Owned Subsidiary, shall be included only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the
consolidated net income (loss) of the Company and its consolidated Subsidiaries
determined in accordance with GAAP; provided, however, that there shall not be
included in such Consolidated Net Income: (i) any net income (loss) of any
Person acquired by the Company or any of its Restricted Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (ii) any net income of any Restricted Subsidiary of the Company if
such Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company (other than restrictions in
effect on the Issue Date with respect
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to a Restricted Subsidiary of the Company and other than restrictions that are
created or exist in compliance with Section 4.08, (iii) any gain or loss
realized upon the sale or other disposition of any assets of the Company or its
consolidated Restricted Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which are not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person, (iv) any extraordinary gain or loss, (v) the
cumulative effect of a change in accounting principles, (vi) the net income of
any Person, other than a Restricted Subsidiary, except to the extent of the
lesser of (A) cash dividends or distributions actually paid to the Company or
any of its Restricted Subsidiaries by such Person and (B) the net income of
such Person (but in no event less than zero), and the net loss of such Person
(other than an Unrestricted Subsidiary) shall be included only to the extent of
the aggregate Investment of the Company or any of its Restricted Subsidiaries
in such Person and (vii) any non-cash expenses attributable to grants or
exercises of employee stock options. Notwithstanding the foregoing, for the
purpose of Section 4.07 only, there shall be excluded from Consolidated Net
Income any dividends, repayments of loans or advances or other transfers of
assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary
to the extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a) (3)
(D) thereof.
"Consolidated Net Worth" means, the total of the amounts shown
on the balance sheet of the Company and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company ending prior to the
taking of any action for the purpose of which the determination is being made
and for which financial statements are available (but in no event ending more
than 135 days prior to the taking of such action), as (i) the par or stated
value of all outstanding Capital Stock of the Company plus (ii) paid in capital
or capital surplus relating to such Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Continuing Director" of any Person means, as of the date of
determination, any Person who (i) was a member of the Board of Directors of
such Person on the date of this Indenture or (ii) was nominated for election or
elected to the Board of Directors of such Person with the affirmative vote of a
majority of the Continuing Directors of such Person who were members of such
Board of Directors at the time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 10.02 or such other address as to
which the Trustee may give notice to the Company.
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"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees
and successors.
"Disqualified Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event (other than an
event which would constitute a Change of Control), (i) matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Stated Maturity of the Securities, or (ii) is convertible into or
exchangeable (unless at the sole option of the issuer thereof) for (a) debt
securities or (b) any Capital Stock referred to in (i) above, in each case at
any time prior to the Stated Maturity of the Securities.
"Equity Offering" means an offering for cash by the Company of
its common stock, or options, warrants or rights with respect to its common
stock.
"Escrow Agent" means U.S. Trust Company of New York, and any
successors or assignors thereto.
"Escrow And Disbursement Agreement" means the Escrow And
Disbursement Agreement, dated as of October 30, 1997, among the Trustee, the
Escrow Agent and the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"Exchange Offer" means the registration by the Company under
the Securities Act pursuant to a registration statement of the offer by the
Company to each Securityholder of the Initial Securities to exchange all the
Initial Securities held by such Securityholder for the Exchange Securities in
an aggregate principal amount equal to the aggregate principal amount of the
Initial Securities held by such Securityholder, all in accordance with the
terms and conditions of the Registration Rights Agreement.
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"Exchange Securities" has the meaning set forth in the
preamble to this Indenture.
"Existing Indebtedness" means Indebtedness of the Company or
its Restricted Subsidiaries in existence on the Issue Date, plus interest
accrued thereon, after application of the net proceeds of the sale of the
Securities and Units.
"fair market value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors
of the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Board of Directors of the Company delivered to the
Trustee.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of this Indenture,
including those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
issued, all Guarantees by such Subsidiary Guarantor of Senior Indebtedness of
the Company and all other Indebtedness of such Subsidiary Guarantor, including
interest and fees thereon, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that the
obligations of such Subsidiary Guarantor in respect of such Indebtedness are
not superior in right of payment to the obligations of such Subsidiary
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<PAGE> 18
Guarantor under the Subsidiary Guaranty; provided, however, that Guarantor
Senior Indebtedness shall not include (1) any obligations of such Subsidiary
Guarantor to the Company or any other Subsidiary of the Company, (2) any
liability for Federal, state, local or other taxes owed or owing by such
Subsidiary Guarantor, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities) or (4) any Indebtedness,
Guarantee or obligation of such Subsidiary Guarantor that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of such Subsidiary Guarantor, including any Guarantor Senior
Subordinated Indebtedness and Guarantor Subordinated Obligations of such
Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a
Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether
outstanding on the Issue Date or thereafter incurred) which is subordinate or
junior in right of payment to the obligations of such Subsidiary Guarantor
under the Subsidiary Guarantee pursuant to a written agreement.
"Incur" means issue, assume, guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit), (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except trade payables and accrued
expenses Incurred in the ordinary course of business), which purchase price is
due more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services, (v) all
Capitalized Lease Obligations and all Attributable Indebtedness of such Person,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the
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amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of the Company, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated
Maturity of the Securities (but excluding, in each case, accrued dividends)
with the amount of Indebtedness represented by such Disqualified Stock or
Preferred Stock, as the case may be, being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed
repurchase price; provided that, for purposes hereof the "maximum fixed
repurchase price" of any Disqualified Stock or Preferred Stock, as the case may
be, which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Stock or Preferred Stock, as the
case may be, as if such Disqualified Stock or Preferred Stock, as the case may
be, were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based on the fair
market value of such Disqualified Stock or Preferred Stock, as the case may be,
such fair market value shall be determined in good faith by the Board of
Directors of the Company and (ix) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate Agreements.
Unless specifically set forth above, the amount of Indebtedness of any Person
at any date shall be the outstanding principal amount of all unconditional
obligations as described above, as such amount would be reflected on a balance
sheet prepared in accordance with GAAP, and the maximum liability of such
Person, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations described above at such date.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Initial Purchasers" means NatWest Capital Markets Limited and
Prudential Securities, Inc.
"Initial Securities" has the meaning set forth in the preamble
to this Indenture.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"Interest Escrow Account" means the account held by the Escrow
Agent for the benefit of the Trustee in accordance with the Escrow and
Disbursement Agreement.
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"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities which shall be each May 1, and
November 1 of each year, commencing May 1, 1998.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts payable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a
bank deposit other than a time deposit) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person;
provided that any Investment in the interactive television business shall be
made by any Person, directly or indirectly, through Interactive Channel, Inc.,
Interactive Channel Technologies Inc. and any of their Wholly-Owned
Subsidiaries. For purposes of Section 4.07, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of the Company at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors
and evidenced by a resolution of such Board of Directors certified in an
Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Initial Securities
are originally issued.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).
-13-
<PAGE> 21
"Maturity Date" means November 1, 2004.
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received
in the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the properties or assets subject to, such Asset
Disposition) therefrom in each case net of (i) all legal, title and recording
tax expenses, commissions and other fees and expenses incurred, and all
Federal, state, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon such
assets, or which must by its terms, or in order to obtain a necessary consent
to such Asset Disposition or by applicable, law, be repaid out of the proceeds
from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets
subject to sale or minority interest holders in Subsidiaries or joint ventures
as a result of such Asset Disposition, (iv) the deduction of appropriate
amounts to be provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in such Asset
Disposition; provided, however, that upon any reduction in such reserves (other
than to the extent resulting from payments of the respective reserved
liabilities), Net Available Cash shall be increased by the amount of such
reduction to reserves, and retained by the Company or any Restricted Subsidiary
of the Company after such Asset Disposition and (v) any portion of the purchase
price from an Asset Disposition placed in escrow (whether as a reserve for
adjustment of the purchase price, for satisfaction of indemnities in respect of
such Asset Disposition or otherwise in connection with such Asset Disposition;
provided, however, that upon the termination of such escrow, Net Available Cash
shall be increased by any portion of funds therein released to the Company or
any Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
Incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor, general partner or otherwise) and (ii) no
default with respect to which (including any rights that the holders
-14-
<PAGE> 22
thereof may have to take enforcement action against an Unrestricted Subsidiary)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default
under such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its Stated Maturity.
"Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S of the Securities Act.
"Note Register" means the register of names and addresses of
the holders of the Securities maintained by the Registrar.
"Obligations" means any principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated
October 30, 1997, pursuant to which the Initial Securities were offered, and
any supplements thereto.
"Officer" means as to any Person the Chairman of the Board,
the Chief Executive Officer, the Chief Operating Officer, the President, the
Chief Financial Officer, or any Vice-President, the Treasurer or the Secretary
of such Person.
"Officers' Certificate" shall mean a certificate signed by two
Officers of the Company, at least one of whom shall be the principal executive,
financial or accounting officer of the Company.
"Offshore Physical Securities" has the meaning provided in
Section 2.01.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee and which complies, if applicable,
with the provisions of Section 10.04 hereof. The counsel may be an employee of
or counsel to the Company or the Trustee.
"Permitted Business" means any business which is the same as
or related, ancillary or complementary to any of the businesses of the Company
and its Restricted Subsidiaries on the date of the Indenture, as reasonably
determined by the Company's Board of Directors; provided, that, an entity which
is not an operating entity and whose primary business is to hold or maintain
intellectual property or licenses shall not qualify as a "Permitted Business."
-15-
<PAGE> 23
"Permitted Investments" means an Investment by the Company or
any of its Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the
Company (other than Interactive Channel Technologies, Inc., 997758 Ontario,
Inc., Cableshare (U.S.) Limited, Cableshare International Inc. and 1229501
Ontario, Inc.); provided, however, that (A) the primary business of such
Wholly-Owned Subsidiary is a Permitted Business and (B) in the case of
Investments by the Company or any of its Restricted Subsidiaries in Interactive
Channel, Inc., in an amount not to exceed the amount set forth in clause (b) of
Section 4.07; (ii) another Person if as a result of such Investment such other
Person becomes a Wholly-Owned Subsidiary of the Company or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly-Owned Subsidiary of the Company; provided,
however, that in each case such Person's primary business is a Permitted
Business; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any of its Restricted Subsidiaries, created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans and advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary in an aggregate amount outstanding at any one time not to exceed
$250,000; (vii) loans or advances to senior management of the Company which
loans or advances are fully secured on the date of such loans or advances by
shares of Common Stock of the Company owned by such senior management in an
aggregate amount outstanding not to exceed $750,000; (viii) stock, obligations
or securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any of its Restricted Subsidiaries or in
satisfaction of judgments or claims; (ix) a Person engaged in a Permitted
Business or a loan or advance to the Company the proceeds of which are used
solely to make an investment in a Person engaged in a Permitted Business or a
Guarantee by the Company of Indebtedness of any Person in which such Investment
has been made; provided, however, that no Permitted Investments may be made
pursuant to this clause (ix) to the extent the amount thereof would, when taken
together with all other Permitted Investments made pursuant to this clause
(ix), exceed $3 million in the aggregate (plus, to the extent not previously
reinvested, any return of capital realized on Permitted Investments made
pursuant to this clause (ix), or any release or other cancellation of any
Guarantee constituting such Permitted Investment); (x) Persons to the extent
such Investment is received by the Company or any Restricted Subsidiary as
consideration for asset dispositions effected in compliance with the covenant
described under Section 4.10; (xi) prepayments and other credits to suppliers
made in the ordinary course of business consistent with the past practices of
the Company and its Restricted Subsidiaries; and (xii) Investments in
connection with pledges, deposits, payments or performance bonds made or given
in the ordinary course of business in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health, safety
or environmental obligations.
-16-
<PAGE> 24
"Permitted Liens" means: (i) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due from the Company or any Restricted Subsidiary or being contested in good
faith by appropriate proceedings by the Company or any Restricted Subsidiary,
as the case may be, or other Liens arising out of judgments or awards against
the Company or any Restricted Subsidiary with respect to which the Company or
such Restricted Subsidiary, as the case may be, will then be prosecuting an
appeal or other proceedings for review; (ii) Liens for property taxes or other
taxes, assessments or governmental charges of the Company or any Restricted
Subsidiary not yet due or payable or subject to penalties for nonpayment or
which are being contested by the Company or such Restricted Subsidiary, as the
case may be, in good faith by appropriate proceedings; (iii) Liens in favor of
issuers of performance bonds and surety bonds issued pursuant to clause (vii)
under Section 4.09; (iv) survey exceptions, encumbrances, easements or,
reservations of, or rights of others for, licenses, rights-of-way, sewers,
electric lines, telegraph and telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property of the Company or
any Restricted Subsidiary incidental to the ordinary course of conduct of the
business of the Company or such Restricted Subsidiary or as to the ownership of
properties of the Company or any Restricted Subsidiary, which, in either case,
were not incurred in connection with Indebtedness and which do not in the
aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of the Company or
any Restricted Subsidiary; (v) Liens outstanding immediately after the Issue
Date as set forth in a schedule to this Indenture; (vi) Liens on property,
assets or shares of stock of any Restricted Subsidiary at the time such
Restricted Subsidiary became a Subsidiary of the Company; provided, however,
that (A) if any such Lien has been Incurred in anticipation of such
transaction, such property, assets or shares of stock subject to such Lien will
have a fair market value at the date of the acquisition thereof not in excess
of the lesser of (1) the aggregate purchase price paid or owed by the Company
in connection with the acquisition of such Restricted Subsidiary and (2) the
fair market value of all property and assets of such Restricted Subsidiary and
(B) any such Lien will not extend to any other assets owned by the Company or
any Restricted Subsidiary; (vii) Liens on property or assets at the time the
Company or any Restricted Subsidiary acquired such assets, including any
acquisition by means of a merger or consolidation with or into the Company or
such Restricted Subsidiary; provided, however, that (A) if any such Lien is
Incurred in anticipation of such transaction, such property or assets subject
to such Lien will have a fair market value at the date of the acquisition
thereof not in excess of the lesser of (1) the aggregate purchase price paid or
owed by the Company or such Restricted Subsidiary in connection with the
acquisition thereof and of any other property and assets acquired
simultaneously therewith and (2) the fair market value of all such property and
assets acquired by the Company or such Restricted Subsidiary and (B) any such
Lien will not extend to any other property or assets owned by the Company or
any Restricted Subsidiary; (viii) Liens securing Indebtedness or other
obligations of a Restricted Subsidiary owing to the Company or a Wholly-Owned
Subsidiary; (ix) Liens to secure any extension, renewal,
-17-
<PAGE> 25
refinancing, replacement or refunding (or successive extensions, renewals,
refinancings, replacements or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in any of clauses (v), (vi) and
(vii); provided, however, that any such Lien will be limited to all or part of
the same property or assets that secured the original Lien (plus improvements
on such property) and the aggregate principal amount of Indebtedness that is
secured by such Lien will not be increased to an amount greater than the sum of
(A) the outstanding principal amount, or, if greater, the committed amount, of
the Indebtedness described under clauses (v), (vi) and (vii) at the time the
original Lien became a Permitted Lien under this Indenture and (B) an amount
necessary to pay any premiums, fees and other expenses Incurred by the Company
in connection with such refinancing, refunding, extension, renewal or
replacement; (x) Liens on property or assets of the Company securing Interest
Rate Agreements and Currency,Agreements so long as the related Indebtedness is,
and is permitted under Section 4.09, secured by a Lien on the same property
securing the relevant Interest Rate Agreement or Currency Agreement; (xi) Liens
on property or assets of the Company or any Restricted Subsidiary securing
Indebtedness (1) under purchase money obligation or Capital Lease Obligations
permitted under Section 4.09 or (2) under Sale/Leaseback Transactions permitted
under Section 4.17; provided, that (A) the amount of Indebtedness Incurred in
any specific case does not, at the time such Indebtedness is Incurred, exceed
the lesser of the cost or fair market value of the property or asset acquired
or constructed in connection with such purchase money obligation or Capital
Lease Obligation or subject to such Sale/Leaseback Transaction, as the case may
be, (B) such Lien will attach to such property or asset upon acquisition of
such property or asset and or upon commencement of such Sale/Leaseback
Transaction, as the case may be, and (C) no property or asset of the Company or
any Restricted Subsidiary (other than the property or asset acquired or
contracted in connection with such purchase money Obligation or Capital Lease
Obligation or subject to such Sale/Leaseback Transaction, as the case may be)
are subject to any Lien securing such Indebtedness; (xii) Liens granted to the
Trustee on the assets of the Company securing the Company's obligations under
this Indenture; (xiii) Liens granted to the Trustee on the assets of the
Subsidiary Guarantors securing the Subsidiary Guarantors' Obligations under the
Guarantees; and (xv) Liens on the Interest Escrow Account securing the
Company's obligations under this Indenture.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision hereof or any other entity.
"Physical Securities" has the meaning provided in
Section 2.01.
"Preferred Stock" as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary
-18-
<PAGE> 26
liquidation or dissolution of such corporation, over shares of Capital Stock of
any other class of such corporation.
"Private Placement Legend" has the meaning provided in
Section 2.15.
"Public Market" exists at any time with respect to the common
stock of the Company if (a) the common stock of the Company is then registered
with the Securities and Exchange Commission pursuant to Section 12(b) or 12(g)
of the Exchange Act and traded either on a national securities exchange or in
the National Association of Securities Dealers Automated Quotation System and
(b) at least 15% of the total issued and outstanding common stock of the
Company, has been distributed prior to such time by means of an effective
registration statement under the Securities Act.
"Qualified Capital Stock" shall mean any Capital Stock which
is not Disqualified Stock.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"Record Date" means the record dates specified in the
Securities, whether or not a Legal Holiday.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of this
Indenture or Incurred in compliance with this Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the first
anniversary of the Stated Maturity of the Securities and (B) Stated Maturity of
the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is
equal to or greater than the lesser of (A) the Average Life of the Securities
and (B) the Average Life of the Indebtedness being refinanced and (iii) the
Refinancing Indebtedness is in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to (or 101%
of, in the case of a refinancing of the Securities in connection with a Change
of Control) or less than the sum of the aggregate principal amount (or if
issued with original issue discount, the accreted value) then outstanding of
the Indebtedness being refinanced.
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<PAGE> 27
"Registrar" means U.S. Trust Company of Texas, N.A., as
registrar under this Indenture, or any successor thereto appointed pursuant to
the Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement dated October 30, 1997 among the Company and the Initial Purchasers
for the benefit of themselves and the Securityholders, as the same may be
amended or modified from time to time in accordance with the terms thereof.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the corporate trust department of the Trustee (or any
successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Restricted Payment" has the meaning provided in
Section 4.07(a).
"Restricted Security" has the meaning assigned to such term in
Rule 144(a)(3) under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company
other than Unrestricted Subsidiary.
"S&P" and "Standard and Poor's" means Standard & Poor's Rating
Group, a division of McGraw Hill Corporation, or any successor organization
thereto.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Subsidiary
leases it from such Person.
"Secured Indebtedness" means any Indebtedness of a Subsidiary
Guarantor secured by a Lien.
"Securities" means the Initial Securities and the Exchange
Securities treated as a single class of securities, as amended or supplemented
from time to time in accordance with the terms hereof, that are issued pursuant
to this Indenture.
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<PAGE> 28
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Securityholder" or "Holder" means a registered holder of one
or more Securities.
"Senior Indebtedness" means, whether outstanding on the Issue
Date or thereafter issued, all Indebtedness of the Company, including interest
and fees thereon, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that the obligations
in respect of such Indebtedness are not superior in right of payment to the
Securities; provided, however, that Senior Indebtedness will not include (1)
any obligation of the Company to any Subsidiary, (2) any liability for Federal,
state, foreign, local or other taxes owed or owing by the Company, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), or (4) any Indebtedness, Guarantee or obligation of the Company
that is expressly subordinate or junior in right of payment to any other
Indebtedness, Guarantee or obligation of the Company, including any
Subordinated Obligations.
"Senior PIK Preferred Stock" means the 13 1/2% senior
preferred stock of the Company with a liquidation preference of $25 per share.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the Commission.
"Source Media, Inc." has the meaning set forth in the preamble
to this Indenture.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii)
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<PAGE> 29
such Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Company.
"Subsidiary Guarantee" means the Guarantee of the Securities
by a Subsidiary Guarantor.
"Subsidiary Guarantor" means each Subsidiary of the Company in
existence on the Issue Date and each Subsidiary (other than Unrestricted
Subsidiaries) created or acquired by the Company after the Issue Date.
"Temporary Cash Investments" means any of the following: (i)
any Investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) Investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital surplus and
undivided profits aggregating in excess of $250 million (or the foreign
currency equivalent thereof) and whose long-term debt, or whose parent holding
company's long-term debt, is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act), (iii) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) Investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P, (v) Investments in securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or "A" by Moody's and (vi) Investments in mutual funds
whose investment guidelines restrict such funds' investments to those
satisfying the provisions of clauses (i) through (v) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) and the rules and regulations thereunder as in effect
on the date on which this Indenture is qualified under the TIA, except as
provided in Section 9.03 hereof; provided, however, that, in the event the
Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939 as so
amended.
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<PAGE> 30
"Trustee" means U.S. Trust Company of Texas, N.A., a banking
corporation organized and existing under the laws of the State of Texas, until
a successor replaces it in accordance with Article 7 and thereafter means the
successor serving hereunder.
"Units" means the 800 Units each consisting of (i) 1,000
shares of 13 1/2% of Senior PIK Preferred Stock with a liquidation preference
of $25 per share and (ii) Warrants to purchase 447,000 shares of Common Stock,
representing 3% of the Company's Common Stock on a fully diluted basis.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness
of, or owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that each Subsidiary to be so designated and
each of its Subsidiaries has not at the time of such designation, and does not
thereafter create, Incur, issue, assume, guarantee or otherwise becomes liable
with respect to any Indebtedness other than Non-Recourse Indebtedness and
either (A) the Subsidiary to be so designated has total consolidated assets of
$10,000 or less or (B) if such Subsidiary has consolidated assets greater than
$10,000, then such designation would be permitted under Section 4.07. The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary subject to the limitations contained in Section 4.18.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"U.S. Physical Securities" has the meaning provided in
Section 2.01.
"Voting Stock" with respect to any Person means all classes of
Capital Stock of such Person then outstanding and normally entitled to vote in
elections of directors of such Person.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary,
and shall include Interactive
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<PAGE> 31
Channel Technologies Inc. notwithstanding the ownership by Maureen E. Pocock of
1,535,821 Class Y Shares of 997758 Ontario Inc., which owns 1,623,409 Class A
Shares and 843,818 Class B Shares of Interactive Channel Technologies Inc.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"actual knowledge" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.02
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11
"Agent Members" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.16
"Asset Disposition Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"covenant defeasance option" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Declaration" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.02
"Default Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.02
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Net Available Cash" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10
"judgment default provision" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"legal defeasance option" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.07
"Notice of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Successor Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.01
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Securities and the Subsidiary
Guarantees;
"indenture security holder" means a Securityholder;
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"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Securities means the Company, the Subsidiary
Guarantors and any successor obligor upon the Securities.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
under the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and in the plural
include the singular; and
(v) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Initial Securities and the Trustee's certificate of
authentication thereon shall be substantially in the form of Exhibit A hereto.
The Exchange Securities and the Trustee's certificate of authentication thereon
shall be substantially in the form of Exhibit B hereto. The Securities may
have notations, legends or endorsements required by law, stock exchange rule or
Depository rule or usage. The Company and the Trustee shall approve the form
of the Securities and any notation, legend or endorsement on them. Each
Security shall be dated the date of its authentication.
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The terms and provisions contained in the forms of the
Securities, annexed hereto as Exhibits A and B, shall constitute, and are
hereby expressly made, a part of this Indenture and, to the extent applicable,
the Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global notes in
registered form, in substantially the form set forth in Exhibit A (the "Global
Note"), deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Note may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depository, as hereinafter provided.
Securities offered and sold in offshore transactions in
reliance on Regulation S shall be issued in the form of permanent certificated
Securities in registered form in substantially the form set forth in Exhibit A
(the "Offshore Physical Securities"). Securities offered and sold in reliance
on any other exemption from registration under the Securities Act other than as
described in the preceding paragraph shall be issued, and Securities offered
and sold in reliance on Rule 144A may be issued, in the form of permanent
certificated Securities in registered form, in substantially the form set forth
in Exhibit A (the "U.S. Physical Securities"). The Offshore Physical
Securities and the U.S. Physical Securities are sometimes collectively herein
referred to as the "Physical Securities".
SECTION 2.02. EXECUTION AND AUTHENTICATION.
(a) Two Officers of the Company (each of whom shall, in
each case, have been duly authorized by all requisite corporate actions) shall
sign the Securities for the Company by manual or facsimile signature. If an
Officer whose signature is on a Security no longer holds that office at the
time the Security is authenticated, the Security shall nevertheless be valid.
(b) A Security shall not be valid until authenticated by
the manual signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
(c) The Trustee shall authenticate (i) Initial Securities
for original issue in the aggregate principal amount not to exceed
$100,000,000, and (ii) Exchange Securities from time to time for issue only in
exchange for a like principal amount of Initial Securities, in each case upon
receipt of a written order of the Company signed by two Officers.
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(d) The Trustee may appoint an authenticating agent
acceptable to the Company to authenticate Securities. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
(a) The Company shall maintain an office or agency (which
shall be located in the [Borough of Manhattan in the City of New York, State of
New York]) where (i) Securities may be presented for registration of transfer
or for exchange ("Registrar"), (ii) Securities may be presented for payment
("Paying Agent") and (iii) notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent, Registrar or co-registrar without
prior notice to any Securityholder. The Company shall notify the Trustee and
the Trustee shall notify the Securityholders of the name and address of any
Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee shall act as
such. The Company or any Subsidiary Guarantor may act as Paying Agent,
Registrar or co-registrar. The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which shall incorporate
the provisions of the TIA. The agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company shall notify the Trustee
of the name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07 hereof.
(b) The Company initially appoints the Trustee as
Registrar, Paying Agent and agent for service of notices and demands in
connection with the Securities.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company, the Subsidiary Guarantors or any other obligor on
the Securities shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent shall hold in trust for the benefit of the
Securityholders and the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Securities, and
shall notify the Trustee of any Default by the Company, any of the Subsidiary
Guarantors or any other obligor on the Securities in making any such payment.
While any such Default continues, the Trustee may require a Paying Agent to
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pay all money held by it to the Trustee. The Company, the Subsidiary
Guarantors or any other obligor on the Securities at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Company or a Subsidiary
Guarantor) shall have no further liability for the money delivered to the
Trustee. If the Company, the Subsidiary Guarantors or any other obligor on the
Securities acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Securityholders all money held by it as
Paying Agent.
SECTION 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Securityholders and shall otherwise comply with TIA Section
312(a). If the Trustee is not the Registrar, the Company, the Subsidiary
Guarantors or any other obligor on the Securities shall furnish to the Trustee
at least seven Business Days before each Interest Payment Date and at such
other times as the Trustee may request in writing a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
Securityholders, including the aggregate principal amount of the Securities
held by each thereof, and the Company, the Subsidiary Guarantors or any other
obligor on the Securities shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Where Securities are presented to the Registrar or a
co-registrar with a request to register the transfer thereof or exchange them
for an equal principal amount of Securities of other denominations, the
Registrar shall register the transfer or make the exchange if its requirements
for such transactions are met; provided, that any Security presented or
surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar and the Trustee duly executed by the Securityholder thereof or his
attorney duly authorized in writing. To permit registrations of transfer and
exchanges, the Company shall issue and the Trustee shall authenticate
Securities at the Registrar's request.
(b) Neither the Registrar, nor the Company shall be
required (i) to issue, to register the transfer of or to exchange Securities
during a period beginning at the opening of business on a Business Day 15 days
before the day of any selection of Securities for redemption under Section 3.02
hereof and ending at the close of business on the day of selection, (ii) to
register the transfer of or exchange any Security so selected for redemption in
whole or in part, except the unredeemed portion of any Security being redeemed
in part or (iii) to register the transfer or exchange of a Security between the
Record Date and the next succeeding Interest Payment Date.
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(c) No service charge by the Company shall be made for
any registration of a transfer or exchange (except as otherwise expressly
permitted herein), but the Company may require payment by the Securityholder of
a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith (other than such transfer tax or similar
governmental charge payable upon exchanges pursuant to Section 2.10, 3.06 or
9.05 hereof).
(d) Any Holder of the Global Note shall, by acceptance of
such Global Note, agree that transfers of beneficial interests in such Global
Note may be effected only through a book entry system maintained by the Holder
of such Global Note (or its agent), and that ownership of a beneficial interest
in the Global Note shall be required to be reflected in a book entry.
SECTION 2.07. REPLACEMENT SECURITIES.
(a) If any mutilated Security is surrendered to the
Trustee, or the Company and the Trustee receives evidence to its satisfaction
of the destruction, loss or theft of any Security, the Company shall issue and
the Trustee, upon receipt by it of the written order of the Company signed by
two Officers of the Company, shall authenticate a replacement Security if the
Trustee's requirements for replacements of Securities are met. If required by
the Trustee or the Company, an indemnity bond must be supplied by the Holder
that is sufficient in the judgment of the Trustee and the Company to protect
the Company, the Subsidiary Guarantors, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a Security
is replaced. The Company and the Trustee may charge a Securityholder for
reasonable out-of-pocket expenses in replacing a Security.
(b) Every replacement Security is an obligation of the
Company and each of the Subsidiary Guarantors.
SECTION 2.08. OUTSTANDING SECURITIES.
(a) The Securities outstanding at any time are all the
Securities authenticated by the Trustee except for those cancelled by the
Company or by the Trustee, those delivered to the Trustee for cancellation and
those described in this Section as not outstanding.
(b) If a Security is replaced pursuant to Section 2.07
hereof, it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Security is held by a bona fide purchaser.
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(c) If the principal amount of any Security is considered
paid under Section 4.01 hereof, it ceases to be outstanding and interest on it
ceases to accrue.
(d) Subject to Section 2.09 hereof, a Security does not
cease to be outstanding because the Company or an Affiliate of the Company or a
Subsidiary Guarantor holds the Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, the Subsidiary Guarantors, or any of their
respective Affiliates shall be considered as though not outstanding, except
that for purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which a
Responsible Officer of the Trustee has actual knowledge are so owned shall be
so disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities
upon written order of the Company signed by two Officers of the Company.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company, the Subsidiary Guarantors
and the Trustee consider appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee, upon receipt of
the written order of the Company signed by two Officers of the Company, shall
authenticate definitive Securities in exchange for temporary Securities. Until
such exchange, temporary Securities shall be entitled to the same rights,
benefits and privileges as definitive Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee (or its Agent) shall cancel all Securities, if not
already cancelled, surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall destroy cancelled Securities (subject to
the record retention requirement of the Exchange Act), and deliver
certification of their destruction to the Company, unless by a written order,
signed by two Officers of the Company, the Company shall direct that cancelled
Securities be returned to it. The Company may not issue new Securities to
replace Securities that it has redeemed or paid or that have been delivered to
the Trustee for cancellation. If the Company acquires any of the Securities,
such acquisition shall not operate as a redemption or
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satisfaction of the indebtedness represented by such Securities unless or until
the same are surrendered to the Trustee (or its Agent) for cancellation
pursuant to this Section.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Securityholders on a subsequent special record date, which date shall
be at the earliest practicable date but in all events at least five Business
Days prior to the payment date, in each case at the rate provided in the
Securities and in Section 4.01 hereof. The Company shall, with the consent of
the Trustee, fix or cause to be fixed each such special record date and payment
date. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee, in the name of and at the
expense of the Company) shall mail to Securityholders a notice that states the
special record date, the related payment date and the amount of such interest
to be paid.
SECTION 2.13. CUSIP NUMBER.
The Company in issuing the Securities may use a "CUSIP"
number, and if so, the Trustee shall use the CUSIP number in notices of
redemption or exchange as a convenience to Securityholders; provided that no
representation shall be deemed to be made by the Trustee as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities. The Company shall promptly notify the Trustee of any change in
the CUSIP number.
SECTION 2.14. DEPOSIT OF MONEYS.
Prior to 10:00 a.m. New York City time on each Interest
Payment Date and Maturity Date, the Company shall have deposited with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date or Maturity Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Securityholders on such Interest Payment Date or Maturity Date, as the
case may be.
SECTION 2.15. RESTRICTIVE LEGENDS.
Each Global Note and Physical Security that constitutes a
Restricted Security shall bear the following legend (the "Private Placement
Legend") unless otherwise agreed by the Company and the Securityholder thereof:
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THIS NOTE OR ITS PREDECESSORS HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES PERSONS OR A BENEFICIAL INTEREST HEREIN
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3) or (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR
BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN
RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH
TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO SOURCE
MEDIA, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO
A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT
THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO SOURCE MEDIA, INC. THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (G) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE
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REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN OPINION
OF COUNSEL ACCEPTABLE TO SOURCE MEDIA, INC.) AND, IN EACH CASE, IN
ACCORDANCE WITH APPLICABLE STATES SECURITIES LAWS AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION
OF THE FOREGOING RESTRICTIONS;
Each Global Note shall also bear the following legend on the
face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE
OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH SUCCESSOR
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE &
CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
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PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.
(a) The Global Note initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Section 2.15.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian,
or under the Global Note, and the Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
the Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy
or other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
(b) Transfers of the Global Note shall be limited to
transfers in whole, but not in part, to the Depository, its successors or their
respective nominees. Interest of beneficial owners in the Global Note may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.17. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Global Note if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Global Note and a successor depository is not appointed by
the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a written request
from the Depository to issue Physical Securities.
(c) In connection with any transfer or exchange of a
portion of the beneficial interest in the Global Note to beneficial owners
pursuant to paragraph (b) above, the Registrar shall (if one or more Physical
Securities are to be issued) reflect on its books and records the date and a
decrease in the principal amount of the beneficial interest in the Global Note
to be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Physical Securities of like tenor and
amount.
(d) In connection with the transfer of the entire Global
Note to beneficial owners pursuant to paragraph (b), the Global Note shall be
deemed to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange
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for its beneficial interest in the Global Note, an equal aggregate principal
amount of Physical Securities of authorized denominations.
(e) Any Physical Security constituting a Restricted
Security delivered in exchange for an interest in the Global Note pursuant to
paragraph (b) or (c) above shall, except as otherwise provided by paragraphs
(a)(i)(x) and (c) of Section 2.17, bear the legend regarding transfer
restrictions applicable to the Physical Securities set forth in Section 2.15.
(f) The Holder of the Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Securityholder
is entitled to take under this Indenture or the Securities.
SECTION 2.17. SPECIAL TRANSFER PROVISIONS.
(a) Transfers to Non-QIB Institutional Accredited
Investors and Non-U.S. Persons. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to any Institutional Accredited Investor which is not a
QIB or to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any
Security constituting a Restricted Security, whether or not such
Security bears the Private Placement Legend, if (x) the requested
transfer is after November 1, 1999 or (y) (1) in the case of a
transfer to an Institutional Accredited Investor which is not a QIB
(excluding Non-U.S.Persons), the proposed transferee has delivered to
the Registrar a certificate substantially in the form of Exhibit C
hereto or (2) in the case of a transfer to a Non-U.S. Person, the
proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding
a beneficial interest in the Global Note, upon receipt by the
Registrar of (x) the certificate, if any, required by paragraph (i)
above and (y) instructions given in accordance with the Depository's
and the Registrar's procedures, whereupon (a) the Registrar shall
reflect on its books and records the date and (if the transfer does
not involve a transfer of outstanding Physical Securities) a decrease
in the principal amount of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Securities of like tenor
and amount.
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(b) Transfers to QIBs. The following provisions shall
apply with respect to the registration of any proposed transfer of a Security
constituting a Restricted Security to a QIB (excluding transfers to Non-U.S.
Persons):
(i) the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the
box provided for on the form of Security stating, or has otherwise
advised the Company and the Registrar in writing, that the sale has
been effected in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form
of Security stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Security for its own
account or an account with respect to which it exercises sole
investment discretion and that any such account is a QIB within the
meaning of Rule 144A, and it is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to
Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member and the
Securities to be transferred consist of Physical Securities which
after transfer are to be evidenced by an interest in the Global Note,
upon receipt by the Registrar of instructions given in accordance with
the Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of the Global Note in an amount equal to the
principal amount of the Physical Securities to be transferred, and the
Trustee shall cancel the Physical Securities so transferred.
(c) Private Placement Legend. Upon the registration of
the transfer, exchange or replacement of Securities not bearing the Private
Placement Legend, the Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the registration of the transfer, exchange or
replacement of Securities bearing the Private Placement Legend, the Registrar
shall deliver only Securities that bear the Private Placement Legend unless (i)
the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17
exists or (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
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(d) General. By its acceptance of any Security bearing
the Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in
the Private Placement Legend and agrees that it will transfer such Security
only as provided in this Indenture.
The Registrar shall retain for at least two years copies of
all letters, notices and other written communications received pursuant to
Section 2.16 or this Section 2.17. The Company shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable written notice to the
Registrar.
SECTION 2.18. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of
transfer and subject to Section 2.12, the Company, the Trustee, any Paying
Agent, any Registrar and any co-registrar and Agent of the foregoing may deem
and treat the Person in whose name any Security shall be registered upon the
register of Securities kept by the Registrar as the absolute owner of such
Security (whether or not such Security shall be overdue and notwithstanding any
notation of the ownership or other writing thereon made by anyone other than
the Company, any Registrar or any co-registrar) for the purpose of receiving
payments of principal of or interest on such Security and for all other
purposes; and none of the Company, the Trustee, any Paying Agent, any Registrar
or any co-registrar or any Agent of the foregoing shall be affected by any
notice to the contrary.
SECTION 2.19. RECORD DATE.
The record date for purposes of determining the identity of
Securityholders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be the later of (i) 30 days
prior to the first solicitation of such consent or (ii) the date of the most
recent list of Holders furnished to the Trustee, if applicable, pursuant to
Section 2.05 hereto.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
(a) If the Company elects to redeem Securities pursuant
to the optional redemption provisions of Section 3.07 hereof, it shall furnish
to the Trustee, at least 30 days (unless a shorter period is acceptable to the
Trustee) but not more than 60 days before
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a redemption date, an Officers' Certificate setting forth (i) the Section of
this Indenture pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Securities to be redeemed, (iv)
the redemption price and accrued and unpaid interest and (v) whether it
requests the Trustee to give notice of such redemption.
(b) If the Company is required to make an offer to redeem
Securities pursuant to the provisions of Sections 3.09 or 4.14 hereof, it shall
furnish to the Trustee at least 30 days but not more than 60 days before a
redemption date, an Officers' Certificate setting forth (i) the Section of this
Indenture pursuant to which the redemption shall occur, (ii) the redemption
date, (iii) the principal amount of Securities to be redeemed, (iv) the
redemption price and accrued and unpaid interest, (v) whether it requests the
Trustee to give notice of such redemption and (vi) further setting forth a
statement to the effect that (a) the Company or one of its Subsidiaries has
effected an Asset Disposition and the conditions set forth in Section 4.10 have
been satisfied or (b) a Change of Control has occurred and the conditions set
forth in Section 4.14 have been satisfied, as applicable.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
(a) If less than all of the Securities are to be
redeemed, the Trustee shall select the Securities to be redeemed among the
Securityholders on a pro rata basis, by lot or in accordance with any other
method the Trustee considers fair and appropriate (and in such manner as
complies with applicable legal and stock exchange requirements, if any);
provided, however, that if a partial redemption is made with the proceeds of an
Equity Offering, selection of the Securities or portion thereof for redemption
shall be made by the Trustee only on a pro rata basis, unless such method is
otherwise prohibited. In the event of partial redemption by lot, the
particular Securities to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 60 days prior to the redemption
date by the Trustee from the outstanding Securities not previously called for
redemption.
(b) The Trustee shall promptly notify the Company in
writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities may be redeemed in part in multiples of $1,000 principal
amount only. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
(c) In the event the Company is required to make an offer
to redeem Securities pursuant to Sections 3.09 and 4.10 hereof and the amount
of the Excess Proceeds from the Asset Disposition are not evenly divisible by
$1,000, the Trustee shall promptly refund to the Company any remaining Excess
Proceeds.
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SECTION 3.03. NOTICE OF REDEMPTION.
(a) Subject to the provisions of Section 3.09 hereof, at
least 30 days (unless a shorter period is acceptable to the Trustee) but not
more than 60 days before a redemption date, the Company shall mail or cause to
be mailed a notice of redemption by first class mail, postage prepaid to each
Holder whose Securities are to be redeemed at the last address for such Holder
then shown on the registry books.
The notice shall identify the Securities to be redeemed and
shall state:
(i) the redemption date;
(ii) the redemption price;
(iii) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after
the redemption date upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion shall
be issued;
(iv) the name and address of the Paying Agent;
(v) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(vi) that, unless the Company defaults in making such
redemption payment, interest on Securities called for redemption
ceases to accrue on and after the redemption date;
(vii) the paragraph of the Securities and/or Section of this
Indenture pursuant to which the Securities called for redemption are
being redeemed; and
(viii) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption.
(b) At the Company's request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's expense;
provided, however, that the Company shall have delivered to the Trustee at
least 45 days (unless a shorter period is acceptable to the Trustee) prior to
the proposed redemption date an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.
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SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Securities called for redemption become due and payable on the
redemption date at the redemption price plus accrued and unpaid interest, if
any.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
(a) Prior to 10:00 a.m., New York City time, on the
redemption date, the Company shall deposit with the Paying Agent (other than
the Company or any of its Subsidiaries) money sufficient to pay the redemption
price of and accrued interest on all Securities to be redeemed on that date.
The Paying Agent shall promptly return to the Company any money deposited with
the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Securities to be redeemed.
(b) If the Company complies with the provisions of the
preceding paragraph, on and after the redemption date, interest ceases to
accrue on the Securities or the portions of Securities called for redemption
whether or not such Securities are presented for payment, and the only
remaining right of the Holders of such Securities shall be to receive payment
of the redemption price upon surrender to Paying Agent if the Securities are
redeemed. If a Security is redeemed on or after an Interest Record Date but on
or prior to the related Interest Payment Date, then any accrued and unpaid
interest shall be paid to the Person in whose name such Security was registered
at the close of business on such record date. If any Security called for
redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest shall
be paid on the unpaid principal, from the redemption date until such principal
is paid and, to the extent lawful, on any interest not paid on such unpaid
principal, in each case at the rate provided in the Securities and in Section
4.01 hereof.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the
Company shall issue and upon the Company's written request, the Trustee shall
authenticate for the Securityholder at the expense of the Company a new
Security equal in principal amount to the unredeemed portion of the Security
surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as provided in Section 3.07(b), the Company
may redeem all or any portion of the Securities at any time on or after
November 1, 2001, at a redemption price equal to a percentage of the principal
amount thereof, as set forth in the immediately
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succeeding sentence, plus accrued and unpaid interest to the redemption date.
The redemption price as a percentage of the principal amount shall be as
follows, if the Securities are redeemed during the period commencing on the
dates set forth below, plus in each case, accrued and unpaid interest to the
date of redemption:
<TABLE>
<CAPTION>
Period Redemption Price
- ------ ----------------
<S> <C>
2001 106.00%
2002 103.00%
2003 and thereafter 100.00%
</TABLE>
(b) At any time, or from time to time, on or prior to
November 1, 2000, the Company may, at its option, use the net cash proceeds of
one or more Equity Offerings by the Company so long as there is a Public Market
at the time of such redemption at a redemption price equal to 35% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided, however, that after any such redemption the
aggregate principal amount of the Securities outstanding must equal at least
$65 million. In order to effect the foregoing redemption with the proceeds of
any Equity Offering, the Company shall make such redemption not more than 60
days after the consummation of any such Equity Offering.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth in Sections 3.09 and 4.14, the Company is
not required to make mandatory redemption or sinking fund payments with respect
to the Securities.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
(a) In the event that, pursuant to Section 4.10 hereof,
the Company shall commence an offer to all Securityholders to purchase
Securities (an "Asset Disposition Offer"), it shall follow the procedures
specified below:
(i) The Asset Disposition Offer shall remain open for a
period of 30 Business Days following its commencement and no longer,
except to the extent that a longer period is required by applicable
law (the "Offer Period"). No later than five Business Days after the
termination of the Offer Period (the "Purchase Date"), the Company
shall purchase the principal amount of Securities required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if
less than the Offer Amount has been tendered, all Securities tendered
in response to the Asset Disposition Offer.
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(ii) If the Purchase Date is on or after a Record Date and
on or before the related Interest Payment Date, any accrued interest
shall be paid to the Person under whose name a Security is registered
at the close of business on such Record Date, and no additional
interest shall be payable to holders who tender Securities pursuant to
the Asset Disposition Offer.
(iii) Upon the commencement of any Asset Disposition Offer,
the Company shall send or cause to be sent in accordance with Section
3.03, a notice to each Securityholder. The notice shall contain all
instructions and materials necessary to enable such holders to tender
Securities pursuant to the Asset Disposition Offer. The notice, which
shall govern the terms of the Asset Disposition Offer, shall state:
(1) that the Asset Disposition Offer is being made
pursuant to this Section 3.09 and Section 4.10 hereof and the
length of time the Asset Disposition Offer shall remain open;
(2) the Offer Amount, the purchase price and the
Purchase Date;
(3) that any Security not tendered or accepted for
payment shall continue to accrue interest;
(4) that any Security accepted for payment pursuant
to the Asset Disposition Offer shall cease to accrue interest
after the Purchase Date;
(5) that Holders electing to have a Security
purchased pursuant to any Asset Disposition Offer shall be
required to surrender the Security, with the form entitled
"Option of Securityholder to Elect Purchase" on the reverse of
the Security completed, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the
Purchase Date;
(6) that Holders shall be entitled to withdraw their
election if the Company, depositary or Paying Agent, as the
case may be, receives, not later than the expiration of the
Offer Period, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal
amount of the Security the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have
the Security purchased;
(7) that, if the aggregate principal amount of
Securities surrendered by Holders exceeds the Offer Amount,
the Company shall select the Securities to be purchased on a
pro rata basis (with such adjustments as
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may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples
thereof, shall be purchased); and
(8) that Holders whose Securities were purchased
only in part shall be issued new Securities equal in principal
amount to the unpurchased portion of the Securities
surrendered.
(iv) On or before the Purchase Date, the Trustee shall, to
the extent lawful, accept for payment, on a pro rata basis to the
extent necessary, the Offer Amount of Securities or portions thereof
tendered pursuant to the Asset Disposition Offer or, if less than the
Offer Amount has been tendered, all Securities or portions thereof
tendered, and deliver to the Trustee an Officers' Certificate stating
that such Securities or portions thereof were accepted for payment by
the Company in accordance with the terms of this Section 3.09. The
Paying Agent shall promptly (but in any case not later than five days
after the Purchase Date) mail or deliver to each tendering Holder an
amount equal to the purchase price of the Security tendered by such
Holder and accepted by the Company for purchase, and the Company shall
promptly issue a new Security, and at the written request of the
Company the Trustee shall authenticate and mail or deliver such new
Security to such Holder equal in principal amount to any unpurchased
portion of the Security surrendered. Any Security not so accepted
shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset
Disposition Offer on the Purchase Date.
(b) Other than as specifically provided in this Section
3.09, any redemption pursuant to this Section 3.09 shall be made pursuant to
the provisions of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
(a) The Company shall pay the principal of, premium, if
any, and interest on the Securities on the dates and in the manner provided in
the Securities and in this Indenture. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company or a Subsidiary, holds as of 10:00 a.m. New York City time on the due
date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
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interest then due. Such Paying Agent shall return to the Company, no later
than five business days following the date of payment, any money (including
accrued interest paid by the Company) that exceeds such amount of principal,
premium, if any, and interest paid on the Securities.
(b) The Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate equal to 2% per annum in excess of the then applicable
interest rate on the Securities to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest (without regard to any applicable grace
period) at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
(a) The Company shall maintain in the Borough of
Manhattan, in the City of New York, an office or agency (which may be an office
of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where
Securities may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Securities
and this Indenture may be served. The Company shall give prior written notice
to the Trustee of the location, and any change in the location, of such office
or agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at
the Corporate Trust Office of the Trustee.
(b) The Company may also from time to time designate one
or more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, in the City of New York for such purposes.
The Company shall give prior written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
(c) The Company hereby designates the Corporate Trust
Office of the Trustee as one such office or agency of the Company in accordance
with Section 2.03.
SECTION 4.03. SEC REPORTS.
(a) Upon consummation of the Exchange Offer and the
issuance of the Exchange Securities, the Company (at its own expense) shall
file with the Commission and shall furnish to the Trustee and each
Securityholder within 15 days after it files them with
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the Commission copies of the quarterly and annual reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) to be
filed pursuant to Section 13 or 15(d) of the Exchange Act (without regard to
whether the Company is subject to the requirements of such Section 13 or 15(d)
of the Exchange Act); provided, that prior to the consummation of the Exchange
Offer and the issuance of the Exchange Securities, the Company (at its own
expense), will mail to the Trustee and the Securityholders in accordance with
paragraph (b) of this Section 4.03 substantially the same information that
would have been required by the foregoing documents within 15 days of when any
such document would otherwise have been required to be filed with the
Commission. Upon qualification of this Indenture under the TIA, the Company
shall also comply with the provisions of TIA Section 314(a).
(b) At the Company's expense, the Company shall cause an
annual report if furnished by it to stockholders generally and each quarterly
or other financial report if furnished by it to stockholders generally to be
filed with the Trustee and mailed to the Securityholders at their addresses
appearing in the register of Securities maintained by the Registrar at the time
of such mailing or furnishing to stockholders.
(c) The Company shall provide to any Securityholder any
information reasonably requested by such Securityholder concerning the Company
(including financial statements) necessary in order to permit such
Securityholder to sell or transfer Securities in compliance with Rule 144A
under the Securities Act.
(d) If the Company instructs the Trustee to distribute
any of the documents described in Section 4.03(a) to the Securityholders, the
Company shall provide the Trustee with a sufficient number of copies of all
such documents.
SECTION 4.04. COMPLIANCE CERTIFICATES.
(a) The Company shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate signed by its
principal executive officer, principal financial officer or principal
accounting officer stating that a review of the activities of the Company and
its Subsidiaries, as the case may be, during the preceding fiscal year has been
made under the supervision of the signing Officers with a view to determining
whether each has kept, observed, performed and fulfilled its Obligations under
this Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge each has kept, observed,
performed and fulfilled each and every covenant contained in this Indenture and
is not in default in the performance or observance of any of the terms,
provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
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of which he or she may have knowledge and what action each is taking or
proposes to take with respect thereto).
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.03 above shall be
accompanied by a written statement of (x) the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention which would lead them to believe that the
Company has violated any provisions of Article 4, 5 or 6 of this Indenture
insofar as they relate to accounting matters or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation and (y) if
any Restricted Subsidiary's financial statements are not prepared on a
consolidated basis with the Company's, such Restricted Subsidiary's or
Guarantor's independent public accountants (who shall be a firm of established
national reputation) that in making the examination necessary for certification
of such financial statements nothing has come to their attention which would
lead them to believe that any of the Restricted Subsidiaries is in Default
under this Indenture or, if any such Default has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Securities
are outstanding, deliver to the Trustee, forthwith upon any Officer becoming
aware of (i) any Default or Event of Default or (ii) any event of default under
any other mortgage, indenture or instrument to which the Company is a party, an
Officers' Certificate specifying such Default, Event of Default or event of
default and what action the Company is taking or proposes to take with respect
thereto.
(d) The Company shall also comply with TIA
Section 314(a)(4).
SECTION 4.05. TAXES.
The Company will, and will cause its Restricted Subsidiaries
to, pay and discharge when due and pay all taxes, levies, imposts, duties or
other governmental charges ("Taxes") imposed on its income or profits or on any
of its properties except such Taxes which are being contested in good faith in
appropriate proceedings, and for which adequate reserves have been established
with GAAP.
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SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture (including, but not
limited to, the payment of the principal of or interest on the Securities); and
the Company and each Subsidiary Guarantor (to the extent that they may lawfully
do so) hereby expressly waive all benefit or advantage of any such law, and
covenant that they shall not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) except (A) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock) or
in options, warrants or other rights to purchase such Capital Stock, and (B)
dividends or distributions payable to the Company or any of its Restricted
Subsidiaries by any of its Subsidiaries (and if the Subsidiary paying the
dividend or making the distribution is not a Wholly-Owned Subsidiary, to its
other holders of Capital Stock on a pro rata basis), (ii) purchase, redeem,
retire or otherwise acquire for value any Capital Stock of the Company held by
Persons other than a Wholly-Owned Subsidiary of the Company or any Capital
Stock of a Restricted Subsidiary of the Company held by any Affiliate of the
Company, other than a Wholly-Owned Subsidiary (in either case, other than in
exchange for its Capital Stock (other than Disqualified Stock)), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of purchase, repurchase or
acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment as described in
preceding clauses (i) through (iv) being referred to as a "Restricted
Payment"); if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom); or
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(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) under Section 4.09; or
(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made subsequent to the Issue
Date would exceed the sum of (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from the
first day of the fiscal quarter beginning on or after the Issue Date
to the end of the most recent fiscal quarter ending prior to the date
of such Restricted Payment as to which financial results are available
(but in no event ending more than 135 days prior to the date of such
Restricted Payment) (or, in case such Consolidated Net Income shall be
a deficit, minus 100% of such deficit); (B) the aggregate net proceeds
received by the Company from the issue or sale of its Capital Stock
(other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an
issuance or sale of such Capital Stock to (x) a Subsidiary of the
Company, (y) an employee stock ownership plan or similar trust of (z)
management employees of the Company or any Subsidiary of the Company);
provided, however, that the value of any non-cash net proceeds shall
be as determined by the Board of Directors in good faith, except that
in the event the value of any non-cash, net proceeds shall be $1
million or more, the value shall be as determined in writing by an
independent investment banking firm of nationally recognized standing;
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by
a Restricted Subsidiary of the Company) subsequent to the Issue Date
of any Indebtedness of the Company convertible or exchangeable for
Capital Stock of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or
exchange); and (D) the amount equal to the net reduction in
Investments (other than Permitted Investments) made after the Issue
Date by the Company or any of its Restricted Subsidiaries in any
Person resulting from (i) repurchases or redemptions of such
Investments by such Person, proceeds realized upon the sale of such
Investment to an unaffiliated purchaser, repayments of loans or
advances or other transfers of assets by such Person to the Company or
any Restricted Subsidiary of the Company or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of "Investment") not to exceed, in
the case of any Unrestricted Subsidiary, the amount of Investments
previously included in the calculation of the amount of Restricted
Payments; provided, however, that no amount shall be included under
this clause (D) to the extent it is already included in Consolidated
Net Income.
(b) Notwithstanding the foregoing, the Company shall not, and
shall not permit any of its Restricted Subsidiaries, to make Investments in
Interactive Channel, Inc. or Interactive Channel Technologies, Inc., if at the
time of such Investment:
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(1) a Default shall have occurred and be continuing (or would
result therefrom); or
(2) the aggregate amount of such Investment and all other
Investments in Interactive Channel, Inc. made subsequent to the Issue
Date would exceed the sum of (A) $34.0 million; (B) 50% of the
Adjusted Consolidated Net Income accrued during the period (treated as
one accounting period) from the first day of the fiscal quarter
beginning on or after the Issue Date to the end of the most recent
fiscal quarter ending prior to the date of such Investment as to which
financial results are available (but in no event ending more than 135
days prior to the date of such Restricted Payment) (or, in case such
Adjusted Consolidated Net Income shall be a deficit, minus 100% of
such deficit); and (C) the aggregate net proceeds received by the
Company from the issue or sale of its Capital Stock (other than
Disqualified Stock) or other capital contributions subsequent to the
Issue Date as calculated in accordance with paragraph (a) (3) (B)
above.
(c) The provisions of paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary, an employee stock
ownership plan or similar trust or management employees of the Company or any
Subsidiary of the Company); provided, however, that (A) such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale shall be excluded from
clause (3) (B) of paragraph (a); (ii) any purchase or redemption of
Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Subordinated Obligations of
the Company in compliance with Section 4.09; provided, however, that such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under Section 4.10;
provided, however, that such purchase; or redemption shall be excluded in the
calculation of the amount of Restricted Payments; and (iv) dividends paid
within 60 days after the date of declaration if at such date of declaration
such dividend would have complied with this provision; provided, however, that
such dividend shall be included in the calculation of the amount of Restricted
Payments, provided, however; that in each case, that no Default or Event of
Default shall have occurred or be continuing at the time of such payment or as
a result thereof.
(d) For purposes of determining compliance with the foregoing
covenant, Restricted Payments may be made with cash or non-cash assets,
provided that any Restricted Payment made other than in cash shall be valued at
the fair market value (determined, subject to the additional requirements of
the immediately succeeding proviso,
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in good faith by the Board of Directors) of the assets so utilized in making
such Restricted Payment, provided, further that (i) in the case of any
Restricted Payment made with capital stock or indebtedness, such Restricted
Payment shall be deemed to be made in an amount equal to the greater of the
fair market value thereof and the liquidation preference (if any) or principal
amount of the capital stock or indebtedness, as the case may be, so utilized,
and (ii) in the case of any Restricted Payment in an aggregate amount in excess
of $1 million, a written opinion as to the fairness of the valuation thereof
(as determined by the Company) for purposes of determining compliance with
Section 4.07 shall be issued by an independent investment banking firm of
national standing.
(e) Not later than the date of making any Restricted Payment,
the Company shall deliver to the Trustee an Officer's Certificate stating that
such Restricted Payment complies with this Indenture and setting forth in
reasonable detail the basis upon which the required calculations were computed,
which calculations may be based upon the Company's latest available quarterly
financial statements and a copy of any required investment banker's opinion.
SECTION 4.08. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any such Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligation owed to the Company, (ii)
make any loans or advances to the Company or (iii) transfer any of its property
or assets to the Company, except: (a) any encumbrance or restriction pursuant
to an agreement in effect at or entered into on the Issue Date; (b) any
encumbrance or restriction with respect to such a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness issued by such Restricted
Subsidiary on or prior to the date on which such Restricted Subsidiary was
acquired by the Company and outstanding on such date (other than Indebtedness
Incurred in anticipation of, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary of the Company or was acquired by the Company); (c) any encumbrance
or restriction with respect to such a Restricted Subsidiary pursuant to an
agreement evidencing Indebtedness Incurred without violation of this Indenture
or effecting a refinancing of Indebtedness issued pursuant to an agreement
referred to in clauses (a) or (b) or this clause (c) or contained in any
amendment to an agreement referred to in clauses (a) or (b) or this clause (c);
provided, however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any of such agreement, refinancing agreement
or amendment, taken as a whole, are no less favorable to the holders of the
Securities in any
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material respect, as determined in good faith by the Board of Directors of the
Company, than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in agreements in effect at, or entered into on, the Issue
Date; (d) in the case of clause (iii), of this Section 4.08, any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) by virtue of any transfer of,
agreement to transfer, option, or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by this Indenture, (C) that is included in a licensing agreement to
the extent such restrictions limit the transfer of the property subject to such
licensing agreement or (D) arising or agreed to in the ordinary course of
business and that does not, individually or in the aggregate, detract from the
value of property or assets of the Company or any of its Subsidiaries in any
manner material to the Company or any such Restricted Subsidiary; (e) in the
case of clause (iii) above, restrictions contained in security agreements,
mortgages or similar documents securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property subject
to such security agreements; (f) in the case of clause (iii) of this Section
4.08 above, any instrument governing or evidencing Indebtedness of a Person
acquired by the Company or any Restricted Subsidiary of the Company at the time
of such acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person so
acquired; provided, however, that such Indebtedness is not Incurred in
connection with or in contemplation of such acquisition; (g) any restriction
with respect to such a Restricted Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; and (h) encumbrances or restrictions arising or
existing by reason of applicable law.
SECTION 4.09. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the
Company and any of its Restricted Subsidiaries may Incur Indebtedness if (i) no
Default or Event of Default shall have occurred and be continuing at the time
of such Incurrence or would occur as a consequence of such Incurrence and (ii)
on the date thereof the Consolidated Coverage Ratio would be greater than
2.0:1.
(b) Notwithstanding the foregoing paragraph (a), the Company
and its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of the Company or any Restricted Subsidiary
under Bank Indebtedness and under standby letters of credit or
reimbursement obligations with respect thereto issued in the ordinary
course of business and consistent with industry
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practice; provided, however, that the aggregate principal amount of
any Indebtedness Incurred pursuant to this clause (i) shall not exceed
$10 million at any time outstanding;
(ii) Indebtedness represented by Capitalized Lease
Obligations, mortgage financings or purchase money obligations, in
each case Incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property or
equipment used in a Permitted Business or Incurred to refinance any
such purchase price or cost of construction or improvement, in each
case Incurred no later than 365 days after the date of such
acquisition or the date of completion of such construction or
improvement; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (ii), together with
Indebtedness Incurred in connection with Sale/Leaseback Transactions
in accordance with Section 4.17, shall not exceed $5 million at any
time outstanding;
(iii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary
owing to and held by the Company or any Wholly-Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Wholly-
Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or
any Wholly-Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (w) the Securities, (x) the
Guarantees, (y) Existing Indebtedness and (z) any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (iv) or Incurred pursuant to paragraph (a);
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred in
anticipation of, or to provide all or any portion of the funds or
credit support utilized to consummate the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or was otherwise acquired by the Company);
provided, however, that at the time such Restricted Subsidiary is
acquired by the Company, the Company would have been able to Incur $
1.00 of additional Indebtedness pursuant to paragraph (a) above after
giving effect to the Incurrence of such Indebtedness pursuant to this
clause (v) and (B) Refinancing Indebtedness Incurred by a Restricted
Subsidiary in respect of Indebtedness Incurred by such Restricted
Subsidiary pursuant to this clause (v);
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(vi) Indebtedness (A) in respect of performance bonds,
bankers' acceptances and surety or appeal bonds provided by the
Company or any of its Restricted Subsidiaries to their customers in
the ordinary course of their business, (B) in respect of performance
bonds or similar obligations of the Company or any of its Restricted
Subsidiaries for or in connection with pledges, deposits or payments
made or given in the ordinary course of business in connection with or
to secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations, (C)
arising from Guarantees to suppliers, lessors, licensees, contractors,
franchises or customers of obligations (other than Indebtedness)
Incurred in the ordinary course of business and (D) under Currency
Agreements and Interest Rate Agreements; provided, however, that in
the case of Currency Agreements and Interest Rate Agreements, such
Currency Agreements and Interest Rate Agreements are entered into for
bona fide hedging purposes of the Company or its Restricted
Subsidiaries (as determined in good faith by the Board of Directors of
the Company) and correspond in terms of notional amount, duration,
currencies and interest rates as applicable, to Indebtedness of the
Company, or its Restricted Subsidiaries Incurred without violation of
this Indenture or to business transactions of the Company or its
Restricted Subsidiaries on customary terms entered into in the
ordinary course of business;
(vii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations,
or from Guarantees or letters of credit, surety bonds or performance
bonds securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness or
other obligations Incurred by any Person acquiring all or any portion
of such business assets or Restricted Subsidiary of the Company for
the purpose of financing such acquisition) in a principal amount not
to exceed the gross proceeds actually received by the Company or any
of its Restricted Subsidiaries in connection with such disposition;
provided, however, that the principal amount of any Indebtedness
Incurred pursuant to this clause (vii) when taken together with all
Indebtedness Incurred pursuant to this clause (vii) and then
outstanding, shall not exceed $1 million;
(viii) Indebtedness consisting of (A) Guarantees by the Company
or a Subsidiary Guarantor of Indebtedness Incurred by a Wholly-Owned
Subsidiary without violation of this Indenture (so long as the Company
or such Subsidiary Guarantor, as the case may be, could have Incurred
such Indebtedness directly without violation of this Indenture) and
(B) Guarantees by a Restricted Subsidiary of Senior Indebtedness
Incurred by the Company without violation of this Indenture
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(so long as such Restricted Subsidiary could have Incurred such
Indebtedness directly without violation of this Indenture);
(ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument issued
by the Company or its Restricted Subsidiaries drawn against
insufficient funds in the ordinary course of business in an amount not
to exceed $250,000 at any time, provided that such Indebtedness is
extinguished within two business days of its incurrence; and
(x) Indebtedness (other than Indebtedness described in
clauses (i)-(ix)) in a principal amount which, when taken together
with the principal amount of all other Indebtedness Incurred pursuant
to this clause (x) and then outstanding, will not exceed $4 million
(it being understood that any Indebtedness Incurred under this clause
(x) shall cease to be deemed Incurred or outstanding for purposes of
this clause (x) (but shall be deemed to be Incurred for purposes of
paragraph (a)) from and after the first date on which the Company or
its Restricted Subsidiaries could have Incurred such Indebtedness
under the foregoing paragraph (a) without reliance upon this clause
(x)).
(c) Neither the Company nor any Restricted Subsidiary shall
Incur any Indebtedness under paragraph (b) above if the proceeds thereof are
used, directly or indirectly, to refinance any Subordinated Obligations of the
Company unless such Indebtedness shall be subordinated to the Securities to at
least the same extent as such Subordinated Obligations. No Restricted
Subsidiary shall Incur any Indebtedness under paragraph (b) above if the
proceeds thereof are used, directly or indirectly, to refinance any Guarantor
Subordinated Obligation of such Subsidiary Guarantor unless such Indebtedness
shall be subordinated to the obligations of such Subsidiary Guarantor under the
Subsidiary Guaranty to at least the same extent as such Guarantor Subordinated
Obligation.
(d) The Company will not permit any Unrestricted Subsidiary
to Incur any Indebtedness other than Non- Recourse Debt.
SECTION 4.10. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any Asset Disposition unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (as determined in good
faith by senior management of the Company or, if the fair market value of such
assets exceeds $500,000, by the Company's Board of Directors) (including as to
the value of all non-cash consideration), of the shares and assets subject to
such Asset Disposition, (ii) at least 80% of the consideration thereof received
by the Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents and
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(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be): (A) first, to the extent the Company or any Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness), (x)
to prepay, repay or purchase Senior Indebtedness or (y) to the investment in or
acquisition of Additional Assets within 180 days from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (B) second,
within 180 days from the receipt of such Net Available Cash, to the extent of
the balance of such Net Available Cash after application in accordance with
clause (A), to make an offer to purchase Securities at 100% of their principal
amount plus accrued and unpaid interest, if any, thereon; (C) third, within 180
days after the later of the application of Net Available Cash in accordance
with clauses (A) and (B) and the date that is one year from the receipt of such
Net Available Cash, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to prepay, repay or
repurchase Indebtedness (other than Preferred Stock) of a Wholly-Owned
Subsidiary (in each case other than Indebtedness owned to the Company); and (D)
fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), to (w) the investment
in or acquisition of Additional Assets, (x) the making of Temporary Cash
Investments, (y) the prepayment, repayment or purchase of Indebtedness of the
Company (other than Indebtedness owing to any Subsidiary of the Company) or
Indebtedness of any Subsidiary (other than Indebtedness owed to the Company, or
any of its Subsidiaries) or (z) any other purpose otherwise permitted under
this Indenture, in each case within the later of 45 days after the application
of Net Available Cash in accordance with clauses (A), (B) and (C) or the date
that is one year from the receipt of such Net Available Cash; provided,
however, that, in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (B), (C) or (D) above, the Company or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal
to the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions the Company and its Restricted Subsidiaries shall not be
required to apply any Net Available Cash in accordance herewith except to the
extent that the aggregate Net Available Cash from all Asset Dispositions which
are not applied in accordance with this covenant at any time exceed $5 million.
The Company shall not be required to make an offer for Securities pursuant to
this covenant if the Net Available Cash available therefor (after application
of the proceeds as provided in clause (A)) is less than $5 million for any
particular Asset Disposition (which lesser amounts shall be carried forward for
purposes of determining whether an offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be
deemed to be cash: (x) the assumption by the transferee of Senior Indebtedness
of the Company or Senior Indebtedness of any Restricted Subsidiary and the
release of the Company or such Restricted Subsidiary from all liability on such
Senior Indebtedness in connection with such
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Asset Disposition (in which case the Company shall, without further action, be
deemed to have applied such assumed Indebtedness in accordance with clause (A)
of the preceding paragraph) and (y) securities received by the Company or any
Restricted Subsidiary of the Company from the transferee that are promptly (and
in any event within 60 days) converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the
purchase of Securities pursuant to clause (a)(iii)(B), the Company will be
required to purchase Securities tendered pursuant to an offer by the Company
for the Securities at a purchase price of 101% of their principal amount plus
accrued and unpaid interest, if any, to the purchase date in accordance with
the procedures (including prorating in the event of oversubscription) set forth
in this Indenture. If the aggregate purchase price of the Securities tendered
pursuant to the offer is less than the Net Available Cash allotted to the
purchase of the Securities, the Company will apply the remaining Net Available
Cash in accordance with clauses (a) (iii) (C) or (D) above.
(c) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this Indenture by virtue thereof.
SECTION 4.11. LIMITATION ON AFFILIATE TRANSACTIONS.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or conduct any
transaction or series of related transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with or for
the benefit of any Affiliate of the Company, other than a Wholly-Owned
Subsidiary (an "Affiliate Transaction") unless: (i) the terms of such
Affiliate Transaction are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time
of such transaction in arm's length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Company
and by a majority of the disinterested members of such Board, if any (and such
majority or majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and (iii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $2 million, the
Company has received a written opinion from an independent investment banking
firm of nationally
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recognized standing that such Affiliate Transaction is fair to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any
Restricted Payment permitted to be made pursuant to Section 4.07, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, or any
stock options and stock ownership plans for the benefit of employees, officers
and directors, consultants and advisors approved by the Board of Directors of
the Company, (iii) loans or advances to employees in the ordinary course of
business of the Company or any of its Restricted Subsidiaries in aggregate
amount outstanding not to exceed $250,000 at any time, (iv) loans or advances
to senior management of the Company which loans and advances are fully secured
on the date of such loans or advances by shares of Common Stock of the Company
owned by such senior management, in an aggregate amount outstanding not to
exceed $750,000, (v) indemnification agreements with, and the payment of fees
and indemnities to, directors, officers and employees of the Company and its
Restricted Subsidiaries, in each case in the ordinary course of business, (vi)
transactions pursuant to agreements in existence on the Issue Date which are
(x) described in the Offering Memorandum or (y) otherwise, in the aggregate,
immaterial to the Company and its Restricted Subsidiaries taken as a whole,
(vii) any employment, non- competition or confidentiality agreements entered
into by the Company or any of its Restricted Subsidiaries with its employees in
the ordinary course of business and (viii) the issuance of Capital Stock of the
Company (other than Disqualified Stock).
SECTION 4.12. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Liens, except for Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence, and the corporate, partnership or other existence of each
Subsidiary, in accordance with the respective organizational documents (as the
same may be amended from time to time) of each Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and its
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any Subsidiary, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the
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Company and its Subsidiaries, taken as a whole, and that the loss thereof is
not adverse in any material respect to the Securityholders.
SECTION 4.14. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control each
Securityholder will have the right to require the Company to repurchase all or
any part of such Securityholder's Securities at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (the "Change of Control Payment") (subject to the
right of Securityholders of record on the relevant record date to receive
interest due on the relevant Interest Payment Date).
(b) Within 30 days following any Change of Control, the
Company shall mail a notice to each Securityholder with a copy to the Trustee
or, at the Company's option, by the Trustee (at the Company's expense) stating:
(i) that a Change of Control has occurred and that such
Securityholder has the right to require the Company to purchase such
Securityholder's Securities at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Securityholders
of record on a record date to receive interest on the relevant
Interest Payment Date);
(ii) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed) (the
"Change of Control Payment Date"); and
(iii) the procedures determined by the Company, consistent
with this Indenture, that a Securityholder must follow in order to
have its Securities purchased.
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Indenture, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in this Indenture by virtue thereof.
(c) Securityholders electing to have a Security repurchased
will be required to surrender the Security, with the form entitled "Option of
Securityholder to Elect Purchase" on the reverse of the Security completed, to
the Company at the address
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specified in the notice at least 10 Business Days prior to the repurchase date.
Securityholders will be entitled to withdraw their election if the Trustee or
the Company receives not later than three Business Days prior to the repurchase
date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Securityholder, the principal amount of the Security which was
delivered for repurchase by the Securityholder and a statement that such
Securityholder is withdrawing his election to have such Security purchased.
(d) On the Change of Control Payment Date, the Company
will, to the extent lawful, (i) accept for payment all Securities or portions
thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Trustee an amount equal to the Change of Control Payment in respect of
all Securities or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Securities so accepted together with an Officers'
Certificate stating the aggregate principal amount of Securities or portions
thereof being purchased by the Company. The Trustee will promptly mail to each
Securityholder so tendered the Change of Control Payment for such Securities,
and the Trustee will promptly authenticate and mail (or cause to be transferred
by book entry) to each Securityholder a new Security equal in principal amount
to any unpurchased portion of the Securities surrendered, if any; provided that
each such new Security will be in a principal amount of $1,000 or an integral
multiple thereof. Unless the Company defaults in the payment for any
Securities properly tendered pursuant to the Change of Control Offer, any
Securities accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date.
(e) The Company will to the extent applicable comply with
any tender offer rules under the Exchange Act which may then be applicable,
including Rule 14e-1, in connection with any offer required to be made by the
Company to repurchase the Securities as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of this Indenture relative to the Company's obligation to
make an offer to repurchase the Securities as a result of a Change of Control,
the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under such provisions of
the Indenture by virtue thereof.
SECTION 4.15. LIMITATION ON ISSUANCES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES.
The Company will not permit any of its Restricted Subsidiaries
to issue any Capital Stock to any Person (other than to the Company or a
Wholly-Owned Subsidiary of the Company) or permit any Person (other than the
Company or a Wholly-Owned Subsidiary of the Company) to own any Capital Stock
of a Restricted Subsidiary of the Company, if in either case as a result
thereof such Restricted Subsidiary would no longer
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be a Restricted Subsidiary of the Company; provided, however, that this
provision shall not prohibit (x) the Company or any of its Restricted
Subsidiaries from selling or otherwise disposing of all of the Capital Stock of
any,Restricted Subsidiary or (y) the designation, of a Restricted Subsidiary as
an Unrestricted Subsidiary in compliance with this Indenture.
SECTION 4.16. CONDUCT OF BUSINESS.
The Company will not permit IT Network, Inc. to directly or
indirectly engage in any business other than the provision of voice information
services, including the services described in this Offering Memorandum. The
Company will conduct all of its interactive television business through
Interactive Channel, Inc., Interactive Channel Technologies, Inc. and any of
their Wholly-Owned Subsidiaries.
SECTION 4.17. LIMITATION ON SALE/LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, Guarantee or otherwise
become liable with respect to any Sale/Leaseback Transaction with respect to
any property or assets unless (i) the Company or such Restricted Subsidiary, as
the case may be, would be entitled to pursuant to this Indenture Incur
Indebtedness secured by a Permitted Lien on such property or assets in an
amount equal to the Attributable Indebtedness with respect to such
Sale/Leaseback Transaction, (ii) the Net Cash Proceeds from such Sale/Leaseback
Transaction are at least equal to the fair market value of the property or
assets subject to such Sale/Leaseback Transaction (such fair market value
determined, in the event such property or assets have a fair market value in
excess of $500,000, no more than 30 days prior to the effective date of such
Sale/ Leaseback Transaction, by the Board of Directors of the Company as
evidenced by a resolution of such Board of Directors), (iii) the Net Cash
Proceeds of such Sale/Leaseback Transaction are applied in accordance with the
provisions described under Section 4.10 and (iv) the Indebtedness Incurred in
connection with such Sale/Leaseback Transaction, together with Indebtedness
Incurred in accordance with (ii) of paragraph (b) of Section 4.09, does not
exceed $5 million at any time outstanding.
SECTION 4.18. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES.
(a) The Company may designate any Subsidiary of the Company
(other than a Subsidiary of the Company which owns Capital Stock of a
Restricted Subsidiary) as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") only if:
(i) no Default shall have occurred and be continuing at the
time of or, after giving effect to such Designation; and
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(ii) the Company would be permitted under this Indenture to
make an Investment at the time of Designation (assuming the
effectiveness of such Designation) in an amount (the "Designation
Amount") equal to the sum of (i) fair market value of the Capital
Stock of such Subsidiary owned by the Company and the Restricted
Subsidiaries on such date and (ii) the aggregate amount of other
Investments of the Company and the Restricted Subsidiaries in such
Subsidiary on such date; and
(iii) the Company would be permitted to Incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant
to Section 4.09 at the time of Designation (assuming the effectiveness
of such Designation).
(b) In the event of any such Designation, the Company shall
be deemed to have made an Investment constituting a Restricted Payment pursuant
to the covenant described under Section 4.07 for all purposes of this Indenture
in the Designation Amount. The Company shall not, and shall not permit any
Restricted Subsidiary to, at any time (x) provide direct or indirect credit
support for or a Guarantee of any Indebtedness of any Unrestricted Subsidiary
(including of any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the
extent permitted under Section 4.07.
The Company may revoke any Designation of a Subsidiary
as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if:
(i) no Default shall have occurred and be continuing at the
time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if
incurred at such time, have been permitted to be incurred for all
purposes of this Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
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SECTION 4.19. FURTHER INSTRUMENTS AND ACTS.
The Trustee shall not be bound to ascertain or inquire as to
the performance or observance of any covenants, conditions or agreements on the
part of the Company, except as otherwise set forth herein, but the Trustee may
require of the Company full information and advice as to the performance of the
covenants, conditions and agreements contained herein, and upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
ARTICLE 5
SUCCESSORS
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not consolidate with or merge with or into,
or convey, transfer or lease all or substantially all of its assets to any
Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or
limited liability company organized and existing under the laws of the
United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall
expressly assume, by supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations
of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction
(and treating any Indebtedness that becomes an obligation of the
Successor Company or any Subsidiary of the Successor Company as a
result of such transaction as having been incurred by the Successor
Company or such Restricted Subsidiary at the time of such
transaction), no Default or Event of Default shall have occurred and
be continuing;
(iii) immediately after giving effect to such transaction,
the Successor Company (A) would have a Consolidated Net Worth equal to
or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (B) would be able to Incur at least an
additional $1.00 of Indebtedness pursuant to paragraph (a) of Section
4.09;
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(iv) there has been delivered to the Trustee an Opinion of
Counsel to the effect that holders of the Securities will not
recognize income, gain or loss for U.S. Federal income tax purposes as
a result of such consolidation, merger, conveyance, transfer or lease
and will be subject to U.S. Federal income tax on the same amount and
in the same manner and at the same times as would have been the case
if such consolidation, merger, conveyance, transfer or lease had not
occurred; and
(v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture
(if any) comply with this Indenture.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
The Successor Company will succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture,
but, in the case of a lease of all or substantially all its assets, the Company
will not be released from the obligation to pay the principal of and interest
on the Securities.
Notwithstanding clauses (ii) and (iii) of Section 5.01, any
Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
(a) An "Event of Default" occurs if:
(i) there is a default in any payment of interest on any
Security when due, continued for 30 days;
(ii) there is a default in the payment of principal of any
Security when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise;
(iii) there is a failure by the Company to comply with its
obligations under Section 5.01 hereof;
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(iv) there is failure by the Company to comply for 30 days
after notice with any of its obligations under Sections [4.01, 4.03,
4.04, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16,
4.17, 4.18 or 5.01] hereof (in each case, other than a failure to
purchase Securities which shall constitute an Event of Default under
clause (ii) above);
(v) there is a failure by the Company or any Subsidiary
Guarantor to comply for 60 days after notice with its other agreements
contained in this Indenture;
(vi) Indebtedness of the Company or any Restricted
Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default
and the total amount of such Indebtedness unpaid or accelerated
exceeds $3 million and such default shall not have been cured or such
acceleration rescinded after a 10-day period;
(vii) any judgment or decree for the payment of money in
excess of $3 million (to the extent not covered by insurance) is
rendered against the Company or a Significant Subsidiary and such
judgment or decree shall remain undischarged or unstayed for a period
of 60 days after such judgment becomes final and non- appealable
(the"judgment default provision");
(viii) any Subsidiary Guarantee by a Significant Subsidiary
ceases to be in full force and effect (except as contemplated by the
terms of this Indenture) or any Subsidiary Guarantor that is a
Significant Subsidiary denies or disaffirms its obligations under this
Indenture or its Subsidiary Guarantee and such Default continues for
10 days;
(ix) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors,
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(E) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, or
(F) takes any corporate action to authorize or effect
any of the foregoing; or
(x) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case,
(B) appoints a Custodian of the Company or any of its
Significant Subsidiaries or for all or substantially all of
the property of the Company or any of its Significant
Subsidiaries, or
(C) orders the liquidation of the Company or any of
its Significant Subsidiaries,
and the order or decree remains unstayed and in effect for 60
consecutive days; or
(b) The term "Bankruptcy Law" means Title 11, U.S. Code
or any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
(c) A Default under clause (iv) or (v) of Section 6.01(a)
hereof is not an Event of Default until the Trustee or the holders of 25% in
principal amount of the outstanding Securities notifies the Company or such
Subsidiary Guarantor, as the case may be, of the Default and the Company or
such Subsidiary Guarantor, as the case may be, does not cure such Default
within the time specified in such clause (iv) or (v) after receipt of the
notice. The written notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default."
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default
specified in clause (viii) or (ix) of Section 6.01(a) with respect to the
Company or any Subsidiary Guarantor) occurs and is continuing, the Trustee or
the Holders of not less than 25% in aggregate principal amount of the then
outstanding Securities by notice to the Company, may declare (a "Declaration")
the unpaid principal of, and any accrued and unpaid interest on, all the
Securities to be due and payable (the "Default Amount"). Upon any such
Declaration the Default Amount shall be due and payable immediately. If an
Event of Default specified in
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clause (ix) or (x) of Section 6.01(a) occurs with respect to the Company or any
of the Subsidiary Guarantors, the Default Amount shall ipso facto become and be
immediately due and payable without any Declaration or other act on the part of
the Trustee or any Securityholder. The Holders of a majority in aggregate
principal amount of the then outstanding Securities by written notice to the
Trustee and to the Company may rescind any Declaration if the rescission would
not conflict with any judgment or decree and if all Events of Default then
continuing (other than any Events of Default with respect to the nonpayment of
principal of or interest on any Security which has become due solely as a
result of such Declaration) have been cured, and may waive any Default other
than a Default with respect to a covenant or provision that cannot be modified
or amended without the consent of each Securityholder pursuant to Section 9.02
hereof.
SECTION 6.03. OTHER REMEDIES.
(a) If an Event of Default occurs and is continuing, the
Trustee and the Securityholders may pursue any available remedy to collect the
payment of principal, premium, if any, or interest on the Securities or to
enforce the performance of any provision of the Securities or this Indenture.
(b) The Trustee may maintain a proceeding even if it does
not possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Securityholders of not less than a majority in aggregate
principal amount of the then outstanding Securities by notice to the Trustee
may, on behalf of all the Securityholders, waive an existing Default or Event
of Default and its consequences, except a continuing Default or Event of
Default in the payment of the principal, premium, if any, or interest on any
Security (other than principal, premium (if any) or interest which has become
due solely as a result of a Declaration) or a Default or Event of Default that
cannot be modified or amended without the consent of the Holder of each
outstanding Security affected. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
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SECTION 6.05. CONTROL BY MAJORITY.
Securityholders of a majority in principal amount of the
Securities then outstanding may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Securityholders or
that may involve the Trustee in personal liability. The Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction.
SECTION 6.06. LIMITATION ON SUITS.
(a) A Securityholder may pursue a remedy with respect to
this Indenture or the Securities only if:
(i) the Securityholder has previously given to the Trustee
written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the
then outstanding Securities make a written request to the Trustee to
pursue the remedy;
(iii) such Securityholder or Securityholders offer, and, if
requested, provide, to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(v) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee, in the reasonable opinion of such Trustee, a direction
inconsistent with the request.
(b) A Securityholder may not use this Indenture to
prejudice the rights of another Securityholder or to obtain a preference or
priority over another Securityholder.
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Securityholder to receive payment of principal, premium, if any,
interest on the Security, on or after the respective due dates expressed in the
Security, or to bring suit for the
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enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Securityholder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a)(i) or (ii)
or an acceleration pursuant to Section 6.02 occurs and is continuing, the
Trustee is authorized to recover judgment in its own name and as trustee of an
express trust against the Company or any Subsidiary Guarantor or any other
obligor on the Securities for the whole amount of principal, premium, if any,
and accrued interest remaining unpaid on the Securities and interest on overdue
principal, premium, if any, and, to the extent lawful, interest on overdue
installments of interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including any advances made by the
Trustee and the reasonable compensation, expenses and disbursements of the
Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Securityholders allowed in any judicial proceedings relative to the
Company or any Subsidiary Guarantor (or any other obligor on the Securities),
its creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on
any such claims and any custodian in any such judicial proceeding is hereby
authorized by each Securityholder to make such payments to the Trustee, and in
the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 7.07 hereof out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Securityholders may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Securityholder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
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SECTION 6.10. PRIORITIES.
(a) If the Trustee collects any money pursuant to this
Article, it shall pay out the money in the following order:
(i) First: to the Trustee, its agents and attorneys for
amounts due under Section 7.07, including payment of all compensation,
expenses and liabilities incurred, and all advances made, by the
Trustee and the costs and expenses of collection;
(ii) Second: if the Securityholders are forced to proceed
against the Company directly without the Trustee, to the
Securityholders for their collection costs;
(iii) Third: to the Securityholders for amounts due and
unpaid on the Securities for principal, premium, if any, and interest,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal, premium, if
any, and interest, respectively; and
(iv) Fourth: to the Company or, to the extent the Trustee
collects any amount pursuant to a Security Document from any
Subsidiary Guarantor, to such Subsidiary Guarantor, or to such party
as a court of competent jurisdiction shall direct.
(b) The Trustee may fix a record date and payment date for
any payment to Securityholders. At least 15 calendar days before such record
date, the Company shall mail to each Holder and the Trustee a notice that
states the record date, the payment date and the amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Securityholder pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Securities.
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ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances and in the conduct
of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform only those duties as
are specifically set forth in this Indenture and the duties of the
Trustee shall be determined solely by the express provisions of this
Indenture, the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture, but in the case of any such
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall examine the same to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein
contained, the Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
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(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(g) Every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of Section 7.01 and to the provisions of the
TIA.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
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(f) The permissive rights of the Trustee to do certain
things enumerated in this Indenture shall not be construed as a duty and the
Trustee shall not be answerable for other than its negligence or wilful default
with respect to such permissive rights.
(g) Except for an Event of Default under 6.01(a)(i) or (ii)
hereof, the Trustee shall not be deemed to have notice of any Default or Event
of Default unless specifically notified in writing of such event by the Company
or the Securityholders of not less than 25% in aggregate principal amount of
Securities outstanding.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company, any
Subsidiary Guarantor or any Affiliate of the Company or any Subsidiary
Guarantor with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Securities
or the Subsidiary Guarantees, it shall not be accountable for the Company's use
of the proceeds from the Securities or any money paid to the Company or upon
the Company's direction under any provision of this Indenture, it shall not be
responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any statement
or recital herein or any statement in the Securities or the Subsidiary
Guarantees or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to each Securityholder a
notice of the Default or Event of Default within 60 days after it occurs.
Except in the case of a Default or Event of Default in any payment of principal
or interest on any Security, the Trustee may withhold the notice if a committee
of its officers in good faith determines that withholding the notice is in the
interest of the Securityholders. In addition, the Company is required to
deliver to the Trustee, within 90 days after each fiscal year of the Company, a
certificate indicating whether the signers thereof know of any Default or Event
of Default that occurred during the previous year. The Company shall also
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any events which would constitute a Default or Event of Default.
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SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS.
(a) Within 60 days after each May 15 beginning with the May
15 following the date of this Indenture, and for so long as the Securities
remain outstanding, the Trustee shall mail to the Securityholders a brief
report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA Section 313(b)(2) and (c).
(b) A copy of each report at the time of its mailing to the
Securityholders shall be filed with the Commission and each stock exchange, if
any, on which the Securities are listed, in accordance with and to the extent
required by TIA Section 313(d). The Company shall promptly notify the Trustee
if and when the Securities are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
(a) The Company and the each of the Subsidiary Guarantors,
jointly and severally, shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder,
including extraordinary services such as default administration. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company and each of the Subsidiary Guarantors, jointly and
severally, shall reimburse the Trustee upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
(b) The Company and each of the Subsidiary Guarantors,
jointly and severally, shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company, any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except as
set forth below in subparagraph (d). The Trustee shall notify the Company and
each of the Subsidiary Guarantors promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company or any Subsidiary
Guarantor shall not relieve the Company or any of the Subsidiary Guarantors of
their Obligations hereunder. The Trustee may have separate counsel and the
Company and each of the Subsidiary Guarantors, jointly and severally, shall pay
the reasonable fees and expenses of such counsel. Neither the Company nor any
Subsidiary Guarantor need pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
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(c) The obligations of the Company and each of the
Subsidiary Guarantors under this Section 7.07 shall survive the resignation or
removal of the Trustee and the satisfaction and discharge or termination of
this Indenture.
(d) Notwithstanding subparagraphs (a) or (b) above, neither
the Company nor any Subsidiary Guarantor need reimburse any expense or
indemnify against any loss or liability incurred by the Trustee through its own
negligence, bad faith or willful misconduct.
(e) To secure the Company's and each of the Subsidiary
Guarantor's payment obligations in this Section, the Trustee shall have a Lien
prior to the Securities on all money or property held or collected by the
Trustee, except that held in trust to pay principal, premium, if any, and
interest on particular Securities. Such Lien shall survive the resignation or
removal of the Trustee and the satisfaction and discharge of this Indenture.
(f) When the Trustee incurs expenses or renders services
after an Event of Default specified in Section 6.01(viii) or (ix) hereof
occurs, the expenses and the compensation for such services (including the fees
and expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
(a) A resignation or removal of the Trustee and appointment
of a successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign at any time and be discharged
from the trust hereby created by so notifying the Company. The Securityholders
of a majority in principal amount of the then outstanding Securities may remove
the Trustee by so notifying the Trustee and the Company. The Company may
remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10 hereof;
(ii) the Trustee is adjudged a bankrupt or an insolvent or
an order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(iii) a Custodian, receiver or other public officer takes
charge of the Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
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(c) If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason, the Company shall notify each
Securityholder of such event and promptly appoint a successor Trustee. Within
one year after the successor Trustee takes office, the Holders of a majority in
principal amount of the then outstanding Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
(d) A successor Trustee shall deliver a written acceptance
of its appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to each Securityholder. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company's and each of the Subsidiary
Guarantor's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
(e) If a successor Trustee does not take office within 60
days after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company, any of the Subsidiary Guarantors or the Securityholders of at
least 10% in principal amount of the then outstanding Securities may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) If the Trustee after written request by any
Securityholder who has been a Securityholder for at least six months fails to
comply with Section 7.10, such Securityholder may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
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SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
(a) There shall at all times be a Trustee hereunder which
shall be a corporation organized and doing business under the laws of the
United States of America or any State or Territory thereof or the District of
Columbia authorized under such laws to exercise corporate trustee power, shall
be subject to supervision or examination by Federal, State, Territorial, or
District of Columbia authority and shall have (or be a part of a holding
company with) a combined capital and surplus of at least $100 million as set
forth in its most recent published annual report of condition.
(b) This Indenture shall always have a Trustee who
satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee
shall comply with TIA Section 310(b). The provisions of TIA Section 310
shall also apply to the Company and each of the Subsidiary Guarantors, as
obligor of the Securities.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein. The provisions of TIA Section 311 shall apply to the
Company and each of the Subsidiary Guarantors as obligor on the Securities.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
(a) When (i) the Company delivers to the Trustee all
outstanding Securities (other than Securities replaced pursuant to Section 2.07
hereof) canceled or for cancellation or (ii) all outstanding Securities have
become due and payable and the Company irrevocably deposits with the Trustee
funds sufficient to pay at maturity all outstanding Securities, including
interest thereon (other than Securities replaced pursuant to Section 2.07
hereof), and if in either case the Company pays all other sums payable
hereunder by the Company, then this Indenture shall, subject to Sections
8.01(e) and 8.06 hereof, cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel
reasonably acceptable to the Trustee and at the cost and expense of the
Company.
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(b) Subject to Sections 8.01(e), 8.02 and 8.06 hereof, the
Company at any time may terminate (i) all its obligations under the Securities
and this Indenture ("legal defeasance option") or (ii) all obligations under
[Sections 3.09, 4.04(a), (b) and (c), 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15, 4.16, 4.17, 4.18 or 5.01(iii) and the operation of Sections
6.01(a)(iv), 6.01(a)(v) and 6.01(a)(vi) as well as (6.01(a)(ix) and 6.01(a)(x)
hereof but only with respect to Significant Subsidiaries) ("covenant defeasance
option"). The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
(c) If the Company exercises its legal defeasance option,
payment of the Securities may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option, payment of
the Securities may not be accelerated because of an Event of Default specified
in Section 6.01(a)(iv), 6.01(a)(vi), 6.01(a)(vii), 6.01(a)(viii) or 6.01(a)(ix)
(but only with respect to Significant Subsidiaries which is a Guarantor) or
6.01(a)(ix) hereof (but only with respect to Significant Subsidiaries which is
a Guarantor), or because of the failure of the Company or the Subsidiary
Guarantors to comply with Sections 5.01(iii) or 5.01(iv).
(d) Upon satisfaction of the conditions set forth herein
and Section 8.02 and upon request of the Company, the Trustee shall acknowledge
in writing the discharge of those obligations that the Company terminates.
(e) Notwithstanding clauses (a) and (b) above, the
Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08,
8.01(d), 8.04, 8.05 and 8.06 hereof shall survive until the Securities have
been paid in full. Thereafter, the Company's obligations in Sections 7.07,
8.04 and 8.05 hereof shall survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE.
(a) The Company may exercise its legal defeasance option or
its covenant defeasance option only if:
(i) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations in amounts (including
interest, but without consideration of any reinvestment of such
interest) and maturities sufficient, but in the case of the legal
defeasance option only, not more than such amounts (as certified by a
nationally recognized firm of independent public accountants), to pay
and discharge at their Stated Maturity (or such earlier redemption
date as the Company shall have specified to the Trustee) the principal
of, premium, if any, interest on all outstanding Securities to
maturity or redemption, as the case may be, and to pay all of the sums
payable by it hereunder; provided, that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such
U.S.
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Government Obligations to the payment of said principal, premium, if
any, and interest with respect to the Securities;
(ii) in the case of the legal defeasance option only, 123
days pass after the deposit is made and during the 123 day period no
Default or Event of Default specified in Section 6.01(viii) or (ix)
hereof with respect to the Company or any Subsidiary Guarantor occurs
which is continuing at the end of the period;
(iii) no Default or Event of Default has occurred and is
continuing on the date of such deposit and after giving effect
thereto;
(iv) the deposit does not constitute a default under any
other agreement binding on the Company;
(v) the Company delivers to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the deposit does
not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940, as amended;
(vi) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Securityholders will not recognize
income, gain or loss for U.S. Federal income tax purposes as a result
of such defeasance and will be subject to U.S. Federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such defeasance had not occurred;
(vii) in the case of the covenant defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Securityholders will not recognize income, gain or
loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and
(viii) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance and discharge of the Securities
as contemplated by this Article 8 have been complied with.
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(b) In order to have money available on a payment date to
pay principal, premium, if any, or interest on the Securities, the U.S.
Government Obligations deposited pursuant to preceding clause (a) shall be
payable as to principal or interest at least one Business Day before such
payment date in such amounts as shall provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
(c) Before or after a deposit, the Company may make
arrangements satisfactory to the Trustee for the redemption of Securities at a
future date in accordance with Article 3 hereof.
SECTION 8.03. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to this Article 8. It shall apply the
deposited money and the money from U.S. Government Obligations through the
Paying Agent and in accordance with this Indenture to the payment of principal,
premium, if any, and interest on the Securities.
SECTION 8.04. REPAYMENT TO THE COMPANY.
(a) The Trustee and the Paying Agent shall promptly pay to
the Company upon written request any excess money or securities held by them at
any time; provided, however, that the Trustee shall not pay any such excess to
the Company unless the amount remaining on deposit with the Trustee, after
giving effect to such transfer are sufficient to pay principal, premium, if
any, and interest on the outstanding Securities, which amount shall be
certified to the Trustee by independent public accountants.
(b) The Trustee and the Paying Agent shall pay to the
Company upon written request any money held by them for the payment of
principal, premium, if any, or interest that remains unclaimed for two years
after the date upon which such payment shall have become due; provided,
however, that the Company shall have either caused notice of such payment to be
mailed to each Securityholder entitled thereto no less than 30 days prior to
such repayment or within such period shall have published such notice in a
financial newspaper of widespread circulation published in the City of New
York. After payment to the Company, Securityholders entitled to the money must
look to the Company and the Subsidiary Guarantors for payment as general
creditors unless an applicable abandoned property law designates another
Person, and all liability of the Trustee and such Paying Agent with respect to
such money shall cease.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.
The Company and the Subsidiary Guarantors, jointly and
severally, shall pay and shall indemnify the Trustee against any tax, fee or
other charge imposed on or assessed
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against deposited U.S. Government Obligations or the principal and interest
received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with this Article 8 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's and each of the Subsidiary Guarantor's Obligations
under this Indenture and the Securities and the Subsidiary Guarantees shall be
revived and reinstated as though no deposit had occurred pursuant to this
Article 8 until such time as the Trustee or Paying Agent is permitted to apply
all such money or U.S. Government Obligations in accordance with this Article
8; provided, however, that if the Company or any Subsidiary Guarantor has made
any payment of principal of, premium, if any, or interest on any Securities
because of the reinstatement of its Obligations, the Company or any of the
Subsidiary Guarantors, as the case may be, shall be subrogated to the rights of
the Securityholders to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.
(a) Notwithstanding Section 9.02 of this Indenture, the
Company, the Subsidiary Guarantors and the Trustee may amend or supplement this
Indenture or the Securities without the consent of any Securityholder:
(i) to cure any ambiguity, omission, defect or
inconsistency;
(ii) to comply with Article 5 hereof;
(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities (provided that the
uncertificated Securities are issued in registered form for purposes
of Section 163(f) of the Code, or in a manner such that the
uncertificated Securities are described in Section 163(f)(2)(B) of the
Code);
(iv) to add further Guarantees with respect to the
Securities; to secure the Securities with additional collateral;
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(v) to add to the covenants of the Company for the benefit
of the Securityholders or to surrender any right or power conferred
upon the Company;
(vi) to comply with requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
TIA;
(vii) to make any change that would provide additional rights
or benefits to the Holders of the Securities, as evidenced by an
Opinion of Counsel delivered to the Trustee or that does not adversely
affect the rights of any Securityholder in any respect; or
(viii) to evidence or provide for a replacement Trustee under
Section 7.08 hereof;
provided, that the Company has delivered to the Trustee an Opinion of Counsel
stating that any such amendment or supplement complies with the provisions of
this Section 9.01.
(b) Upon the request of the Company and the Subsidiary
Guarantors accompanied by Board Resolutions of their respective Boards of
Directors authorizing the execution of any such supplemental indenture, and
upon receipt by the Trustee of the documents described in Section 7.02 and
Section 9.06 hereof, the Trustee shall join with the Company and the Subsidiary
Guarantors in the execution of any supplemental indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained, but the Trustee
shall not be obligated to enter into such supplemental indenture which affects
its own rights, duties or immunities under this Indenture or otherwise.
(c) After an amendment or supplement under this Section
9.01 becomes effective, the Company shall mail to all Securityholders a notice
briefly describing such amendment or supplement. The failure to give such
notice to all Securityholders, or any defect therein, shall not impair or
affect the validity of an amendment or supplement under this Section.
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS.
(a) Except as provided below in this Section 9.02, the
Company and the Trustee may amend or supplement this Indenture or the
Securities with the written consent of the Securityholders of not less than a
majority in aggregate principal amount of the Securities then outstanding
(including consents obtained in connection with a purchase of, or tender offer
or exchange offer for the Securities) and subject to Section 6.04 and 6.07 any
existing Default or Event of Default and its consequences (other than a Default
or Event of Default in the payment of principal premium, if any, or interest,
if any, on the
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Securities except a payment default resulting from an acceleration of the
Securities that has been rescinded) or compliance with any provision of this
Indenture or the Securities may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Securities (including
consents obtained in connection with a purchase of, or tender offer or exchange
offer for the Securities). [Furthermore, subject to Sections 6.04 and 6.07
hereof, the Holders of a majority in aggregate principal amount of the
Securities then outstanding (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for the Securities) may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Securities.] However, without the consent of each
Securityholder affected, an amendment, supplement or waiver under this Section
9.02 may not (with respect to any Securities held by a non-consenting Holder):
(i) reduce the principal amount of Securities whose Holders
must consent to an amendment, supplement or waiver;
(ii) reduce the stated rate of or extend the stated time for
payment of any interest on any Security;
(iii) reduce the principal of or extend the Stated Maturity
of any Security or alter the redemption provisions (including without
limitation Sections 3.07, 3.09, 4.11 and 4.14 hereof) with respect
thereto;
(iv) reduce the premium payable upon the redemption or
repurchase of any Security or change the time at which any Security
may be redeemed in accordance with Section 3.07;
(v) make any Security payable in money other than that
stated in the Security;
(vi) make any change in Section 6.04 or 6.07 hereof or in
this Section 9.02(a);
(vii) waive a Default or Event of Default in the payment of
principal of premium, if any, or interest, if any, on, or redemption
payment with respect to, any or Security (except a rescission of
acceleration of the Securities by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(viii) impair the right of any holder to receive payment of
principal of and interest on such holder's Securities on or after the
due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's Securities;
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(ix) make any change in the amendment provisions which
require each consent or in the waiver provisions or requiring any
Guaranty hereof or in the provisions of any such Guaranty;
(x) release Collateral from the lien of the Escrow
Agreement, except in accordance with terms thereof, or amend terms
thereof relating to release; or
(xi) release any Subsidiary Guarantor from its Subsidiary
Guaranty, except as provided herein.
(b) Upon the request of the Company and the Subsidiary
Guarantors accompanied by Board Resolutions of their respective Boards of
Directors authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Securityholders as aforesaid, and upon receipt by the Trustee of
the documents described in Section 7.02 and Section 9.06 hereof, the Trustee
shall join with the Company and the Subsidiary Guarantors in the execution of
such supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in its discretion, but shall not be obligated to,
enter into such supplemental indenture.
(c) It shall not be necessary for the consent of the
Securityholders under this Section 9.02 to approve the particular form of any
proposed amendment, supplement or waiver, but it shall be sufficient if such
consent approves the substance thereof.
(d) After an amendment, supplement or waiver under this
Section 9.02 becomes effective, the Company shall mail to all Securityholders a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
(a) Until an amendment, supplement or waiver becomes
effective, a consent to it by a Securityholder is a continuing consent by the
Securityholder and every subsequent Securityholder or portion of a Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent is not made on any Security.
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However, any such Securityholder or subsequent Securityholder may revoke the
consent as to its Security if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. An
amendment, supplement or waiver becomes effective when approved by the
requisite Holders and executed by the Trustee (or, if otherwise provided in
such waiver, amendment or supplement, in accordance with its terms) and
thereafter binds every Securityholder, unless it makes a change described in
any of clauses (i) through (xi) of Section 9.02, in which case, the amendment,
supplement or waiver shall bind only each Holder of a Security who has
consented to it and every subsequent Holder of a Security or portion of a
Security that evidences the same indebtedness as the consenting Holder's
Security.
(b) The Company may fix a record date for determining which
Securityholders must consent to such amendment, supplement or waiver. If the
Company fixes a record date, the record date shall be fixed at (i) the later of
30 days prior to the first solicitation of such consent or the date of the most
recent list of Securityholders furnished to the Trustee prior to such
solicitation pursuant to Section 2.05 hereof, or (ii) such other date as the
Company shall designate. If a record date is fixed, then notwithstanding the
last sentence of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies), and only those
persons, shall be entitled to consent to such amendment or waiver or revoke any
consent previously given, whether or not such persons continue to be Holders
after such record date. No consent shall be valid or effective for more than
890 days after such record date except to the extent that the requisite number
of consents to the amendment, supplement or waiver have been obtained within
such 90-day period or as set forth in the preceding paragraph of this Section
9.04.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
(a) Securities authenticated and delivered after the
execution of any supplemental indenture may bear a notation in form approved by
the Trustee as to any matter provided for in such amendment, supplement or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment, supplement or waiver.
(b) Failure to make the appropriate notation or issue a new
Security shall not affect the validity and effect of such amendment, supplement
or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, waiver or supplemental
indenture authorized pursuant to this Article 9 if the amendment, waiver or
supplemental indenture does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but
need not, sign it. In signing or refusing to sign such
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amendment, waiver or supplemental indenture, the Trustee shall be entitled to
receive and, subject to Section 7.01, shall be fully protected in relying upon,
in addition to the documents required by Section 7.02, an Officers' Certificate
and an Opinion of Counsel as conclusive evidence that such amendment, waiver or
supplemental indenture is authorized or permitted by this Indenture, that it is
not inconsistent herewith, and that it will be valid and binding upon the
Company in accordance with its terms.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control. Until such time as
this Indenture becomes qualified under the TIA, the Company, the Subsidiary
Guarantors and the Trustee shall be deemed subject to and governed by the TIA
as if the Indenture were so qualified on the date hereof.
SECTION 10.02. NOTICES.
(a) Any notice or communication by the Company, any
Subsidiary Guarantor or the Trustee to the other is duly given if in writing
and delivered in person or mailed by first class mail (registered or certified,
return receipt requested), confirmed facsimile transmission or overnight air
courier guaranteeing next day delivery, to the other's address:
If to the Company or any of the Subsidiary Guarantors:
Source Media, Inc.
8140 Walnut Hill Lane
Suite 100
Dallas, TX 75231
Attention: Chief Financial Officer
If to the Trustee:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue
Suite 2700
Dallas, TX 75201
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Attention: Corporate Trust
(b) The Company or the Trustee, by notice to the other, may
designate additional or different addresses for subsequent notices or
communications.
(c) All notices and communications (other than those sent
to Securityholders) shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; when receipt acknowledged,
if by facsimile transmission; and the next Business Day after timely delivery
to the courier, if sent by overnight air courier guaranteeing next day
delivery.
(d) Any notice or communication to a Securityholder shall
be mailed by first class mail, postage prepaid, to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent required
by the TIA. Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
(e) If a notice or communication is mailed to any Person in
the manner provided above within the time prescribed, it is duly given, whether
or not the addressee receives it.
(f) If the Company mails a notice or communication to
Securityholders, it shall mail a copy to the Trustee and each Agent at the same
time.
SECTION 10.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER SECURITYHOLDERS.
Securityholders may communicate pursuant to TIA Section
312(b) with other Securityholders with respect to their rights under this
Indenture or the Securities. The Company, the Subsidiary Guarantors, the
Trustee, the Registrar and anyone else shall have the protection of TIA Section
312(c).
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company and/or any of
the Subsidiary Guarantors to the Trustee to take any action under this
Indenture, the Company and/or any of the Subsidiary Guarantors, as the case may
be, shall furnish to the Trustee:
(i) an Officer's Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 10.05 hereof)
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<PAGE> 94
stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied (except with regard to an
authentication order pursuant to Section 2.02(c) hereof, which shall
require a certificate of two Officers); and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 10.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
satisfied.
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions
of TIA Section 314(e), shall comply with the definition of the term "Officers'
Certificate" and shall include:
(i) a statement that the person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(iv) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been satisfied.
SECTION 10.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
-87-
<PAGE> 95
SECTION 10.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions in New York City, or at a place of payment are authorized
or obligated by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
SECTION 10.08. NO RECOURSE AGAINST OTHERS.
No past, present or future director, officer, employee, agent,
manager, stockholder or partner of the Company or its predecessors shall have
any liability for any Obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of, or by reason of such
Obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. This waiver and release are part of
the consideration for issuance of the Securities.
SECTION 10.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture.
One signed copy is enough to prove this Indenture.
SECTION 10.10. GOVERNING LAW.
This Indenture and the Securities shall be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
SECTION 10.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of any of the Subsidiary Guarantors, the Company or
their respective Subsidiaries. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
SECTION 10.12. SUCCESSORS.
All agreements of the Company and the Subsidiary Guarantors in
this Indenture and the Securities shall bind its successors. All agreements of
the Trustee in this Indenture shall bind its successor.
-88-
<PAGE> 96
SECTION 10.13. SEVERABILITY.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 10.14. COUNTERPART ORIGINALS.
This Indenture may be executed in any number of counterparts,
each of which so executed shall be an original, but all of them together
represent the same agreement.
SECTION 10.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
-89-
<PAGE> 97
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
SIGNATURES
SOURCE MEDIA, INC.
By /s/ MICHAEL G. PATE
-------------------------------------
Name: Michael G. Pate
Title: Chief Financial Officer
U.S. TRUST COMPANY OF TEXAS,
as Trustee
By /s/ BILL BARBER
-------------------------------------
Name: Bill Barber
Title: Vice President
-90-
<PAGE> 98
EXHIBIT A
THIS NOTE OR ITS PREDECESSORS HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES PERSONS OR A BENEFICIAL INTEREST HEREIN
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3) or (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR
BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN
RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH
TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO SOURCE
MEDIA, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO
A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT
THE TIME OF
<PAGE> 99
EXHIBIT A
Page 2
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO
SOURCE MEDIA, INC. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (G) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO SOURCE
MEDIA, INC.) AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATES
SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902
OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS;
Each Global Note shall also bear the following legend on the
face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE
OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH SUCCESSOR
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE &
CO. OR TO A SUCCESSOR THEREOF
<PAGE> 100
EXHIBIT A
Page 3
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
<PAGE> 101
EXHIBIT A
Page 4
CUSIP No:
(Front of Security)
No. 1 $___________
SOURCE MEDIA, INC.
12% Senior Notes due 2004, Series A
SOURCE MEDIA, INC., a Delaware corporation promises to pay to Cede & Co., as
nominee of the Depository Trust Company, or its registered assigns, the
principal sum of $100,000,000 on November 1, 2004.
Interest Payment Dates: May 1 and November 1, commencing May 1, 1998.
Record Dates: April 15 and October 15 (whether or not a Business Day).
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
SOURCE MEDIA, INC.
By:
------------------------
By:
------------------------
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture
U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee
By:
-------------------------------
Authorized Signatory
Dated:
-------------------
<PAGE> 102
EXHIBIT A
Page 5
(Reverse of Security)
12% SENIOR NOTE DUE 2004, Series A
Capitalized terms used herein have the meanings assigned to
them in the Indenture (as defined below) unless otherwise indicated.
1. Interest. Source Media, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security
at the rate and in the manner specified below. The Company shall pay, in cash,
interest on the principal amount of this Security at the rate per annum of 12%.
The Company will pay interest semiannually in arrears on May 1 and November 1
of each year (each an "Interest Payment Date"), commencing May 1, 1998, or if
any such day is not a Business Day on the next succeeding Business Day.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent Interest Payment
Date to which interest has been paid or, if no interest has been paid, from the
date of the original issuance of the Securities. To the extent lawful, the
Company shall pay interest on overdue principal at the rate of 2% per annum in
excess of the then applicable interest rate on the Securities; it shall pay
interest on overdue installments of interest (without regard to any applicable
grace periods) at the same rate to the extent lawful. The rate of interest
payable on this Security shall be subject to the assessment of additional
interest (the "Additional Interest") as follows:
(i) if the Exchange Offer Registration Statement (as defined
below) or Shelf Registration Statement (as defined below) is not filed within
45 days following the Issue Date (the "Filing Date"), Additional Interest shall
accrue on the Securities over and above the stated interest at a rate of 0.50%
per annum for the first 30 days commencing on the 16th day after the Filing
Date, such Additional Interest rate increasing by an additional 0.50% per annum
at the beginning of each subsequent 30-day period;
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within 75 days following the
Filing Date, Additional Interest shall accrue on the Securities over and above
the stated interest at a rate of 0.50% per annum for the first 30 days
commencing on the 76th day after the Filing Date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each subsequent
30-day period; or
(iii) if (A) the Company and the Subsidiary Guarantors have
not exchanged all Securities validly tendered in accordance with the terms of
the Exchange Offer on or prior to 135 days after the Filing Date or (B) the
Exchange Offer Registration Statement ceases to be effective at any time prior
to the time that the Exchange Offer is consummated or (C) if applicable, the
Shelf Registration Statement has been declared effective and such
<PAGE> 103
EXHIBIT A
Page 6
Shelf Registration Statement ceases to be effective at any time prior to the
second anniversary of the Issue Date (unless all the Securities have been sold
thereunder), then Additional Interest shall accrue on the Securities over and
above the stated interest at a rate of 0.50% per annum for the first 30 days
commencing on (x) the 36th day after the Filing Date with respect to the
Securities validly tendered and not exchanged by the Company, in the case of
(A) above, or (y) the day the Exchange Offer Registration Statement ceases to
be effective or usable for its intended purpose in the case of (B) above, or
(z) the day such Shelf Registration Statement ceases to be effective in the
case of (C) above, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 30-day period; provided,
however, that the Additional Interest rate on the Securities under clauses (i),
(ii) and (iii) above may not exceed in the aggregate 2.0% per annum; and
provided further, that (1) upon the filing of the Exchange Offer Registration
Statement or Shelf Registration Statement (in the case of clause (i) above),
(2) upon the effectiveness of the Exchange Offer Registration Statement or
Shelf Registration Statement (in the case of (ii) above), or (3) upon the
exchange of Exchange Securities for all Securities tendered (in the case of
clause (iii)(A) above), or upon the effectiveness of the Exchange Offer
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(B) above), or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause (iii)(C)
above), Additional Interest on the Securities as a result of such clause (or
the relevant subclause thereof), as the case may be, shall cease to accrue.
"Exchange Offer" shall mean the exchange offer by the Company
of Initial Securities for Exchange Securities pursuant to Section 2(a) of the
Registration Rights Agreement.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Offering Memorandum or prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Record Date" shall have the meaning provided on the front of
this Security.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company and the Subsidiary Guarantors pursuant to
the provisions of the Registration Rights Agreement which covers all of the
Initial Securities on an appropriate form under Rule 415 under the Securities
Act, or any similar rule that may be adopted by the Commission, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Offering Memorandum
contained therein, all exhibits thereto and all material incorporated by
reference therein.
<PAGE> 104
EXHIBIT A
Page 7
2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the Record Date immediately
preceding the Interest Payment Date, even if such Securities are cancelled
after such Record Date and on or before such Interest Payment Date.
Securityholders must surrender Securities to a Paying Agent to collect
principal payments. The Company shall pay principal, premium, if any, and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal, premium, if any, and interest by its check
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Securityholder at the Securityholder's
registered address.
3. Paying Agent and Registrar. Initially, the Trustee will
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without prior notice to any Securityholder. The
Company or any Guarantor of the Company may act in any such capacity, except
that none of the Company, its Subsidiaries or their Affiliates shall act (i) as
Paying Agent in connection with any redemption, offer to purchase, discharge or
defeasance, as otherwise specified in the Indenture, and (ii) as Paying Agent
or Registrar if a Default or Event of Default has occurred and is continuing.
4. Indenture. The Company issued the Securities under an
Indenture, dated as of October 30, 1997 (the "Indenture"), between the Company
and the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the TIA as in
effect on the date the Indenture is qualified. The Securities are subject to
all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of such terms. The terms of the Indenture shall govern any
inconsistencies between the Indenture and the Securities. The Securities are
senior Obligations of the Company limited to $100,000,000 in aggregate
principal amount.
5.(a) Optional Redemption. Except as indicated in the next
succeeding paragraph, the Securities are not redeemable at the Company's option
prior to November 1, 2001. Thereafter, the Securities will be redeemable, at
the option of the Company, in whole or in part, at the redemption prices
(expressed as percentages of the principal amount of the Securities) set forth
below, plus accrued interest to the redemption date:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ------ ----------------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 106%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 103%
2003 and thereafter 100.000%
</TABLE>
<PAGE> 105
EXHIBIT A
Page 8
(b) Optional Redemption Upon Equity Offerings. At any time,
or from time to time, on or prior to November 1, 2000, the Company may, at its
option, use the Net Cash Proceeds of one or more Equity Offerings by the
Company so long as there is a Public Market at the time of such redemption, at
a redemption price equal to 35% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided,
however, that after any such redemption, the aggregate principal amount of the
Securities outstanding must equal at least $65 million. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company
shall make such redemption not more than 60 days after the consummation of any
such Equity Offering.
6. Mandatory Redemption. The Securities are not subject to
mandatory redemption or sinking fund payments.
7. Repurchase at Option of Securityholder. (a) If there is a
Change of Control, each Holder of Securities will have the right to require the
Company to repurchase all or any part of such Holder's Securities at a
repurchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant Interest Payment Date). Within 30 days following any Change of
Control, the Company will mail a notice to each Securityholder stating (i) that
a Change of Control has occurred and that such Securityholder has the right to
require the Company to repurchase all or any part of such Securityholder's
Securities at a repurchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date); (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
repurchase date (which will be no earlier then 30 days nor later than 60 days
from the date such notice is mailed); and (iv) the procedures, determined by
the Company consistent with the Indenture, that a Securityholder must follow in
order to have its Securities repurchased. Securityholders that are subject to
an offer to repurchase may elect to have such Securities repurchased by
completing the form entitled "Option of Securityholder to Elect Purchase"
appearing below.
(b) If the Company or a Subsidiary consummates any Asset
Disposition, and when the aggregate amount of Net Available Cash from such an
Asset Disposition exceeds $3 million, the Company shall be required to offer to
purchase the maximum principal amount of Securities, that is in an integral
multiple of $1,000, that may be purchased out of the Net Available Cash at 100%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date fixed for the closing of such offer in accordance with the procedures
set forth in the Indenture. If the aggregate principal amount of Securities
<PAGE> 106
EXHIBIT A
Page 9
surrendered by Holders thereof exceeds the amount of Net Available Cash, the
Securities to be redeemed shall be selected on a pro rata basis.
Securityholders that are the subject of an offer to purchase will receive an
Asset Disposition Offer from the Company prior to any related purchase date and
may elect to have such Securities purchased by completing the form entitled
"Option of Securityholder to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be
mailed at least 30 (unless a shorter period is acceptable to the Trustee) but
not more than 60 days before the redemption date to each Holder whose
Securities are to be redeemed at its registered address. Securities may be
redeemed in part but only in whole multiples of $1,000, unless all of the
Securities held by a Securityholder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Securities or portions of them
called for redemption.
9. Registration Rights. Pursuant to the Registration Rights
Agreement, and subject to certain terms and conditions stated therein, the
Company will be obligated to consummate an Exchange Offer pursuant to which the
Holders of the Initial Securities shall have the right to exchange this
Security for Exchange Securities, which have been registered under the
Securities Act, in like principal amount and having terms identical in all
material respect to the Initial Security.
10. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and
the Trustee may require a Securityholder among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Security or portion of a Security selected for
redemption. Also, it need not exchange or register the transfer of any
Securities during a period beginning at the opening of business on a Business
Day 15 days before the day of any selection of Securities to be redeemed and
ending at the close of business on the day of selection or during the period
between a Record Date and the corresponding Interest Payment Date.
11. Persons Deemed Owners. Prior to due presentment to the
Trustee for registration of the transfer of this Security, the Trustee, any
Agent and the Company may deem and treat the Person in whose name this Security
is registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
purposes whatsoever, whether or not this Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
The registered Securityholder shall be treated as its owner for all purposes.
<PAGE> 107
EXHIBIT A
Page 10
12. Amendments and Waivers. Subject to certain exceptions
provided in the Indenture, the Indenture or the Securities may be amended with
the consent of the Holders of a majority in principal amount of the then
outstanding Securities, and any existing Default or Event of Default (except a
payment default) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of
any Securityholder the Indenture or the Securities may be amended to, among
other things, cure any ambiguity, defect or inconsistency, to comply with the
requirements of the Commission in order to effect or maintain qualification of
the Indenture under the TIA or to make any change that does not adversely
affect the rights of any Securityholder.
13. Defaults and Remedies. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Securities may declare the unpaid principal of, and any
accrued and unpaid interest on, all the Securities to be due and payable
immediately; provided, that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Subsidiary Guarantor, all outstanding Securities shall become due and payable
immediately without further action or notice. Securityholders may not enforce
the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in payment
of principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
14. Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity may make loans to, accept
deposits from, and perform services for the Company, the Subsidiary Guarantors
or any Affiliate of the Company or the Subsidiary Guarantors, and may otherwise
deal with the Company, the Subsidiary Guarantors and their respective
Affiliates as if it were not Trustee.
15. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect of
its Capital Stock or certain Indebtedness, enter into transactions with
Affiliates, create dividend or other payment restrictions affecting
Subsidiaries, merge or consolidate with any other Person, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets or adopt a plan of liquidation. Such limitations are subject to a
number of important qualifications and exceptions provided for in the
Indenture. The Company must annually report to the Trustee on compliance with
such limitations.
<PAGE> 108
EXHIBIT A
Page 11
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Subsidiary Guarantee. Each Subsidiary Guarantor has
jointly and severally irrevocably and unconditionally guaranteed the payment of
principal, premium, if any, and interest (including interest on overdue
principal and overdue interest, if lawful) on the Securities; provided,
however, each Subsidiary Guarantor that makes a payment or distribution under a
Subsidiary Guarantee shall be entitled to a contribution from each other
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor.
18. Defeasance. Subject to certain conditions provided for
in the Indenture, the Company at any time may terminate some or all of its
obligations under the Securities and the Indenture if the Company deposits with
the Trustee money or U.S. Government Obligations for the payment of principal,
premium (if any) and interest on the Securities to redemption or maturity, as
the case may be.
19. Governing Law. The Laws of the State of New York shall
govern this Security and the Indenture, without regard to principles of
conflict of laws.
20. Abbreviations. Customary abbreviations may be used in
the name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
21. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Securities and has directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Securityholders. No representation is made as to the accuracy of such numbers
either as printed on the Securities or as contained in any notice of redemption
and reliance may be placed only on the other identification numbers placed
thereon.
The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture. Request may be made to:
Source Media, Inc.
8140 Walnut Hill Lane
Suite 100
Dallas, TX 75231
Attn: Chief Financial Officer
<PAGE> 109
EXHIBIT A
Page 12
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
<PAGE> 110
EXHIBIT A
Page 13
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Date:
--------------
Your Signature:
-------------------------------
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee:
- ------------------------------
(Signatures must be guaranteed
by an "eligible guarantor
institution" meeting the
requirements of the Registrar,
which requirements will
include membership or
participation in the
Securities Transfer Agents
Medallion Program ("STAMP")
or such other "signature
guarantee program" as may be
determined by the Registrar
in addition to, or in
substitution for, STAMP, all
in accordance with the
Securities Exchange Act of
1934, as amended.)
<PAGE> 111
EXHIBIT A
Page 14
In connection with any transfer of this Security occurring
prior to the date which is the earlier of (i) the date of the declaration by
the Commission of the effectiveness of a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") covering resales of
this Security (which effectiveness shall not have been suspended or terminated
at the date of the transfer) and (ii) June 25, 1999, the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer and that this Security is being transferred:
Check One
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under
the Securities Act; or
(3) ___ to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that has furnished to the Trustee a
signed letter containing certain representations and
agreements (the form of which letter can be obtained
from the Trustee); or
(4) ___ outside the United States to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) ___ pursuant to the exemption from registration provided
by Rule 144 under the Securities Act; or
(6) ___ pursuant to an effective registration statement under
the Securities Act; or
(7) ___ pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any Person other
than the registered Securityholder thereof; provided that if box (3), (4), (5)
or (7) is checked, the Company or the Trustee may require, prior to registering
any such transfer of the Securities, in its sole discretion, such legal
opinions, certifications (including an investment letter in the case of box (3)
or (4)) and other information as the Trustee or the Company has reasonably
requested to confirm that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act. If none
<PAGE> 112
EXHIBIT A
Page 15
of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any person other than the
Securityholder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.17 of the Indenture shall have
been satisfied.
Dated: Signed:
-------------------------- --------------------------------------
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee:
------------------------------------------------
- ------------------------------
(Signatures must be guaranteed
by an "eligible guarantor
institution" meeting the
requirements of the Registrar,
which requirements will include
membership or participation in
the Securities Transfer Agents
Medallion Program ("STAMP") or
such other "signature guarantee
program" as may be determined
by the Registrar in addition to,
or in substitution for, STAMP,
all in accordance with the
Securities Exchange Act of 1934,
as amended.)
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying
<PAGE> 113
EXHIBIT A
Page 16
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
----------------------- -------------------------------------
NOTICE: To be executed by an
executive officer
<PAGE> 114
EXHIBIT A
Page 17
OPTION OF SECURITYHOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.14 of the
Indenture check the appropriate box:
[ ] Section 4.10 [ ] Section 4.14
If you want to have only part of the Security purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased:
$
----------------------
Date:
-----------------
Your Signature:
------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee:
- ----------------------------------------
(Signatures must be guaranteed by an
"eligible guarantor institution" meeting
the requirements of the Registrar, which
requirements will include membership or
participation in the Securities Transfer
Agents Medallion Program ("STAMP") or
such other "signature guarantee program"
as may be determined by the Registrar in
addition to, or in substitution for,
STAMP, all in accordance with the
Securities Exchange Act of 1934, as
amended.)
<PAGE> 115
EXHIBIT B
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN THE INDENTURE.
<PAGE> 116
EXHIBIT B
Page 2
CUSIP No:
(Front of Security)
No. 1 $
-----------
SOURCE MEDIA, INC.
12% Senior Note dues 2004, Series B
SOURCE MEDIA, INC., a Delaware corporation, promises to pay to Cede & Co., as
nominee of the Depository Trust Company, or its registered assigns, the
principal sum of $100,000,000 on November 1, 2004.
Interest Payment Dates: May 1 and November 1, commencing May 1, 1998.
Record Dates: April 15 and October 15 (whether or not a Business Day).
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
SOURCE MEDIA, INC.
By:
------------------------
Name:
Title:
By:
------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture
U.S. Trust Company of Texas, N.A., as Trustee
By:
-------------------------------
Authorized Signatory
Date:
-----------------------
<PAGE> 117
EXHIBIT B
Page 3
(Reverse of Security)
12% SENIOR NOTES DUE 2004, SERIES B
Capitalized terms used herein have the meanings assigned to
them in the Indenture (as defined below) unless otherwise indicated.
1. Interest. Source Media, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security
at the rate and in the manner specified below. The Company shall pay, in cash,
interest on the principal amount of this Security at the rate per annum of 12%.
The Company will pay interest semiannually in arrears on May 1 and November 1
of each year (each an "Interest Payment Date"), commencing May 1, 1998, or if
any such day is not a Business Day on the next succeeding Business Day.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent Interest Payment
Date to which interest has been paid or, if no interest has been paid, from the
date of the original issuance of the Securities. To the extent lawful, the
Company shall pay interest on overdue principal at the rate of 2% per annum in
excess of the then applicable interest rate on the Securities; it shall pay
interest on overdue installments of interest (without regard to any applicable
grace periods) at the same rate to the extent lawful.
2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Securityholders at the close of business on the Record Date immediately
preceding the Interest Payment Date, even if such Securities are cancelled
after such Record Date and on or before such Interest Payment Date.
Securityholders must surrender Securities to a Paying Agent to collect
principal payments. The Company shall pay principal premium, if any, and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Securityholder at the Securityholder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without prior notice to any Securityholder. The
Company, or any Subsidiary Guarantor of the Company may act in any such
capacity, except that none of the Company, its Subsidiaries or their Affiliates
shall act (i) as Paying Agent in connection with any redemption, offer to
purchase, discharge or defeasance, as otherwise specified in the
<PAGE> 118
EXHIBIT B
Page 4
Indenture, and (ii) as Paying Agent or Registrar if a Default or Event of
Default has occurred and is continuing.
4. Indenture. The Company issued the Securities under an
Indenture, dated as of October 30, 1997 (the "Indenture"), between the Company
and the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the TIA as in
effect on the date the Indenture is qualified. The Securities are subject to
all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of such terms. The terms of the Indenture shall govern any
inconsistencies between the Indenture and the Securities. The Securities are
senior Obligations of the Company limited to $100,000,000 in aggregate
principal amount.
5. (a) Optional Redemption. Except as indicated in the next
succeeding paragraph, the Securities are not redeemable at the Company's option
prior to November 1, 2001. Thereafter, the Securities will be redeemable, at
the option of the Company, in whole or in part, at the redemption prices
(expressed as percentages of the principal amount of the Securities) set forth
below, plus accrued interest to the redemption date:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ------ ----------------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 106%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 103%
2003 and thereafter 100.000%
</TABLE>
(b) Optional Redemption Upon Equity Offerings. At any time,
or from time to time, on or prior to November 1, 2000, the Company may, at its
option, use the Net Cash Proceeds of one or more Equity Offerings by the
Company so long as there is a Public Market at the time of such redemption, at
a redemption price equal to 35% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided,
however, that after any such redemption, the aggregate principal amount of the
Securities outstanding must equal at least $65 million. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company
shall make such redemption not more than 60 days after the consummation of any
such Equity Offering.
6. Mandatory Redemption. The Securities are not subject to
mandatory redemption or sinking fund payments.
<PAGE> 119
EXHIBIT B
Page 5
7. Repurchase at Option of Securityholder. (a) If there is a
Change of Control, each Holder of Securities will have the right to require the
Company to repurchase all or any part of such Holder's Securities at a
repurchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date). Within 45 days following any Change of
Control, the Company will mail a notice to each Securityholder stating (i) that
a Change of Control has occurred and that such Securityholder has the right to
require the Company to repurchase all or any part of such Securityholder's
Securities at a repurchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date); (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control; (iii) the
repurchase date (which will be no earlier then 30 days nor later than 30 days
from the date such notice is mailed); and (iv) the procedures, determined by
the Company consistent with the Indenture, that a Securityholder must follow in
order to have its Securities repurchased. Securityholders that are subject to
an offer to repurchase may elect to have such Securities repurchased by
completing the form entitled "Option of Securityholder to Elect Purchase"
appearing below.
(b) If the Company or a Subsidiary consummates any Asset
Disposition, and when the aggregate amount of Net Available Cash from such an
Asset Disposition exceeds $3 million, the Company shall be required to offer to
purchase the maximum principal amount of Securities, that is in an integral
multiple of $1,000, that may be purchased out of the Net Available Cash, at an
offer price in cash in an amount equal to 100% of the outstanding principal
amount thereof, plus accrued and unpaid interest, if any, to the date fixed for
the closing of such offer in accordance with the procedures set forth in the
Indenture. If the aggregate principal amount of Securities surrendered by
Holders thereof exceeds the amount of Net Available Cash, the Securities to be
redeemed shall be selected on a pro rata basis. Securityholders that are the
subject of an offer to purchase will receive an Asset Disposition Offer from
the Company prior to any related purchase date and may elect to have such
Securities purchased by completing the form entitled "Option of Securityholder
to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be
mailed at least 30 days (unless a shorter period is acceptable to the Trustee)
but not more than 60 days before the redemption date to each Holder whose
Securities are to be redeemed at its registered address. Securities may be
redeemed in part but only in whole multiples of $1,000, unless all of the
Securities held by a Securityholder are to be redeemed. On and after the
<PAGE> 120
EXHIBIT B
Page 6
redemption date, interest ceases to accrue on Securities or portions of them
called for redemption.
9. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and
the Trustee may require a Securityholder among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Security or portion of a Security selected for
redemption. Also, it need not exchange or register the transfer of any
Securities during a period beginning on the opening of business on a Business
Day 15 days before the day of any selection of Securities to be redeemed and
ending on the close of business on the day of selection or during the period
between a Record Date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. Prior to due presentment to the
Trustee for registration of the transfer of this Security, the Trustee, any
Agent and the Company may deem and treat the Person in whose name this Security
is registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
purposes whatsoever, whether or not this Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
The registered Securityholder shall be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions
provided in the Indenture, the Indenture or the Securities may be amended with
the consent of the Holders of a majority in principal amount of the then
outstanding Securities, and any existing default or Event of Default (except a
payment default) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of
any Securityholder the Indenture or the Securities may be amended to, among
other things, cure any ambiguity, defect or inconsistency, to comply with the
requirements of the Commission in order to effect or maintain qualification of
the Indenture under the TIA Securityholders or to make any change that does not
adversely affect the rights of any Securityholder.
12. Defaults and Remedies. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Securities may declare the unpaid principal of, and any
accrued and unpaid interest on, all the Securities to be due and payable
immediately; provided, that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Subsidiary Guarantor, all outstanding Securities shall become due and payable
immediately without further action or notice. Securityholders may not enforce
<PAGE> 121
EXHIBIT B
Page 7
the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in payment
of principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
13. Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity may make loans to, accept
deposits from, and perform services for the Company, the Subsidiary Guarantor
or any Affiliate of the Company or the Subsidiary Guarantor, and may otherwise
deal with the Company, the Subsidiary Guarantor and their respective Affiliates
as if it were not Trustee.
14. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect of
its Capital Stock or certain Indebtedness, enter into transactions with
Affiliates, create dividend or other payment restrictions affecting
Subsidiaries, merge or consolidate with any other Person, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets or adopt a plan of liquidation. Such limitations are subject to a
number of important qualifications and exceptions provided for in the
Indenture. The Company must annually report to the Trustee on compliance with
such limitations.
15. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. Subsidiary Guarantee. Each Subsidiary Guarantor has
jointly and severally irrevocably and unconditionally guaranteed the payment of
principal, premium, if any, and interest (including interest on overdue
principal and overdue interest, if lawful) on the Securities; provided,
however, each Subsidiary Guarantor that makes a payment or distribution under a
Subsidiary Guarantee shall be entitled to a contribution from each other
Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets of
each Subsidiary Guarantor.
17. Defeasance. Subject to certain conditions provided for
in the Indenture, the Company at any time may terminate some or all of its
obligations under the Securities and the Indenture if the Company deposits with
the Trustee money or U.S. Government Obligations for the payment of principal,
premium (if any) and interest on the Securities to redemption or maturity, as
the case may be.
<PAGE> 122
EXHIBIT B
Page 8
18. Governing Law. The Laws of the State of New York shall
govern this Security and the Indenture, without regard to principles of
conflict of laws.
19. Abbreviations. Customary abbreviations may be used in
the name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
20. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Securities and has directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Securityholders. No representation is made as to the accuracy of such numbers
either as printed on the Securities or as contained in any notice of redemption
and reliance may be placed only on the other identification numbers placed
thereon.
The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture. Request may be made to:
Source Media, Inc.
8140 Walnut Hill Lane
Suite 100
Dallas, TX 75231
Attn: Chief Financial Officer
<PAGE> 123
EXHIBIT B
Page 9
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
<PAGE> 124
EXHIBIT B
Page 10
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Date:
--------------
Your Signature:
--------------------------------
(Sign exactly as your name appears
on the face of this Security)
Signature Guarantee:
- -------------------------------
(Signatures must be guaranteed
by an "eligible guarantor
institution" meeting the
requirements of the Registrar,
which requirements will include
membership or participation in
the Securities Transfer Agents
Medallion Program ("STAMP") or
such other "signature guarantee
program" as may be determined
by the Registrar in addition to,
or in substitution for, STAMP,
all in accordance with the
Securities Exchange Act of 1934,
as amended.)
<PAGE> 125
EXHIBIT B
Page 11
OPTION OF SECURITYHOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.14 of the
Indenture check the appropriate box:
[ ] Section 4.10 [ ] Section 4.14
If you want to have only part of the Security purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased:
$
----------------------
Date:
-----------------
Your Signature:
-------------------------------
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee:
- -------------------------------
(Signatures must be guaranteed
by an "eligible guarantor
institution" meeting the
requirements of the Registrar,
which requirements will include
membership or participation in
the Securities Transfer Agents
Medallion Program ("STAMP") or
such other "signature guarantee
program" as may be determined by
the Registrar in addition to, or
in substitution for, STAMP, all
in accordance with the Securities
Exchange Act of 1934, as amended.)
<PAGE> 126
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
U.S. Trust Company of Texas, N.A.
- ------------------------------------------
- ------------------------------------------
Attention: Corporate Trust Administration
Re: Source Media, Inc.
12% Senior Notes due 2004
Ladies and Gentlemen:
In connection with our proposed purchase of 12% Senior Secured
Notes due 2004 (the "Securities") of Source Media, Inc. (the "Company"), we
confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated October 30, 1997 relating to the Securities and
such other information as we deem necessary in order to make our investment
decision. We acknowledge that we have read and agreed to the matters stated on
pages (ii) and (iii) of the Offering Memorandum and in the section entitled
"Transfer Restrictions" of the Offering Memorandum including the restrictions
on duplication and circulation of the Offering Memorandum.
2. We understand that any subsequent transfer of the
Securities is subject to certain restrictions and conditions set forth in the
Indenture relating to the Securities (as described in the Offering Memorandum)
and the undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Securities except in compliance with, such restrictions
and conditions and the Securities Act of 1933, as amended (the "Securities
Act").
3. We understand that the offer and sale of the Securities
have not been registered under the Securities Act, and that the Securities may
not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell or
<PAGE> 127
EXHIBIT C
Page 2
otherwise transfer any Securities prior to the date which is two years after
the original issuance of the Securities, we will do so only (i) to the Company
or any of its subsidiaries, (ii) inside the United States in accordance with
Rule 144A under the Securities Act to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act), (iii) inside the United States
to an institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Trustee (as defined in the Indenture relating to the
Securities), a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Securities, (iv) outside the
United States in accordance with Rule 904 of Regulation S under the Securities
Act, (v) pursuant to the exemption from registration provided by Rule 144 under
the Securities Act (if available), or (vi) pursuant to an effective
registration statement under the Securities Act, and we further agree to
provide to any person purchasing any of the Securities from us a notice
advising such purchaser that resales of the Securities are restricted as stated
herein.
4. We are not acquiring the Securities for or on behalf of,
and will not transfer the Securities to, any pension or welfare plan (as
defined in Section 3 of the Employee Retirement Income Security Act of 1974),
except as permitted in the section entitled "Transfer Restrictions" of the
Offering Memorandum.
5. We understand that, on any proposed resale of any
Securities, we will be required to furnish to the Trustee and the Company such
certification, legal opinions and other information as the Trustee and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Securities
purchased by us will bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
7. We are acquiring the Securities purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any
<PAGE> 128
EXHIBIT C
Page 3
administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By:
---------------------------------------
Name:
<PAGE> 129
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
,
--------------- ----
U.S. Trust Company of Texas, N.A.
- ------------------------------------------
- ------------------------------------------
Attention: Corporate Trust Administration
Re: Source Media, Inc.
(the "Company") __% Senior Unsecured
Notes due 2004 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $_____________
aggregate principal amount of the Securities, we confirm that such sale has
been effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Securities was not made to a Person in
the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting
on our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre- arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
<PAGE> 130
EXHIBIT D
Page 2
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-----------------------------------------
Authorized Signature
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS OF 13 1/2%
SENIOR PAYMENT-IN-KIND PREFERRED STOCK, AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Source Media, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that, pursuant to authority conferred upon the
board of directors of the Corporation (the "Board of Directors") by its
Certificate of Incorporation, as amended (hereinafter referred to as the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, said Board of
Directors, duly approved and adopted the following resolution (the
"Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board
of Directors by its Certificate of Incorporation, the Board of
Directors does hereby create, authorize and provide for the issuance
of 13 1/2% Senior Payment-In-Kind Preferred Stock, par value $.01 per
share, with a stated value of $25.00 per share, consisting of
1,000,000 shares, having the designations, preferences, relative,
participating, optional and other special rights and the
qualifications, limitations and restrictions thereof that are set
forth in the Certificate of Incorporation and in this Resolution as
follows:
(a) Designation. There is hereby created out of the authorized
and unissued shares of Preferred Stock of the Corporation a class of Preferred
Stock designated as the "13 1/2% Senior PIK Preferred Stock due 2007." The
number of shares constituting such class shall be 1,000,000 and are referred to
herein as the "Senior Preferred Stock." 800,000 shares of Senior Preferred
Stock shall be initially issued with an additional 200,000 shares reserved for
issuance in accordance with paragraph (c)(i) hereof. The liquidation
preference of the Senior Preferred Stock shall be $25.00 per share.
<PAGE> 2
(b) Liquidation Preference. The Senior Preferred Stock shall,
with respect to dividends and distributions upon liquidation, winding-up and
dissolution of the Corporation, rank senior to all classes of Common Stock of
the Corporation and to each other class of Capital Stock of the Corporation or
series of Preferred Stock of the Corporation hereafter created other than as
permitted in the following sentence (collectively, referred to as "Junior
Stock"). The Corporation may not issue any class or series of Capital Stock
that ranks (x) on a parity with the Senior Preferred Stock as to dividends and
distributions upon liquidation, winding-up and dissolution (collectively,
referred to as "Parity Stock") that was not approved by the Holders in
accordance with paragraph (f)(ii)(A) hereof (to the extent such approval is
required) or (y) senior to the Senior Preferred Stock as to dividends and
distributions upon liquidation, winding-up and dissolution of the Corporation
(collectively referred to as "Senior Stock") that was not approved by the
Holders in accordance with paragraph (f)(ii)(B) hereof.
(c) Dividends. (i) Beginning on the Issue Date, the Holders of
the outstanding shares of Senior Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends (the "Regular Dividends") on each share of Senior
Preferred Stock, at a rate per annum equal to 13 1/2% of the liquidation
preference per share of the Senior Preferred Stock, payable quarterly; provided
that so long as a Triggering Event shall have occurred and be continuing,
additional dividends will accumulate on the Senior Preferred Stock at a rate
per annum of 2% of the liquidation preference per share of the Senior Preferred
Stock, payable quarterly; and provided further, that the Regular Dividend rate
per annum is subject to increase as provided for in clause (vi) below. All
Regular Dividends shall be cumulative, whether or not earned or declared, on a
daily basis from the date of issuance of the Senior Preferred Stock and shall
be payable quarterly in arrears on each Regular Dividend Payment Date,
commencing on the first Regular Dividend Payment Date after the Issue Date.
Regular Dividends (including Additional Dividends, if any) accumulating on or
prior to November 1, 2002 may be paid, at the Corporation's option, either in
cash or by the issuance of additional shares of Senior Preferred Stock
(including fractional shares) having an aggregate liquidation preference equal
to the amount of such Regular Dividends (but not less than $1.00). In the
event that on or prior to November 1, 2002 Regular Dividends are declared and
paid through the issuance of additional shares of Senior Preferred Stock as
provided in the previous sentence, such Regular Dividends shall be deemed paid
in full and shall not accumulate. Regular Dividends accumulating after
November 1, 2002 must be paid in cash. Each Regular Dividend shall be payable,
out of funds legally available therefor, to the Holders of record as they
appear on the stock books of the Corporation on the Regular Dividend Record
Date immediately preceding the related Regular Dividend Payment Date.
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<PAGE> 3
(ii) All Regular Dividends paid with respect to shares of the
Senior Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to
the Holders entitled thereto.
(iii) Regular Dividends accruing after November 1, 2002 on the
Senior Preferred Stock for any past Dividend Period and Regular Dividends in
connection with any optional redemption pursuant to paragraph (e)(i) may be
declared and paid at any time, without reference to any Regular Dividend
Payment Date, to Holders of record on such date, not more than forty-five (45)
days prior to the payment thereof, as may be fixed by the Board of Directors of
the Corporation.
(iv) So long as any share of the Senior Preferred Stock is
outstanding, the Corporation shall not declare, pay or set apart for payment
any dividend on any Junior Stock or Parity Stock or make any payment on account
of, or set apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any Junior Stock or Parity Stock
or any warrants, rights, calls or options exercisable for or convertible into
any Junior Stock or Parity Stock whether in cash, obligations or shares of the
Corporation or other property, and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any Junior Stock or Parity Stock or any such warrants, rights, calls or
options unless full cumulative dividends determined in accordance herewith on
the Senior Preferred Stock have been paid (or are deemed paid) in full.
(v) Regular Dividends payable on the Senior Preferred Stock
for any period less than a year shall be computed on the basis of a 360-day
year of twelve 30-day months and the actual number of days elapsed in the
period for which payable. The amount of Additional Dividends will be
determined consistent with the preceding sentence and by multiplying the
applicable Additional Dividends by a fraction, the numerator of which is the
number of days (not to exceed 90) such rate was applicable during any Dividend
Period and the denominator of which is 360.
(vi) Additional Dividends shall become due and payable with
respect to the Senior Preferred Stock as set forth in the Registration Rights
Agreement.
(d) Liquidation Preference. (i) In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the Holders of shares of Senior Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount in cash equal to the
liquidation preference for each share outstanding, plus, without duplication,
(x) an amount in cash equal to
-3-
<PAGE> 4
accumulated and unpaid Regular Dividends and Additional Dividends thereon to
the date fixed for liquidation, dissolution or winding up (including an amount
equal to a prorated Regular Dividend for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution or winding up)
before any distribution is made on Junior Stock, including, without limitation,
Common Stock of the Corporation. Except as provided in the preceding sentence,
Holders of Senior Preferred Stock shall not be entitled to any distribution in
the event of any liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in
full the liquidation payments payable to the Holders of outstanding shares of
the Senior Preferred Stock and all Parity Stock, then the holders of all such
shares shall share equally and ratably in such distribution of assets in
proportion to the full liquidation preference to which each is entitled until
such preferences are paid in full, and then in proportion to their respective
amounts of accumulated but unpaid dividends.
(ii) For the purposes of this paragraph (d),
neither the sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Corporation nor the consolidation or merger of the Corporation
with or into one or more entities shall be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation.
(e) Redemption.
(i) Optional Redemption. Up to 35% of the Senior
Preferred Stock will be redeemable, at the Corporation's option, at any time or
in part from time to time, on or prior to November 1, 2000 out of the Net Cash
Proceeds of one or more Equity Offerings by the Corporation so long as there is
a Public Market as at the time of such redemption, at a redemption price equal
to 113.50% of the liquidation preference thereof, plus, without duplication, an
amount in cash equal to all accumulated and unpaid dividends (including, but
not limited to, an amount in cash equal to a prorated dividend for the period
from the immediately preceding Dividend Payment Date to the redemption date).
After November 1, 2000 and prior to November 1, 2002, the Senior Preferred
Stock is not redeemable. On or after November 1, 2002, the Senior Preferred
Stock will be redeemable, at the Corporation's option, in whole at any time or
in part from time to time, at the following redemption prices (expressed as a
percentage of liquidation preference) if redeemed during the twelve-month
period commencing on November 1 of the applicable year set forth below plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends (including, but not limited to, an amount in cash equal to a prorated
dividend for the period from the immediately preceding dividend payment date to
the Redemption Date):
-4-
<PAGE> 5
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 106.75%
2003 104.50%
2004 102.25%
2005 and thereafter 100.000%
</TABLE>
(ii) Mandatory Redemption. The Senior Preferred Stock
will be subject to mandatory redemption, subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor, in the manner provided in paragraph (e)(iii) hereof, in whole on
November 1, 2007 at a redemption price equal to 100% of the then effective
liquidation preference thereof, plus, without duplication, all accumulated and
unpaid dividends to the date of redemption.
(iii) Procedures to Redemption. (A) At least thirty (30)
days and not more than sixty (60) days prior to the date fixed for any
redemption of the Senior Preferred Stock, written notice (the "Redemption
Notice") shall be given by first class mail, postage prepaid, to each Holder of
record on the record date fixed for such redemption of the Senior Preferred
Stock at such Holder's address as it appears on the stock books of the
Corporation, provided that no failure to give such notice nor any deficiency
therein shall affect the validity of the procedure for the redemption of any
shares of Senior Preferred Stock to be redeemed except as to the Holder or
Holders to whom the Corporation has failed to give said notice or except as to
the Holder or Holders whose notice was defective. The Redemption Notice shall
state:
(1) whether the redemption is pursuant to
paragraph (e)(i) or (e)(ii) hereof;
(2) the redemption price;
(3) whether all or less than all the outstanding
shares of the Senior Preferred Stock are to be redeemed and
the total number of shares of the Senior Preferred Stock being
redeemed;
(4) the date fixed for redemption;
-5-
<PAGE> 6
(5) that the Holder is to surrender to the
Corporation, in the manner, at the place or places and at the
price designated, his certificate or certificates representing
the shares of Senior Preferred Stock to be redeemed; and
(6) that dividends on the shares of the Senior
Preferred Stock to be redeemed shall cease to accumulate on
such Redemption Date unless the Corporation defaults in the
payment of the redemption price.
(B) Each Holder of Senior Preferred Stock shall surrender
the certificate or certificates representing such shares of Senior Preferred
Stock to the Corporation, duly endorsed (or otherwise in proper form for
transfer, as determined by the Corporation), in the manner and at the place
designated in the Redemption Notice, and on the Redemption Date the full
redemption price for such shares shall be payable in cash to the Person whose
name appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the event that less
than all of the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(C) On and after the Redemption Date, unless the
Corporation fails to make payment in full of the applicable redemption price,
dividends on the Senior Preferred Stock called for redemption shall cease to
accumulate on the Redemption Date, and all rights of the Holders of redeemed
shares shall terminate with respect thereto on the Redemption Date, other than
the right to receive the redemption price; provided, however, that if a notice
of redemption shall have been given as provided in paragraph (iii)(A) above and
the funds necessary for redemption (including an amount in cash in respect of
all dividends that will accumulate to the Redemption Date) shall have been
irrevocably deposited in trust for the equal and ratable benefit for the
Holders of the shares to be redeemed, then, at the close of business on the day
on which such funds are segregated and set aside, the Holders of the shares to
be redeemed shall cease to be stockholders of the Corporation and shall be
entitled only to receive the redemption price.
(f) Voting Rights. (i) The Holders of Senior Preferred
Stock, except as otherwise required under Delaware law or as set forth in
paragraphs (ii), (iii) and (iv) below, shall not be entitled or permitted to
vote on any matter required or permitted to be voted upon by the stockholders
of the corporation.
(ii) (A) So long as any shares of the Senior Preferred
Stock are outstanding, the Corporation shall not authorize or issue any class
of Parity Stock without the affirmative vote or consent of Holders of at least
a majority of the then outstanding shares of Senior Preferred
-6-
<PAGE> 7
Stock, Exchange Preferred Stock and Private Exchange Preferred Stock, voting or
consenting, as the case may be, as one class, given in person or by proxy,
either in writing or by resolution adopted at an annual or special meeting;
provided, however, that no such vote or consent shall be necessary in
connection with (i) the authorization and issuance of additional shares of
Senior Preferred Stock pursuant to the provisions of paragraph (c) of this
Certificate of Designation or (ii) the authorization and issuance of that
number of shares of Exchange Preferred Stock and/or the Private Exchange
Preferred Stock not in excess of 1,712,000 shares less the sum of (x) that
number of shares of Senior Preferred Stock not exchanged in the Exchange Offer
and/or Private Exchange Offer and (y) that number of shares of Senior Preferred
Stock payable as dividends on such other shares of Senior Preferred Stock
referred to in clause (x), assuming accumulation of the maximum number of
Additional Dividends payable and assuming a Triggering Event had occurred and
would remain continuing until November 1, 2007; and provided further, however,
that the Corporation may issue Parity Stock if after giving effect to such
issuance the Consolidated Coverage Ratio is greater than 1.7 to 1.
(B) So long as any shares of the Senior Preferred Stock
are outstanding, the Corporation shall not authorize or issue any class of
Senior Stock without the affirmative vote or consent of Holders of at least a
majority of the outstanding shares of Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock, voting or consenting, as
the case may be, as one class, given in person or by proxy, either in writing
or by resolution adopted at an annual or special meeting, unless after giving
effect to the issuance of any such preferred stock the Consolidated Coverage
Ratio is greater than 1.7 to 1.0.
(C) So long as any shares of the Senior Preferred Stock
are outstanding, the Corporation shall not amend this Certificate of
Designation so as to affect adversely the specified rights, preferences,
privileges or voting rights of holders of shares of Senior Preferred Stock
without the affirmative vote or consent of Holders of at least a majority of
the issued and outstanding shares of (x) Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock, voting or consenting, as
the case may be, as one class, given in person or by proxy, either in writing
or by resolution adopted at an annual or special meeting, if a corresponding
amendment is to be made to the certificate of designation governing the
Exchange Preferred Stock and Private Exchange Stock which amendment, together
with such amendment to this Certificate of Designation, affects the Senior
Preferred Stock, Exchange Preferred Stock and Private Exchange Preferred Stock
identically in all material respects (a "Corresponding Amendment") or (y)
Senior Preferred Stock, voting or consenting, as the case may be, as one class,
given in person or by proxy, either in writing or by resolution adopted at an
annual or special meeting, if such amendment is not a Corresponding Amendment.
It is understood that no
-7-
<PAGE> 8
affirmative vote or consent of Holders of Senior Preferred Stock shall be
required in connection with any amendment to the Corporation's certificate of
incorporation that increases the number of authorized shares of Senior
Preferred Stock so that there is a sufficient number of authorized shares of
Senior Preferred Stock to pay dividends on the Senior Preferred Stock in
additional shares of Preferred Stock.
Notwithstanding the foregoing clauses (B) and (C), any
Restricted Subsidiary of the Corporation may consolidate with, merge into or
transfer all or part of its properties and assets to the Corporation.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of related
transactions) of all or substantially all of the properties or assets of one or
more Subsidiaries of the Corporation, the Capital Stock of which constitutes
all or substantially all of the properties and assets of the Corporation shall
be deemed to be the transfer of all or substantially all of the properties and
assets of the Corporation.
(iii) (A) If (i) after November 1, 2002, dividends on the
Senior Preferred Stock required to be paid in cash are in arrears and unpaid or
(ii) the Corporation is subject to a material default on its outstanding
indebtedness or (iii) the Corporation fails to redeem the Senior Preferred
Stock on or before November 1, 2007 or fails to discharge any redemption
obligation with respect to the Senior Preferred Stock or (iv) the Corporation
fails to make a Change of Control Offer if such an offer is required by the
provisions set forth under paragraph (h)(i) hereof or fails to purchase shares
of Senior Preferred Stock from holders who elect to have such shares purchased
pursuant to the Change of Control Offer or (v) a breach or violation of any of
the provisions described under paragraph (l) hereof occurs and the breach or
violation continues for a period of 60 days or more after the Corporation
receives notice thereof specifying the default from the holders of at least 25%
of the shares of Senior Preferred Stock, Exchange Preferred Stock and Private
Exchange Preferred Stock then outstanding or (vi) the Corporation fails to pay
at the final stated maturity (giving effect to any extensions thereof) the
principal amount of any Indebtedness of the Corporation or any Restricted
Subsidiary of the Corporation, or the final stated maturity of any such
Indebtedness is accelerated, if the aggregate principal amount of such
Indebtedness, together with the aggregate principal amount of any other such
Indebtedness in default for failure to pay principal at the final stated
maturity (giving effect to any extensions thereof) or which has been
accelerated, aggregates $3,000,000 or more at any time, in each case, after a
20-day period during which such default shall not have been cured or such
acceleration rescinded or (vii) the Corporation (x) shall fail to amend its
certificate of incorporation to increase the number of shares of authorized
Senior Preferred Stock in an amount sufficient to allow it to pay dividends on
the
-8-
<PAGE> 9
Senior Preferred Stock in additional shares of Senior Preferred Stock and (y)
shall fail to pay such dividends, when due, in cash, then the number of
directors constituting the board of directors of the Corporation will be
adjusted to permit the holders of a majority of the then outstanding shares of
Senior Preferred Stock, Exchange Preferred Stock and Private Exchange Preferred
Stock, voting together and as a class, to elect two directors to the board of
directors of the Corporation. Such voting rights will continue until such time
as, in the case of a dividend default, all accumulated and unpaid dividends on
the Senior Preferred Stock are paid in full in cash and, in all other cases,
any failure, breach or default giving rise to such voting rights is remedied,
cured or waived by the holders of at least a majority of the shares of Senior
Preferred Stock, Exchange Preferred Stock and Private Exchange Preferred Stock
then outstanding, at which time the term of any directors elected pursuant to
the provisions of this paragraph shall terminate. Each such event described in
clauses (i) through (vii) above is referred to herein as a "Triggering Event."
(B) The right of the Holders of Senior Preferred Stock,
Exchange Preferred Stock and Private Exchange Preferred Stock voting together
as a separate class to elect members of the Board of Directors as set forth in
subparagraph (f)(iii)(A) above shall continue until such time as (x) in the
event such right arises due to a failure to pay a dividend, all accumulated
dividends that are in arrears on the Senior Preferred Stock, Exchange Preferred
Stock and Private Exchange Preferred Stock are paid in full in cash; and (y) in
all other cases, the failure, breach or default giving rise to such Triggering
Event is remedied, cured or waived by the holders of at least a majority of the
shares of Senior Preferred Stock, Exchange Preferred Stock and Private Exchange
Preferred Stock then outstanding, at which time (1) the special right of the
Holders of Senior Preferred Stock, Exchange Preferred Stock and Private
Exchange Preferred Stock so to vote as a class for the election of directors
and (2) the term of office of the directors elected by the Holders of the
Senior Preferred Stock, Exchange Preferred Stock and Private Exchange Preferred
Stock shall each terminate and the directors elected by the holders of Common
Stock or Capital Stock (other than the Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock) shall constitute the
entire Board of Directors. At any time after voting power to elect directors
shall have become vested and be continuing in the Holders of Senior Preferred
Stock, Exchange Preferred Stock and Private Exchange Preferred Stock pursuant
to paragraph (f)(iii) hereof, or if vacancies shall exist in the offices of
directors elected by the Holders of Senior Preferred Stock, Exchange Preferred
Stock and Private Exchange Preferred Stock, a proper officer of the Corporation
may, and upon the written request of the Holders of record of at least
twenty-five percent (25%) of the shares of Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock then outstanding addressed
to the secretary of the Corporation shall, call a special meeting of the
Holders of the Senior Preferred Stock, Exchange Preferred Stock and Private
Exchange Preferred Stock, for the purpose of electing directors which such
-9-
<PAGE> 10
Holders are entitled to elect. If such meeting shall not be called by a proper
officer of the Corporation within twenty (20) days after personal service of
said written request upon the secretary of the Corporation, or within twenty
(20) days after mailing the same within the United States by certified mail,
addressed to the secretary of the Corporation at its principal executive
offices, then the Holders of record of at least twenty-five percent (25%) of
the outstanding shares of Senior Preferred Stock, Exchange Preferred Stock and
Private Exchange Preferred Stock may designate in writing one of their number
to call such meeting at the expense of the Corporation, and such meeting may be
called by the Person so designated upon the notice required for the annual
meetings of stockholders of the Corporation and shall be held at the place for
holding the annual meetings of stockholders. Any Holder of Senior Preferred
Stock, Exchange Preferred Stock or Private Exchange Preferred Stock so
designated shall have, and the Corporation shall provide, access to the lists
of stockholders to be called pursuant to the provisions hereof.
(C) At any meeting held for the purpose of electing
directors at which the Holders of Senior Preferred Stock, Exchange Preferred
Stock and Private Exchange Preferred Stock shall have the right, voting
together as a separate class, to elect directors as aforesaid, the presence in
person or by proxy of the Holders of at least a majority of the outstanding
shares of Senior Preferred Stock, Exchange Preferred Stock and Private Exchange
Preferred Stock entitled to vote thereat shall be required to constitute a
quorum of such Senior Preferred Stock, Exchange Preferred Stock and Private
Exchange Preferred Stock.
(D) Any vacancy occurring in the office of a director elected
by the Holders of Senior Preferred Stock, Exchange Preferred Stock and Private
Exchange Preferred Stock may be filled by the remaining director elected by the
Holders of Senior Preferred Stock, Exchange Preferred Stock and Private
Exchange Preferred Stock unless and until such vacancy shall be filled by the
Holders of Senior Preferred Stock, Exchange Preferred Stock and Private
Exchange Preferred Stock.
(iv) In any case in which the Holders of Senior Preferred
Stock shall be entitled to vote pursuant to this paragraph (f) or pursuant to
Delaware law, each Holder of Senior Preferred Stock entitled to vote with
respect to such matter shall be entitled to one vote for each share of Senior
Preferred Stock held.
(g) Mergers and Consolidations. The Corporation shall not
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, any Person, unless: (A) the resulting,
surviving or transferee Person (the "Successor Corporation") shall be a
corporation, partnership, trust or limited liability company organized and
existing under the laws
-10-
<PAGE> 11
of the United States of America, any State thereof or the District of Columbia
and the Successor Corporation (if not the Corporation) shall expressly assume
all the obligations of the Corporation under the Senior Preferred Stock; (B)
immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Corporation or any
Subsidiary of the Successor Corporation as a result of such transaction as
having been Incurred by the Successor Corporation or such Restricted Subsidiary
at the time of such transaction), no Triggering Event shall have occurred and
be continuing; (C) immediately after giving effect to such transaction, the
Successor Corporation would be able to incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (l)(i); and (D) the Consolidated Net Worth
of the resulting, surviving, or transferee corporation is not less than that of
the Corporation immediately prior to the transaction; (E) there has been
delivered to the Transfer Agent an Opinion of Counsel to the effect that
holders of the Senior Preferred Stock will not recognize income, gain or loss
for U.S. Federal income tax purposes as a result of such consolidation,
merger, conveyance, transfer or lease and will be subject to U.S. Federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such consolidation, merger, conveyance, transfer or
lease had not occurred; and (F) the Corporation shall have delivered to the
Transfer Agent an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer comply with this Certificate of
Designation.
The Successor Corporation will succeed to, and be substituted
for, and may exercise every right and power of, the Corporation under the
Certificate of Designation, but in the case of a lease of all or substantially
all its assets, the Corporation will not be released from the obligation to pay
the liquidation preference or dividends on the Preferred Stock.
Notwithstanding the foregoing clauses (B) and (C), any
Restricted Subsidiary of the Corporation may consolidate with, merge into or
transfer all or part of its properties and assets to the Corporation.
(h) Change of Control. (i) Within 20 days of the occurrence
of a Change of Control, the Corporation shall make an offer to purchase (the
"Change of Control Offer") the outstanding Senior Preferred Stock at a purchase
price equal to 101% of the liquidation preference thereof plus, without
duplication, an amount in cash equal to all accumulated and unpaid Regular
Dividends (including Additional Dividends, if any) thereon (including an amount
in cash equal to a prorated Regular Dividend for the period from the
immediately preceding Regular Dividend Payment Date to the Change of Control
Payment Date) (such applicable purchase price being hereinafter referred to as
the "Change of Control Purchase Price") in accordance with the procedures set
forth in this paragraph (h).
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(ii) Within 20 days of the occurrence of a Change of Control,
the Corporation also shall (i) cause a notice of the Change of Control to be
sent at least once to the Dow Jones News Service or similar business news
service in the United States and (ii) send by first-class mail, postage
prepaid, to each holder of Senior Preferred Stock, at the address appearing on
the stock books of the Corporation, a notice stating:
(1) that the Change of Control Offer is being made pursuant
to this paragraph (h) and that all Senior Preferred Stock tendered
will be accepted for payment, and otherwise subject to the terms and
conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase
date (which shall be a Business Day no earlier than 20 Business Days
from the date such notice is mailed (the "Change of Control Payment
Date"));
(3) that any Senior Preferred Stock not tendered will
continue to accumulate dividends;
(4) that, unless the Corporation defaults in the payment of
the Change of Control Purchase Price, any Senior Preferred Stock
accepted for payment pursuant to the Change of Control Offer shall
cease to accumulate dividends after the Change of Control Payment
Date;
(5) that holders accepting the offer to have their Senior
Preferred Stock purchased pursuant to a Change of Control Offer will
be required to surrender their certificates representing Senior
Preferred Stock to the Corporation at the address specified in the
notice prior to the close of business on the Business Day preceding
the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their
acceptance if the Corporation receives, not later than the close of
business on the third Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the number of shares of Senior
Preferred Stock delivered for purchase, and a statement that such
holder is withdrawing his election to have such Senior Preferred Stock
purchased;
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<PAGE> 13
(7) that holders whose Senior Preferred Stock is being
purchased only in part will be issued new certificates representing
the number of shares of Senior Preferred Stock equal to the
unpurchased portion of the certificates surrendered; and
(8) any other procedures that a holder must follow to accept
a Change of Control Offer or effect withdrawal of such acceptance.
(iii) In the event that a Change of Control occurs and the
holders of Senior Preferred Stock exercise their right to require the
Corporation to purchase Senior Preferred Stock, if such purchase constitutes a
"tender offer" for purposes of Rule 14e-1 under the Exchange Act at that time,
the Corporation will comply with the requirements of Rule 14e-1 as then in
effect with respect to such repurchase and, in the event of a conflict between
the requirements of the Exchange Act and this Certificate of Designation, the
provisions of the Exchange Act shall govern.
(iv) On the Change of Control Payment Date, the Corporation
shall (A) accept for payment the shares of Senior Preferred Stock validly
tendered pursuant to the Change of Control Offer, (B) promptly mail to the
Holders of shares so accepted the Change of Control Purchase Price therefor and
(C) cancel and retire each surrendered Certificate and execute a new Senior
Preferred Stock certificate equal to any unpurchased shares represented by a
certificate surrendered. Unless the Corporation defaults in the payment for
the shares of Senior Preferred Stock tendered pursuant to the Change of Control
Offer, dividends shall cease to accrue with respect to the shares of Senior
Preferred Stock tendered and all rights of Holders of such tendered shares
shall terminate, except for the right to receive payment therefor, on the
Change of Control Payment Date.
(v) Prior to the mailing of the notice referred to in
paragraph (g)(ii), but in any event within 20 days following the date on which
a Change of Control occurs, the Corporation covenants that, if the purchase of
the Senior Preferred Stock would violate or constitute a default or be
prohibited under the Indenture or any other instrument governing Indebtedness
outstanding at the time, then the Corporation will, to the extent needed to
permit such purchase of Senior Preferred Stock, either (i) repay in full all
Indebtedness under the Indenture or any such other instrument, as the case may
be, or (ii) obtain the requisite consents under the Indenture or any such other
instrument, as the case may be, to permit the redemption of the Senior
Preferred Stock as provided above. The Corporation will first comply with the
covenant in the preceding sentence before it will be required to redeem Senior
Preferred Stock pursuant to the provisions described above.
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(i) Conversion or Exchange. The Holders of shares of Senior
Preferred Stock shall not have any rights hereunder to convert such shares into
or exchange such shares for shares of any other class or classes or of any
other series of any class or classes of Capital Stock of the Corporation other
than the Exchange Preferred Stock and the Private Exchange Preferred Stock as
provided in the Registration Rights Agreement dated as of the date hereof.
(j) Reissuance of Senior Preferred Stock. Shares of Senior
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized
and unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock, provided
that any issuance of such shares of Preferred Stock must be in compliance with
the terms hereof.
(k) Business Day. If any payment, redemption or exchange
shall be required by the terms hereof to be made on a day that is not a
Business Day, such payment, redemption or exchange shall be made on the
immediately succeeding Business Day.
(l) Certain Additional Provisions.
(i) Limitation on Indebtedness. (A) The Corporation shall
not, and shall not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness if on the date thereof the Consolidated Coverage Ratio would be
greater than 2.0:1.
(B) Notwithstanding the foregoing paragraph (A), the
Corporation and its Restricted Subsidiaries may Incur the following
Indebtedness:
(i) Indebtedness of the Corporation or any Restricted
Subsidiary under Bank Indebtedness and under standby letters of credit
or reimbursement obligations with respect thereto issued in the
ordinary course of business and consistent with industry practice,
provided, however, that the aggregate principal amount of any
Indebtedness Incurred pursuant to this clause (i) shall not exceed $10
million at any time outstanding;
(ii) Indebtedness represented by Capitalized Lease
Obligations, mortgage financings or purchase money obligations, in
each case Incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property or
equipment used in a Permitted Business or Incurred to refinance any
such purchase price or cost of construction or improvement, in each
case Incurred no later than
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365 days after the date of such acquisition or the date of completion
of such construction or improvement; provided, however, that the
principal amount of any Indebtedness Incurred pursuant to this clause
(ii), together with Indebtedness Incurred in connection with
Sale/Leaseback Transactions in accordance with paragraph (l)(v)
hereof, shall not exceed $5 million at any time outstanding;
(iii) Indebtedness of the Corporation owing to and held by
any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary
owing to and held by the Corporation or any Wholly-Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such
Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the
Corporation or any Wholly-Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(iv) Indebtedness represented by (w) the Notes, (x) the
Guarantees, (y) Existing Indebtedness and (z) any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (iv) or Incurred pursuant to paragraph (A);
(v) (A) Indebtedness of a Restricted Subsidiary Incurred
and outstanding on the date on which such Restricted Subsidiary was
acquired by the Corporation (other than Indebtedness Incurred in
anticipation of, or to provide all or any portion of the funds or
credit support utilized to consummate the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or was otherwise acquired by the Corporation);
provided, however, that at the time such Restricted Subsidiary is
acquired by the Corporation, the Corporation would have been able to
Incur $1.00 of additional Indebtedness pursuant to paragraph (A) above
after giving effect to the Incurrence of such Indebtedness pursuant to
this clause (v) and (B) Refinancing Indebtedness Incurred by a
Restricted Subsidiary in respect of Indebtedness Incurred by such
Restricted Subsidiary pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds,
bankers' acceptances and surety or appeal bonds provided by the
Corporation or any of its Restricted Subsidiaries to their customers
in the ordinary course of their business, (B) in respect of
performance bonds or similar obligations of the Corporation or any of
its Restricted Subsidiaries for or in connection with pledges,
deposits or payments made or given in the ordinary course of business
in connection with or to secure statutory, regulatory or similar
obligations,
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including obligations under health, safety or environmental
obligations, (C) arising from Guarantees to suppliers, lessors,
licensees, contractors, franchises or customers of obligations (other
than Indebtedness) Incurred in the ordinary course of business and (D)
under Currency Agreements and Interest Rate Agreements; provided,
however, that in the case of Currency Agreements and Interest Rate
Agreements, such Currency Agreements and Interest Rate Agreements are
entered into for bona fide hedging purposes of the Corporation or its
Restricted Subsidiaries (as determined in good faith by the Board of
Directors of the Corporation) and correspond in terms of notional
amount, duration, currencies and interest rates as applicable, to
Indebtedness of the Corporation or its Restricted Subsidiaries
Incurred without violation of the Certificate of Designation or to
business transactions of the Corporation or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of
business;
(vii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations,
or from Guarantees or letters of credits, surety bonds or performance
bonds securing any obligations of the Corporation or any of its
Restricted Subsidiaries pursuant to such agreements, in each case
Incurred in connection with the disposition of any business assets or
Restricted Subsidiary of the Corporation (other than Guarantees of
Indebtedness or other obligations Incurred by any Person acquiring all
or any portion of such business assets or Restricted Subsidiary of the
Corporation for the purpose of financing such acquisition) in a
principal amount not to exceed the gross proceeds actually received by
the Corporation or any of its Restricted Subsidiaries in connection
with such disposition; provided, however, that the principal amount of
any Indebtedness Incurred pursuant to this clause (vii) when taken
together with all Indebtedness Incurred pursuant to this clause (vii)
and then outstanding, shall not exceed $1 million;
(viii) Indebtedness consisting of (A) Guarantees by the
Corporation or a Subsidiary Guarantor of Indebtedness Incurred by a
Wholly-Owned Subsidiary without violation of the Certificate of
Designation (so long as the Corporation or such Subsidiary Guarantor,
as the case may be, could have Incurred such Indebtedness directly
without violation of the Certificate of Designation) and (B)
Guarantees by a Restricted Subsidiary of Senior Indebtedness Incurred
by the Corporation without violation of the Certificate of Designation
(so long as such Restricted Subsidiary could have Incurred such
Indebtedness directly without violation of the Certificate of
Designation);
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<PAGE> 17
(ix) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
issued by the Corporation or its Restricted Subsidiaries drawn against
insufficient funds in the ordinary course of business in an amount not
to exceed $250,000 at any time, provided that such Indebtedness is
extinguished within two business days of its Incurrence; and
(x) Indebtedness (other than Indebtedness described in
clauses (i) - (ix)) in a principal amount which, when taken together
with the principal amount of all other Indebtedness Incurred pursuant
to this clause (x) and then outstanding, will not exceed $4 million
(it being understood that any Indebtedness Incurred under this clause
(x) shall cease to be deemed Incurred or outstanding for purposes of
this clause (x) (but shall be deemed to be Incurred for purposes of
paragraph (A)) from and after the first date on which the Corporation
or its Restricted Subsidiaries could have Incurred such Indebtedness
under the foregoing paragraph (A) without reliance upon this clause
(x)).
(C) The Corporation will not permit any Unrestricted
Subsidiary to Incur any Indebtedness other than Non-Recourse Debt.
(ii) Limitation on Restricted Payments. (A) The Corporation
shall not, and shall not permit any of its Restricted Subsidiaries, directly or
indirectly, to (i) declare or pay any dividend or make any distribution on or
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Corporation or any of its Restricted
Subsidiaries) except (A) dividends or distributions payable in its Capital
Stock (other than Disqualified Stock) or in options, warrants or other rights
to purchase such Capital Stock, and (B) dividends or distributions payable to
the Corporation or any of its Restricted Subsidiaries by any of its
Subsidiaries (and if the Subsidiary paying the dividend or making the
distribution is not a Wholly-Owned Subsidiary, to its other holders of Capital
Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire
for value any Capital Stock of the Corporation held by Persons other than a
Wholly-Owned Subsidiary of the Corporation or any Capital Stock of a Restricted
Subsidiary of the Corporation held by any Affiliate of the Corporation, other
than a Wholly-Owned Subsidiary (in either case, other than in exchange for its
Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within
one year of the date of purchase, repurchase or acquisition or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
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acquisition, retirement or Investment as described in preceding clauses (i)
through (iv) being referred to as a "Restricted Payment"); if at the time the
Corporation or such Restricted Subsidiary makes such Restricted Payment:
(1) the Corporation shall have paid a dividend, on the most
recent Dividend Payment Date, by the issuance of additional Preferred
Stock; or
(2) a Triggering Event shall have occurred and be continuing
(or would result therefrom); or
(3) the Corporation is not able to Incur an additional $1.00
of Indebtedness pursuant to paragraph (A) of paragraph (l)(i); or
(4) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made subsequent to the Issue
Date would exceed the sum of (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from the
first day of the fiscal quarter beginning on or after the Issue Date
to the end of the most recent fiscal quarter ending prior to the date
of such Restricted Payment as to which financial results are available
(but in no event ending more than 135 days prior to the date of such
Restricted Payment) (or, in case such Consolidated Net Income shall be
a deficit, minus 100% of such deficit); (B) the aggregate net proceeds
received by the Corporation from the issue or sale of its Capital
Stock (other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an
issuance or sale of such Capital Stock to (x) a Subsidiary of the
Corporation, (y) an employee stock ownership plan or similar trust or
(z) management employees of the Corporation or any Subsidiary of the
Corporation); provided, however, that the value of any non-cash net
proceeds, shall be as determined by the Board of Directors in good
faith, except that in the event the value of any non-cash net proceeds
shall be $1 million or more, the value shall be as determined in
writing by an independent investment banking firm of nationally
recognized standing; (C) the amount by which Indebtedness of the
Corporation is reduced on the Corporation's balance sheet upon the
conversion or exchange (other than by a Restricted Subsidiary of the
Corporation) subsequent to the Issue Date of any Indebtedness of the
Corporation convertible or exchangeable for Capital Stock of the
Corporation (less the amount of any cash, or other property,
distributed by the Corporation upon such conversion or exchange); and
(D) the amount equal to the net reduction in Investments (other than
Permitted Investments) made after the Issue Date by the Corporation or
any of its Restricted Subsidiaries in any Person resulting from (i)
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repurchases or redemptions of such Investments by such Person,
proceeds realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of
assets by such Person to the Corporation or any Restricted Subsidiary
of the Corporation or (ii) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case
of any Unrestricted Subsidiary, the amount of Investments previously
included in the calculation of the amounts of Restricted Payments;
provided, however, that no amount shall be included under this clause
(D) to the extent it is already included in Consolidated Net Income.
(B) Notwithstanding the foregoing, the Corporation shall not,
and shall not permit any of its Restricted Subsidiaries, to make Investments in
Interactive Channel, Inc. or Interactive Channel Technologies, Inc., if at the
time of such Investment:
(1) a Triggering Event shall have occurred and be
continuing (or would result therefrom); or
(2) the aggregate amount of such Investment and all other
Investments in Interactive Channel, Inc. made subsequent to the Issue
Date would exceed the sum of (A) $34.0 million; (B) 50% of the
Adjusted Consolidated Net Income accrued during the period (treated as
one accounting period) from the first day of the fiscal quarter
beginning on or after the Issue Date to the end of the most recent
fiscal quarter ending prior to the date of such Investment as to which
financial results are available (but in no event ending more than 135
days prior to the date such Restricted Payment) (or, in the such
Adjusted Consolidated Net Income shall be a deficit, minus 100% of
such deficit); and (C) the aggregate net proceeds received by the
Corporation from the issue or sale of its Capital Stock (other than
Disqualified Stock) or other capital contributions subsequent to the
Issue Date as calculated in accordance with paragraph (A)(3)(B) above.
(C) The provisions of paragraph (A) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated Obligations of
the Corporation made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Corporation (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary,
an employee stock ownership plan or similar trust or management employees of
the Corporation or any Subsidiary of the Corporation); provided, however, that
(A) such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale
shall be excluded from clause (3) (B) of paragraph (A); (ii) any purchase
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or redemption of Subordinated Obligations of the Corporation made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of the Corporation in compliance with (l)(i) hereof;
provided, however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (iii) any purchase or
redemption of Subordinated Obligations from Net Available Cash; provided,
however, that such purchase or redemption shall be excluded in the calculation
of the amount of Restricted Payments; and (iv) dividends paid within 60 days
after the date of declaration if at such date of declaration such dividend
would have complied with this provision; provided, however, that such dividend
shall be included in the calculation of the amount of Restricted Payments;
provided, however, that in each case, no Triggering Event shall have occurred
or be continuing at the time of such payment or as a result thereof.
(D) For purposes of determining compliance with the
foregoing covenant, Restricted Payments may be made with cash or non-cash
assets, provided that any Restricted Payment made other than in cash shall be
valued at the fair market value (determined, subject to the additional
requirements of the immediately succeeding proviso, in good faith by the Board
of Directors) of the assets so utilized in making such Restricted Payment,
provided, further that (i) in the case of any Restricted Payment made with
capital stock or indebtedness, such Restricted Payment shall be deemed to be
made in an amount equal to the greater of the fair market value thereof and the
liquidation preference (if any) or principal amount of the capital stock or
indebtedness, as the case may be, so utilized, and (ii) in the case of any
Restricted Payment in an aggregate amount in excess of $1 million, a written
opinion as to the fairness of the valuation thereof (as determined by the
Corporation) for purposes of determining compliance with paragraph (l)(ii)
shall be issued by an independent investment banking firm of national standing.
(E) No later than the date of making any Restricted
Payment, the Corporation shall deliver to the Trustee an Officer's Certificate
stating that such Restricted Payment complies with this Certificate of
Designation and setting forth in reasonable detail the basis upon which the
required calculations were computed, which calculations may be based upon the
Corporation's latest available quarterly financial statements and a copy of any
required investment banker's opinion.
(iii) Limitation on Affiliate Transactions. (A) The
Corporation will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into or conduct any transaction or series of
related transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with or for the benefit of any
Affiliate of the Corporation, other than a Wholly-Owned Subsidiary (an
"Affiliate Transaction") unless: (i) the
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terms of such Affiliate Transaction are no less favorable to the Corporation or
such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's length dealings with a Person
who is not such an Affiliate; (ii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $1 million, the terms of such
transaction have been approved by a majority of the members of the Board of
Directors of the Corporation and by a majority of the disinterested members of
such Board, if any (and such majority or majorities, as the case may be,
determines that such Affiliate Transaction satisfies the criteria in (i)
above); and (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2 million, the Corporation has received a written opinion
from an independent investment banking firm of nationally recognized standing
that such Affiliate Transaction is fair to the Corporation or such Restricted
Subsidiary, as the case may be, from a financial point of view.
(B) The foregoing paragraph (A) shall not apply to (i) any
Restricted Payment permitted to be made pursuant to paragraph (l)(ii) hereof,
(ii) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, or any stock options and stock ownership plans for the benefit of
employees, officers and directors, consultants and advisors approved by the
Board of Directors of the Corporation, (iii) loans or advances to employees in
the ordinary course of business of the Corporation or any of its Restricted
Subsidiaries in aggregate amount outstanding not to exceed $250,000 at any
time, (iv) loans or advances to senior management of the Corporation which
loans and advances are secured by shares of Common Stock of the Corporation
owned by such senior management, in an aggregate amount outstanding not to
exceed $750,000, (v) any transaction between Wholly-Owned Subsidiaries, (vi)
indemnification agreements with, and the payment of fees and indemnities to,
directors, officers and employees of the Corporation and its Restricted
Subsidiaries, in each case in the ordinary course of business, (vii)
transactions pursuant to agreements in existence on the Issue Date which are
(x) described in the Corporation's offering memorandum dated October 30, 1997
or (y) otherwise, in the aggregate, immaterial to the Corporation and its
Restricted Subsidiaries taken as a whole, (viii) any employment,
non-competition or confidentiality agreements entered into by the Corporation
or any of its Restricted Subsidiaries with its employees in the ordinary course
of business, and (ix) the issuance of Capital Stock of the Corporation (other
than Disqualified Stock).
(iv) Limitation on Issuances of Capital Stock of Restricted
Subsidiaries. The Corporation will not permit any of its Restricted
Subsidiaries to issue any Capital Stock to any Person (other than to the
Corporation or a Wholly-Owned Subsidiary of the Corporation) or permit any
Person (other than the Corporation or a Wholly-Owned Subsidiary of the
Corporation) to own any Capital Stock of a Restricted Subsidiary of the
Corporation, if in either case as a result
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thereof such restricted Subsidiary would no longer be a Restricted Subsidiary
of the Corporation; provided, however, that this provision shall not prohibit
(x) the Corporation or any of its Restricted Subsidiaries from selling or
otherwise disposing of all of the Capital Stock of any Restricted Subsidiary or
(y) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with the Certificate of Designation.
(v) Limitation on Sale/Leaseback Transactions. The
Corporation will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, Guarantee or otherwise become liable with
respect to any Sale/Leaseback Transaction with respect to any property or
assets unless (a) the Corporation or such Restricted Subsidiary, as the case
may be, would be entitled to pursuant to this Certificate of Designation Incur
Indebtedness secured by a Permitted Lien on such property or assets in an
amount equal to the Attributable Indebtedness with respect to such
Sale/Leaseback Transaction, (b) the Net Cash Proceeds from such Sale/Leaseback
Transaction are at least equal to the fair market value of the property or
assets subject to such Sale/Leaseback Transaction (such fair market value
determined, in the event such property or assets have a fair market value in
excess of $500,000, no more than 30 days prior to the effective date of such
Sale/Leaseback Transaction, by the Board of Directors of the Corporation as
evidenced by a resolution of such Board of Directors) and (c) the Indebtedness
Incurred in connection with such Sale/Leaseback Transaction, together with
Indebtedness Incurred in accordance with (ii) of paragraph (B) of paragraph
(l)(i), does not exceed $5 million at any time outstanding.
(m) SEC Reports. The Corporation will provide to the holders
of the Senior Preferred Stock within 15 days, after it files them with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Corporation files
with the Commission pursuant to Section 13 or 15 (d) of the Exchange Act. In
the event that the Corporation is not required to file such reports with the
Commission pursuant to the Exchange Act, the Corporation will nevertheless
deliver such Exchange Act information to the holders of the Preferred Stock
within 15 days after it would have been required to file it with the
Commission.
(n) Conduct of Business. The Corporation will not permit IT
Network, Inc. to directly or indirectly engage in any business other than the
provision of voice information services, including the services described in
this Offering Memorandum. The Corporation will conduct all of its interactive
television business through Interactive Channel, Inc., Interactive
Technologies, Inc. and any of their Wholly-Owned Subsidiaries.
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(o) Definitions. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in
the singular having comparable meanings when used in the plural and vice
versa), unless the context otherwise requires:
"Acquisitions" means the October 1997 acquisitions by the
Corporation of certain of the electronic publishing assets of Brite Voice, Inc.
for $35.6 million and certain of the assets of Voice News Network, Inc. for
$9.0 million.
"Additional Dividends" has the meaning set forth in the
Registration Rights Agreement.
"Adjusted Consolidated Net Income" means, for any period,
Consolidated Net Income minus (plus) the net income (loss) of Interactive
Channel, Inc. for such period, plus an amount equal to the corporate overhead
allocated to Interactive Channel, Inc., on an after-tax basis, unless otherwise
included in the net income of Interactive Channel, Inc., for such period (as
determined in good faith by senior management of the Corporation), plus an
amount equal to the amortization of intangible assets relating to the
Acquisitions.
"Affiliate" of any specified person means any other Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Affiliate Transaction" shall have the meaning ascribed to it
in paragraph l(iv) hereof.
"Asset Disposition" means any sale, lease, transfer, issuance
or other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of
(or any other equity interests in) a Restricted Subsidiary (other than
directors' qualifying shares) or of any other property or other assets (each
referred to for the purposes of this definition as a "disposition") by the
Corporation or any of its Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Corporation or by the Corporation
or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of
inventory in the ordinary course of business and for which adequate reserves
have been established in accordance
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with GAAP, (iii) a disposition of obsolete or worn out equipment or equipment
that is no longer useful in the conduct of the business of the Corporation and
its Restricted Subsidiaries and that is disposed of in each case in the
ordinary course of business, (iv) dispositions of property for net proceeds
which, when taken collectively with the net proceeds of any other such
dispositions under this clause (iv) that were consummated since the beginning
of the calendar year in which such disposition is consummated, do not exceed $1
million, and (v) transactions permitted under paragraph (g) hereof.
Notwithstanding anything to the contrary contained above, a Restricted Payment
made in compliance with paragraph (l)(ii) shall not constitute an Asset
Disposition except for purposes of determinations of the Consolidated Coverage
Ratio.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Notes, compounded annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the product of the numbers of years (rounded upwards to
the nearest month) from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or redemption or
similar payment with respect to Preferred Stock multiplied by the amount of
such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means loans made by banks, trust companies
and other institutions principally engaged in the business of lending money to
businesses to the Company or a Restricted Subsidiary under a credit facility,
loan agreement or similar agreement.
"Board of Directors" shall have the meaning ascribed to it in
the first paragraph of this Certificate of Designation.
"Business Day" means any day except a Saturday, a Sunday, or
any day on which banking institutions in New York, New York are required or
authorized by law or other governmental action to be closed.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however
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designated) equity of such Person, including any Preferred Stock, but excluding
any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is
required to be classified and accounted for as a capitalized lease for
financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with GAAP, and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date such lease may be terminated without
penalty.
"Certificate of Designation" means this Certificate of
Designation creating the Senior Preferred Stock.
"Change of Control" means (i) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the assets of the Corporation and its Subsidiaries; or
(ii) a majority of the Board of Directors of the Corporation or of any direct
or indirect holding company thereof shall consist of Persons who are not
Continuing Directors of the Corporation; or (iii) the acquisition by any Person
or group of related Persons for purposes of Section 13 (d) of the Exchange Act,
of the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election
of directors of the Corporation or of any direct or indirect holding company
thereof.
"Change of Control Offer" shall have the meaning ascribed to
it in paragraph (h)(i) hereof.
"Change of Control Payment Date" shall have the meaning
ascribed to it in paragraph (h)(ii)(2) hereof.
"Change of Control Purchase Price" shall have the meaning
ascribed to it in paragraph (h)(i) hereof.
"Common Stock" of any Person means Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
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"Consolidated Cash Flow" for any period means the Consolidated
Net Income for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization
expense, (v) exchange or translation losses on foreign currencies, and (vi) all
other non-cash items reducing Consolidated Net Income (excluding any noncash
item to the extent it represents an accrual of or reserve for cash
disbursements for any subsequent period prior to the Stated Maturity of the
Notes) and less, to the extent added in calculating Consolidated Net Income,
(x) exchange or translation gains on foreign currencies and (y) non-cash items
(excluding such non-cash items to the extent they represent an accrual for cash
receipts reasonably expected to be received prior to the Stated Maturity of the
Notes), in each case for such period. Notwithstanding the foregoing, the
income tax expense, depreciation expense and amortization expense of a
Subsidiary of the Corporation shall be included in Consolidated Cash Flow only
to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination and as to which financial statements are available
to (ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Corporation or any of its Restricted Subsidiaries has
Incurred any Indebtedness since the beginning of such period and through the
date of determination of the Consolidated Coverage Ratio that remains
outstanding or if the transaction giving rise to the need to calculate
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to (A) such Indebtedness
as if such Indebtedness had been Incurred on the first day of such period
(provided that if such Indebtedness is Incurred under a revolving credit
facility (or similar arrangement or under any predecessor revolving credit or
similar arrangement) only that portion of such Indebtedness that constitutes
the one year projected average balance of such Indebtedness (as determined in
good faith by the Board of Directors of the Corporation) shall be deemed
outstanding for purposes of this calculation), and (B) the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period, (2) if since the beginning of such period any
Indebtedness of the Corporation or any of its Restricted Subsidiaries has been
repaid, repurchased, defeased or otherwise discharged (other than Indebtedness
under a revolving credit or similar arrangement unless such revolving credit
Indebtedness has been permanently repaid and the underlying commitment
terminated and has not been replaced), Consolidated Interest Expense for such
period shall be calculated after giving pro
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forma effect thereto as if such Indebtedness had been repaid, repurchased,
defeased or otherwise discharged on the first day of such period, (3) if since
the beginning of such period the Corporation or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for
such period shall be (i) reduced by an amount equal to the Consolidated
Interest Expense attributable to any Indebtedness of the Corporation or any of
its Restricted Subsidiaries repaid, repurchased, defeased or otherwise
discharged with respect to the Corporation and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary of the Corporation is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Corporation and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale) and (ii) increased by interest income
attributable to the assets which are the subject of such Asset Disposition for
such period, (4) if since the beginning of such period the Corporation or any
of its Restricted Subsidiaries (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary of the Corporation (or any Person which
becomes a Restricted Subsidiary of the Corporation as a result thereof) or an
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (5) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary of the Corporation or was merged with or into the
Corporation or any Restricted Subsidiary of the Corporation since the beginning
of such period) shall have made any Asset Disposition, Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(3) or (4) above if made by the Corporation or a Restricted Subsidiary of the
Corporation during such period, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition occurred
on the first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income
or earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro
forma calculations shall be determined in good faith by a responsible financial
or accounting officer of the Corporation. If any Indebtedness bears a floating
rate of interest and is being given pro forma effect, the interest expense on
such
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Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Corporation and its Restricted Subsidiaries
determined in accordance with GAAP, plus, to the extent not included in such
interest expense (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount, (iii) capitalized interest,
(iv) non-cash interest expense, (v) commissions, discounts and other fees and
charges owned with respect to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by the Corporation or any such
Restricted Subsidiary under any Guarantee of Indebtedness or other obligation
of any other Person, (vii) net payments (whether positive or negative) pursuant
to Interest Rate Agreements; (vii) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Corporation) in connection with Indebtedness Incurred by such plan or trust and
(ix) case and Disqualified Stock dividends in respect of all Preferred Stock of
Subsidiaries and Disqualified Stock of the Corporation held by Persons other
than the Corporation or a Wholly-Owned Subsidiary and less (a) to the extent
included in such interest expense, the amortization of capitalized debt
issuance costs and (b) interest income. Notwithstanding the foregoing, the
Consolidated Interest Expense with respect to any Restricted Subsidiary of the
Corporation, that was not a Wholly-Owned Subsidiary, shall be included only to
the extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the
consolidated net income (loss) of the Corporation and its consolidated
Subsidiaries determined in accordance with GAAP; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person acquired by the Corporation or any of its Restricted
Subsidiaries in a pooling of interests transaction for any period prior to the
date of such acquisition, (ii) any net income of any Restricted Subsidiary of
the Corporation if such Restricted Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Corporation (other than restrictions in effect on the Issue Date with respect
to a Restricted Subsidiary of the Corporation and other than restrictions that
are created or exist in compliance with this certificate, (iii) any gain or
loss realized upon the sale or other disposition of any assets of the
Corporation or its consolidated Restricted Subsidiaries (including pursuant to
any Sale/Leaseback Transaction) which are not sold
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or otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Capital Stock of any
Person, (iv) any extraordinary gain or loss, (v) the cumulative effect of a
change in accounting principles, (vi) the net income of any Person, other than
a Restricted Subsidiary, except to the extent of the lesser of (A) cash
dividends or distributions actually paid to the Corporation or any of its
Restricted Subsidiaries by such Person and (B) the net income of such Person
(but in no event less than zero), and the net loss of such Person (other than
an Unrestricted Subsidiary) shall be included only to the extent of the
aggregate Investment of the Corporation or any of its Restricted Subsidiaries
in such Person and (vii) any non-cash expenses attributable to grants or
exercises of employee stock options. Notwithstanding the foregoing, for the
purpose of paragraph (l)(ii) only, there shall be excluded from Consolidated
Net Income any dividends, repayments of loans or advances or other transfers of
assets from Unrestricted Subsidiaries to the Corporation or a Restricted
Subsidiary to the extent such dividends, repayments or transfers increase the
amount of Restricted Payments permitted under paragraph (l)(ii) pursuant to
clause (A) (3) (D) thereof.
"Consolidated Net Worth" means, the total of the amounts shown
on the balance sheet of the Corporation and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Corporation ending prior to
the taking of any action for the purpose of which the determination is being
made and for which financial statements are available (but in no event ending
more than 135 days prior to the taking of such action), as (i) the par or
stated value of all outstanding Capital Stock of the Corporation plus (ii) paid
in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B)
any amounts attributable to Disqualified Stock.
"Continuing Director" of any Person means, as of the date of
determination, any Person who (i) was a member of the Board of Directors of
such Person on the date of the Certificate of Designation or (ii) was nominated
for election or elected to the Board of Directors of such Person with the
affirmative vote of a majority of the Continuing Directors of such Person who
were members of such Board of Directors at the time of such nomination or
election.
"Corresponding Amendment" shall have the meaning ascribed to
it in paragraph (f)(ii)(C) hereof.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement to which
Person is a party or a beneficiary.
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"Disqualified Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event (other than an
event which would constitute a Change of Control), (i) matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final stated maturity of the Notes, or (ii) is convertible into or
exchangeable (unless at the sole option of the issuer thereof) for (a) debt
securities or (b) any Capital Stock referred to in (i) above, in each case at
any time prior to the final stated maturity of the Senior Preferred Stock.
"Dividend Period" means the Initial Dividend Period and,
thereafter, each quarterly dividend period.
"Equity Offerings" means an offering for cash by the
Corporation of its Common Stock or option warrants or rights with respect to
its Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Notice" shall have the meaning ascribed to it in
paragraph (g) hereof.
"Exchange Offer" means a registered offer to exchange any and
all shares of the Senior Preferred Stock for a like number of shares (with a
liquidation preference equal to that of the surrendered shares) of another
series of the Corporation's senior exchangeable preferred stock that has terms
identical in all material respects to the Senior Preferred Stock except that
the Exchange Preferred Stock shall have been registered pursuant to an
effective registration statement under the Securities Act and the certificates
therefor shall contain no restrictive legends thereon.
"Exchange Preferred Stock" means the series of the
Corporation's senior exchangeable preferred stock publicly offered in exchange
for the Senior Preferred Stock as contemplated by the Registration Rights
Agreement and having terms identical in all material respects to the Senior
Preferred Stock.
"Existing Indebtedness" means Indebtedness of the Corporation
or its Restricted Subsidiaries in existence on the Issue Date, plus interest
accrued thereon, after application of the net proceeds of the sale of the Notes
and Units.
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"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of the Certificate of
Designation, including those set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Certificate of Designation shall be
computed in conformity with GAAP.
"Guarantees" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Subsidiary Guarantor" means each Subsidiary of the
Corporation in existence on the Issue Date and each Subsidiary (other than
Unrestricted Subsidiaries) created or acquired by the Corporation after the
Issue Date.
"Holder" means a holder of shares of Senior Preferred Stock,
Exchange Preferred Stock or Private Exchange Preferred Stock, as the context
requires, as reflected in the stock books of the Corporation.
"Incur" means issue, assume, guarantee, incur or otherwise
become liable for; provided, however, that any indebtedness or Capital Stock of
a Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations
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of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto) (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i), (ii) and
(v)) entered into in the ordinary course of business of such Person to the
extent that such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third business day
following receipt by such Person of a demand for reimbursement following
payment on the letter of credit), (iv) all obligations of such Person to pay
the deferred and unpaid purchase price of property or services (except trade
payables and accrued expenses Incurred in the ordinary course of business),
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, (v) all Capitalized Lease Obligations and all Attributable
Indebtedness of such Person, (vi) all Indebtedness of other Persons secured by
a Lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person, (vii) all Indebtedness of other Persons to the extent
Guaranteed by such Person, (viii) the amount of all obligations of such Person
with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Restricted Subsidiary of the
Corporation, any Preferred Stock of such Restricted Subsidiary to the extent
such obligation arises on or before the stated maturity of such Preferred Stock
(but excluding, in each case, accrued dividends) with the amount of
Indebtedness represented by such Disqualified Stock or Preferred Stock, as the
case may be, being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price; provided that,
for purposes hereof the "maximum fixed repurchase price" of any Disqualified
Stock or Preferred Stock, as the case may be, which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock or Preferred Stock, as the case may be, as if such
Disqualified Stock or Preferred Stock, as the case may be, were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Certificate of Designation, and if such price is based on the fair market
value of such Disqualified Stock or Preferred Stock, as the case may be, such
fair market value shall be determined in good faith by the Board of Directors
of the Corporation and (ix) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate Agreements.
Unless specifically set forth above, the amount of Indebtedness of any Person
at any date shall be the outstanding principal amount of all unconditional
obligations as described above, as such amount would be reflected on a balance
sheet prepared in accordance with GAAP, and the maximum liability of such
Person, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations described above at such date.
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"Indenture" means the Indenture dated as of October 30, 1997,
by, and among the Corporation and U.S. Trust Company of Texas as Trustee.
"Initial Dividend Period" means the dividend period commencing
on the Issue Date and ending on the first Regular Dividend Payment Date to
occur thereafter.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts payable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a
bank deposit other than a time deposit) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person;
provided that any Investment in the interactive television business shall be
made by any Person, directly or indirectly, through Interactive Channel, Inc.,
Interactive Channel Technologies Inc. and any of their Wholly-Owned
Subsidiaries. For purposes of paragraph (l)(ii), (i) "Investment" shall
include the portion (proportionate to the Corporation's equity interest in a
Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the
fair market value of the net assets of such Restricted Subsidiary of the
Corporation at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Corporation shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary in an
amount (if positive) equal to (x) the Corporation's "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Corporation's equity interest in such Subsidiary) of the
fair market value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors and evidenced by a resolution of such Board of
Directors certified in an Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Preferred Stock are originally issued.
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"Junior Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received
in the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the properties or assets subject to, such Asset
Disposition) therefrom in each case net of (i) all legal, title and recording
tax expenses, commissions and other fees and expenses incurred, and all
Federal, state, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon such
assets, or which must by its terms, or in order to obtain a necessary consent
to such Asset Disposition or by applicable, law, be repaid out of the proceeds
from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets
subject to sale or minority interest holders in Subsidiaries or joint ventures
as a result of such Asset Disposition, (iv) the deduction of appropriate
amounts to be provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in such Asset
Disposition, provided however, that upon any reduction in such reserves (other
than to the extent resulting from payments of the respective reserved
liabilities), Net Available Cash shall be increased by the amount of such
reduction to reserves, and retained by the Corporation or any Restricted
Subsidiary of the Corporation after such Asset Disposition and (v) any portion
of the purchase price from an Asset Disposition placed in escrow (whether as a
reserve for adjustment of the purchase price, for satisfaction of indemnities
in respect of such Asset Disposition or otherwise in connection with such Asset
Disposition), provided, however, that upon the termination of such escrow, Net
Available Cash shall be increased by any portion of funds therein released to
the Corporation or any Restricted Subsidiary.
"Net Cash Proceeds" with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
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"Net Income" means with respect to any Person for any period,
the net income (loss) of such Person determined in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Corporation nor any Restricted Subsidiary (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor, a general partner or otherwise) and (ii)
no default with respect to which (including any rights that the holders thereof
may have to take enforcement action against an Unrestricted Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Corporation or any Restricted Subsidiary to declare a
default under such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Note Indenture" means the Indenture governing the Notes.
"Notes" means the $100,000,000 aggregate principal amount of
12% Senior Secured Notes due 2004 issued by the Corporation on the Issue Date.
"Officers' Certificate" shall mean a certificate signed by two
Officers of the Corporation, at least one of whom shall be the principal
executive, financial or accounting officer of the Corporation.
"Opinion of Counsel" means a written opinion, in form and
substance acceptable to the Transfer Agent, from legal counsel who is
acceptable to the Transfer Agent.
"Parity Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Permitted Businesses" means any business which is the same as
or related, ancillary or complementary to any of the businesses of the
Corporation and its Restricted Subsidiaries on the Issue Date, as reasonably
determined by the Corporation's Board of Directors; provided, that, an entity
which is not an operating entity and whose primary business is to hold or
maintain intellectual property or licenses shall not qualify as a "Permitted
Business".
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision hereof or any other entity.
-35-
<PAGE> 36
"Preferred Stock," as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Private Exchange Preferred Stock" means a series of the
Corporation's senior exchangeable preferred stock contemplated by the
Registration Rights Agreement issued under the same certificate of designation
as the Exchange Preferred Stock and having terms identical in all material
respects to the Senior Preferred Stock.
A "Public Market" exists at any time with respect to the
common stock of Holding or the Corporation if (i) the common stock of Holding
or the Corporation is then registered with the Securities and Exchange
Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and traded
either on a national securities exchange or in the National Association of
Securities Dealers Automated Quotation System and (ii) at least 15% of the
total issued and outstanding common stock of Holding or the Corporation, as
applicable, has been distributed prior to such time by means of an effective
registration statement under the Securities Act.
"Purchase Money Indebtedness" means any Indebtedness Incurred
in the ordinary course of business by a Person to finance the cost (including
the cost of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Redemption Date," with respect to any shares of Senior
Preferred Stock, means the date on which such shares of Senior Preferred Stock
are redeemed by the Corporation.
"Redemption Notice" shall have the meaning ascribed to it in
paragraph (e)(iii) hereof.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of this
Certificate of Designation or Incurred in compliance with this Certificate of
Designation (including Indebtedness of the Corporation that refinances
Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary)
including Indebtedness that refinances Refinancing
-36-
<PAGE> 37
Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the earlier of (A) the first anniversary of the
Stated Maturity of the Notes and (B) Stated Maturity of the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
lesser of (A) the Average Life of the Notes and (B) the Average Life of the
Indebtedness being refinanced and (iii) the Refinancing Indebtedness is in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to (or 101% of, in the case of a
refinancing of the Notes in connection with a Change of Control) or less than
the sum of the aggregate principal amount (or if issued with original issue
discount, the accreted value) then outstanding of the Indebtedness being
refinanced.
"Registration Rights Agreement" means the Preferred Stock
Registration Rights Agreement dated as of the Issue Date among the Corporation
and NatWest Capital Markets Limited and Prudential Securities, Incorporated.
"Regular Dividend Payment Date" means February 1, May 1,
August 1 and November 1 of each year.
"Regular Dividend Record Date" means January 15, April 15,
July 15 and October 15 of each year.
"Regular Dividends" shall have the meaning ascribed to it in
paragraph (c)(i) hereof.
"Restricted Payment" shall have the meaning ascribed to it in
paragraph (1)(ii) hereof.
"Restricted Subsidiary" means any Subsidiary of the
Corporation other than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Corporation or a
Restricted Subsidiary transfers such property to a Person and the Corporation
or a Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
-37-
<PAGE> 38
"Senior Indebtedness" means, whether outstanding on the Issue
Date or thereafter issued, as all Indebtedness of the Corporation, including
interest and fees thereon, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that the
obligations in respect of such Indebtedness are not superior in right of
payment to the Securities; provided, however, that Senior Indebtedness will not
include (1) any obligation of the Corporation to any Subsidiary, (2) any
liability for Federal, state, foreign, local or other taxes owed or owing by
the Corporation, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities), or (4) any Indebtedness, Guarantee or
obligation of the Corporation that is expressly subordinate or junior in right
of payment to any other Indebtedness, Guarantee or obligation of the
Corporation, including any Subordinated Obligations.
"Senior Preferred Stock" shall have the meaning ascribed to it
in paragraph (a) hereof.
"Senior Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
"Subordinated Obligations" means any Indebtedness of the
corporation (whether outstanding on the Issue Date or thereafter Incurred)
which is subordinate or junior in right of payment to the Notes pursuant to a
written agreement.
"Subsidiary" of any Person incorporated in the United States
means any corporation, association, partnership or other business entity
organized in the United States of which more than 50% of the total voting power
of shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and
one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of
such Person. Unless otherwise specified herein, each reference to a Subsidiary
shall refer to a Subsidiary of the corporation.
"Subsidiary Guarantees" means each Subsidiary of the
Corporation in existence on the Issue Date and each Subsidiary (other than
Unrestricted Subsidiaries) created or acquired by the Corporation after the
Issue Date.
-38-
<PAGE> 39
"Successor Corporation" shall have the meaning ascribed to it
in paragraph (f)(iii) hereof.
"Transfer Agent" means ChaseMellon Shareholder Services,
L.L.C. or any successor or assignor thereto.
"Triggering Event" shall have the meaning ascribed to it in
paragraph(f)(iii) hereof.
"Units" means the 800 Units each consisting of (i) 1,000
shares of 13- 1/2% of Senior PIK Preferred Stock with a liquidation preference
of $25 per share and (ii) Warrants to purchase 447,000 shares of Common Stock,
representing 3% of the Company's Common Stock on a fully diluted basis.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Corporation that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may designate any Subsidiary of the Corporation (including any newly acquired
or newly formed Subsidiary of the Corporation) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, the Corporation
or any Restricted Subsidiary of the Corporation that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, each Subsidiary to be so
designated and each of its Subsidiaries has not at the time of designation, and
does not thereafter, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to any Indebtedness pursuant
to which the Lender has recourse to any of the assets of the Corporation or any
of its Restricted Subsidiaries and either (A) the Subsidiary to be so
designated has total consolidated assets of $10,000 or less or (B) if such
Subsidiary has consolidated assets greater than $10,000, then such designation
would be permitted under "Limitation on Restricted Payments." The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Corporation could Incur $1.00 of additional Indebtedness
under clause (l)(i)(a) and (y) no Triggering Event shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
-39-
<PAGE> 40
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Corporation, at least 99% of Capital Stock of which (other than directors'
qualifying shares) is owned by the Corporation or another Wholly-Owned
Subsidiary.
-40-
<PAGE> 41
IN WITNESS WHEREOF, said Source Media, Inc. has caused this
Certificate of Designation to be signed by Timothy Peters, its Chief Executive
Officer, this 29th day of October, 1997.
SOURCE MEDIA, INC.
By /s/ TIMOTHY P. PETERS
-----------------------------------------
Timothy P. Peters,
Chief Executive Officer
-41-
<PAGE> 1
EXHIBIT 4.3
WARRANT AGREEMENT
Between
SOURCE MEDIA, INC.
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
as
Warrant Agent
_________________________
Dated as of October 30, 1997
__________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Appointment of Warrant Agent . . . . . . . . . . . . . . . . . 1
SECTION 2. Warrant Certificates . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. Execution of Warrant Certificates . . . . . . . . . . . . . . . 2
SECTION 4. Registration and Countersignature . . . . . . . . . . . . . . . 2
SECTION 5. Transfer and Exchange of Warrants . . . . . . . . . . . . . . . 3
SECTION 6. Registration of Transfers and Exchanges . . . . . . . . . . . . 4
(a) Transfer and Exchange of Physical Warrants . . . . . . . . 4
(b) Legends . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Obligations with Respect to Transfers and Exchanges of
Physical Warrants . . . . . . . . . . . . . . . . . . . 7
SECTION 7. Separation of Warrants: Terms of Warrants, Exercise of
Warrants . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 8. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 9. Mutilated or Missing Warrant Certificates . . . . . . . . . . . 9
SECTION 10. Reservation of Warrant Shares . . . . . . . . . . . . . . . . 10
SECTION 11. Obtaining Stock Exchange Listings . . . . . . . . . . . . . . 11
SECTION 12. Adjustment of Number of Warrant Shares Issuable . . . . . . . 11
(a) Adjustment for Change in Capital Stock . . . . . . . . . . 11
(b) Adjustment for Certain Issuances of Common Stock . . . . . 12
(c) Adjustment for Other Distribution . . . . . . . . . . . . 13
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
(d) Adjustments for Mergers, Consolidations,
Sale of Assets, Distributions, etc. . . . . . . . . . . . . 14
(e) Current Market Value . . . . . . . . . . . . . . . . . . . 15
(f) When De Minimis Adjustment May Be Deferred . . . . . . . . 17
(g) When No Adjustment Required . . . . . . . . . . . . . . . 17
(h) Notice of Adjustment . . . . . . . . . . . . . . . . . . . 17
(i) Voluntary Reduction . . . . . . . . . . . . . . . . . . . 18
(j) When Issuance or Payment May Be Deferred . . . . . . . . . 18
(k) Reorganizations . . . . . . . . . . . . . . . . . . . . . 18
(l) Form of Warrants . . . . . . . . . . . . . . . . . . . . . 19
(m) Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 13. Fractional Interests . . . . . . . . . . . . . . . . . . . . . 20
SECTION 14. Notices to Warrant Holders . . . . . . . . . . . . . . . . . . 20
SECTION 15. Notices to the Company and Warrant Agent . . . . . . . . . . . 22
SECTION 16. Supplements and Amendments . . . . . . . . . . . . . . . . . . 23
SECTION 17. Concerning the Warrant Agent . . . . . . . . . . . . . . . . . 23
SECTION 18. Change of Warrant Agent . . . . . . . . . . . . . . . . . . . 26
SECTION 19. Identity of Transfer Agent . . . . . . . . . . . . . . . . . . 26
SECTION 20. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 21. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 22. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 23. Benefits of This Agreement . . . . . . . . . . . . . . . . . . 27
SECTION 24. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
(ii)
<PAGE> 4
WARRANT AGREEMENT (the "Agreement"), dated as of October 30,
1997, between Source Media, Inc., a Delaware corporation (together with any
successors and assigns, the "Company"), and ChaseMellon Shareholder Services,
L.L.C., a limited liability company organized under the laws of the State of
New Jersey, as Warrant Agent (the "Warrant Agent").
WHEREAS, the Company proposes, among other things, to issue
and sell pursuant to a Purchase Agreement, dated as of October 23, 1997, among
the Company and NatWest Capital Markets Limited and Prudential Securities
Incorporated, as Initial Purchasers (the "Purchase Agreement"), 800,000 shares
of its 13 1/2% Senior PIK Preferred Stock (the "Senior PIK Preferred Stock"),
along with Warrants (the "Warrants"), for the purchase of 447,000 shares of its
Common Stock, par value $.001 per share (the "Common Stock," and the shares of
Common Stock issuable upon exercise of the Warrants being referred to herein as
the "Warrant Shares"). The Senior PIK Preferred Stock and Warrants will be
sold in units (the "Units), each Unit representing 1,000 shares of Preferred
Stock and 558.75 Warrants, each Warrant to purchase one share of Common Stock;
WHEREAS, the Company wishes the Warrant Agent to act on behalf
of the Company and the Warrant Agent is willing to act in connection with the
issuance, division, transfer, exchange and exercise of Warrants as provided
herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein, the Company and the Warrant Agent hereby agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Warrant Certificates. The Warrants will initially
be issued in registered form as physical Warrant certificates (the "Physical
Warrants"). Any certificates (the "Warrant Certificates") evidencing the
Physical Warrants to be delivered pursuant to this Agreement shall be
substantially in the form set forth in Exhibit A attached hereto. Such Warrant
Certificates shall represent such of the outstanding Warrants as shall be
specified therein and each shall provide that it shall represent the aggregate
amount of outstanding Warrants from time to time endorsed thereon and that the
aggregate amount of outstanding Warrants represented thereby may from time to
time be reduced or increased, as appropriate. Any endorsement of a Warrant
<PAGE> 5
Certificate to reflect the amount of any increase or decrease in the amount of
outstanding Warrants represented thereby shall be made by the Warrant Agent in
accordance with instructions given by the Holder thereof.
SECTION 3. Execution of Warrant Certificates. Warrant
Certificates shall be signed on behalf of the Company by its Chairman of the
Board, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, President or a Vice President and by its Secretary or an Assistant
Secretary. Each such signature upon the Warrant Certificates may be in the
form of a facsimile signature of the present or any future Chairman of the
Board, President, Chief Executive Officer, Chief Operating Officer, Vice
President, Treasurer, Chief Financial Officer, Secretary or Assistant Secretary
and may be imprinted or otherwise reproduced on the Warrant Certificates and
for that purpose the Company may adopt and use the facsimile signature of any
person who shall have been Chairman of the Board, President, Chief Executive
Officer, Chief Operating Officer, Vice President, Treasurer, Chief Financial
Officer, Secretary or Assistant Secretary, notwithstanding the fact that at the
time the Warrant Certificates shall be countersigned and delivered or disposed
of he shall have ceased to hold such office. The seal of the Company may be in
the form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of
countersignature by the Warrant Agent.
SECTION 4. Registration and Countersignature. The Warrants
shall be numbered and shall be registered on the books of the Company
maintained at the principal office of the Warrant Agent in Ridgefield Park, New
Jersey (the "Warrant Register") as they are issued.
Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant
-2-
<PAGE> 6
Agent shall, upon written instructions of the Chairman of the Board, the
President, Chief Executive Officer, Chief Operating Officer, a Vice President,
the Treasurer, Chief Financial Officer or an Assistant Secretary of the
Company, initially countersign and deliver Warrants entitling the Holders
thereof to purchase not more than the number of Warrant Shares referred to
above in the first recital hereof and shall thereafter countersign and deliver
Warrants upon the written instruction of the foregoing officers.
The Company and the Warrant Agent may deem and treat the
registered Holders (the "Holders") of the Warrant Certificates as the absolute
owners thereof (notwithstanding any notation of ownership or other writing
thereon made by anyone) for all purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
SECTION 5. Transfer and Exchange of Warrants. The Warrant
Agent shall from time to time, subject to the limitations of Section 6,
register the transfer of any outstanding Warrants upon the records to be
maintained by it for that purpose, upon surrender thereof duly endorsed or
accompanied (if so required by it) by a written instrument or instruments of
transfer, duly executed by the registered Holder or Holders thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney.
Subject to the terms of this Agreement, each Warrant Certificate may be
exchanged for another certificate or certificates entitling the Holder thereof
to purchase a like aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitle each Holder to purchase. Any Holder
desiring to exchange a Warrant Certificate or Certificates shall make such
request in writing delivered to the Warrant Agent, and shall surrender, duly
endorsed or accompanied (if so required by the Warrant Agent) by a written
instrument or instruments of transfer, the Warrant Certificate or Certificates
to be so exchanged.
Upon registration of transfer, the Warrant Agent shall
countersign and deliver by mail a new Warrant Certificate or Certificates to
the persons entitled thereto. The Warrant Certificates may be exchanged at the
option of the Holder thereof, when surrendered at the office or agency of the
Company maintained for such purpose, which initially will be the corporate
trust office of the Warrant Agent in Ridgefield Park, New Jersey or at the drop
office in New York, New York for another Warrant Certificate, or other Warrant
Certificates of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Warrant Shares.
No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates, but the Company may require
payment of a sum sufficient to cover any stamp or other tax or other
governmental charge that is imposed in connection with any such exchange or
registration of transfer.
-3-
<PAGE> 7
SECTION 6. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Warrants. When
Physical Warrants are presented to the Warrant Agent with a request, and after
the Warrant Agent has had adequate time to confer and receive written
instructions from the Company:
(i) to register the transfer of the Physical Warrants; or
(ii) to exchange such Physical Warrants for an equal
number of Physical Warrants of other authorized denominations;
the Warrant Agent shall register the transfer or make the exchange as
requested if the requirements under this Agreement as set forth in
this Section 6 for such transactions are met; provided, however, that
the Physical Warrants presented or surrendered for registration of
transfer or exchange:
(I) shall be duly endorsed or accompanied by a
written instrument of transfer, duly executed by the Holder
thereof or his attorney duly authorized in writing; and
(II) in the case of Physical Warrants the offer
and sale of which have not been registered under the
Securities Act of 1933, as amended (the "Security Act"), such
Physical Warrants shall be accompanied, in the sole discretion
of the Company, by the following additional information and
documents, as applicable:
(A) if such Physical Warrants are being delivered to the
Warrant Agent by a Holder for registration in the
name of such Holder, without transfer, a
certification from such Holder to that effect (in
substantially the form of Exhibit B hereto); or
(B) if such Physical Warrants are being transferred to an
institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities
Act (an "Institutional Accredited Investor"))
delivery of a certification to that effect (in
substantially the form of Exhibit B hereto) and a
Transferee Certificate for Institutional Accredited
Investors in substantially the form of Exhibit C
hereto; or
-4-
<PAGE> 8
(C) if such Physical Warrants are being transferred in
reliance on Regulation S under the Securities Act
("Regulation S"), delivery of a certification to that
effect (in substantially the form of Exhibit B
hereto) and a Transferee Certificate for Regulation S
Transfers in substantially the form of Exhibit D
hereto and an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(D) if such Physical Warrants are being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect (in substantially the form of Exhibit
B hereto) and an opinion of counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) Legends.
(i) For so long as transfer of a Warrant is not permitted
without registration under the Securities Act, each Warrant
Certificate evidencing such Warrant (and all Warrants issued in
exchange therefor or substitution thereof) shall bear a legend
substantially to the following effect:
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE BY ITS ACQUISITION HEREOF OR A BENEFICIAL INTEREST HEREIN,
THE HOLDER (1) REPRESENTS THAT (A) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a), (1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS
SECURITY FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATORS
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME
PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE
PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE)
UNDER THE
-5-
<PAGE> 9
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS
SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO
SOURCE MEDIA, INC. ("SOURCE") OR ANY SUBSIDIARY THEREOF, (B) INSIDE
THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR
TO SUCH TRANSFER FURNISHES TO THE WARRANT AGENT, A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY, AND IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE AMOUNT OF WARRANTS AT THE TIME OF TRANSFER OF
LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO SOURCE THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (C) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE, BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO SOURCE), (E)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO SOURCE) AND IN EACH CASE, IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON"
HAVE THE MEANING GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE WARRANT AGREEMENT, DATED AS OF OCTOBER 30, 1997,
BETWEEN SOURCE AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C., CONTAINS
A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER TRANSFER
OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
-6-
<PAGE> 10
(c) Obligations with Respect to Transfers and Exchanges
of Physical Warrants.
(i) To permit registrations of transfers and exchanges,
the Company shall execute the Physical Warrants and instruct the
Warrant Agent to countersign the Physical Warrants.
(ii) All Physical Warrants issued upon any registration,
transfer or exchange of Physical Warrants shall be the valid
obligations of the Company, entitled to the same benefits under this
Agreement as the Physical Warrants surrendered upon the registration
of transfer or exchange.
(iii) Prior to due presentment for registration of transfer
of any Warrant, the Warrant Agent and the Company may deem and treat
the person in whose name any Warrant is registered as the absolute
owner of such Warrant, and neither the Warrant Agent nor the Company
shall be affected by notice to the contrary.
SECTION 7. Separation of Warrants: Terms of Warrants,
Exercise of Warrants. The Senior PIK Preferred Stock and Warrants will not be
separately transferable until the "Separability Date," which shall be
immediately upon sale of the Units by the Initial Purchasers.
Subject to the terms of this Agreement, each Warrant Holder
shall have the right, which may be exercised commencing on or after the date of
issuance and until 5:00 p.m., New York City time, on November 1, 2007 (the
"Expiration Date"), to receive from the Company upon the exercise of each
warrant the number of fully paid and nonassessable Warrant Shares which the
Holder may at the time be entitled to receive on exercise of such Warrants and
payment of the Exercise Price (as defined below) then in effect for such
Warrant Shares. Each Warrant not exercised prior to the Expiration Date shall
become void and all rights thereunder and an rights in respect thereof under
this Agreement shall cease as of such time. No adjustments as to dividends
will be made upon exercise of the Warrants.
The initial price per share at which Warrant Shares shall be
purchasable upon exercise of Warrants (the "Exercise Price") shall be $.01,
subject to adjustment, provided, that in no event shall the Exercise Price be
less than $.01 per share. A Warrant may be exercised upon surrender at the
office or agency of the Company maintained for such purpose, which initially
will be the corporate trust office of the Warrant Agent in Ridgefield Park, New
Jersey, of the certificate or certificates evidencing the Warrants to be
exercised with the form of election to purchase on the
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<PAGE> 11
reverse thereof duly filled in and signed, which signature shall be guaranteed
by a participant in a recognized Signature Guarantee Medallion Program, and
upon payment to the Warrant Agent for the account of the Company of the
Exercise Price, as adjusted as herein provided, for the number of Warrant
Shares in respect of which such Warrants are then exercised. Payment of the
aggregate Exercise Price shall be made in cash or by certified or official bank
check to the order of the Warrant Agent on behalf of the Company in Immediately
Available Funds.
Subject to the provisions of Section 6 hereof, upon such
surrender of Warrants and payment of the Exercise Price, the Company shall
issue and cause to be delivered with all reasonable dispatch to or upon the
written order of the Holder and in such name or names as the Warrant Holder may
designate a certificate or certificates for the number of Warrant Shares
issuable upon the exercise of such Warrants together with cash as provided in
Section 12; provided, however, that if any consolidation, merger or lease or
sale of assets is proposed to be effected by the Company as described in
subsection (j) of Section 12 hereof, or a tender offer or an exchange offer for
shares of Common Stock of the Company shall be made, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the Company shall, as
soon as possible, but in any event not later than 10 days, other than a
Saturday or Sunday or a day on which banking institutions in the State of New
York are not open for business ("Business Day") thereafter, issue and cause to
be mailed the number of Warrant Shares issuable upon the exercise of such
Warrants in the manner described in this sentence together with cash as
provided in Section 12. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a Holder of record of such Warrant Shares as of the date
of the surrender of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the
Holders thereof, either in full or from time to time in part and, in the event
that a certificate evidencing Warrants is exercised in respect of fewer than
all of the Warrant Shares issuable on such exercise at any time prior to the
date of expiration of the Warrants, a new certificate evidencing the remaining
Warrant or Warrants will be issued, and the Warrant Agent shall, at the
Company's direction, countersign and deliver the required new Warrant
Certificate or Certificates pursuant to the provisions of this Section and of
Section 3 hereof, and the Company will promptly supply the Warrant Agent with
Warrant Certificates duly executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled by the Warrant Agent. Such cancelled Warrant Certificates
shall then be disposed of by the Warrant Agent in a manner consistent with the
Warrant Agent's
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<PAGE> 12
customary procedure for such disposal. The Warrant Agent shall promptly pay to
the Company all monies received by the Warrant Agent for the purchase of the
Warrant Shares through the exercise of such Warrants.
SECTION 8. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrant Shares
upon the exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issue of any Warrant Certificates or any certificates
for Warrant Shares in a name other than that of the registered Holder of a
Warrant Certificate surrendered upon the exercise of a Warrant, and the Company
shall not be required to issue or deliver such Warrant Certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
SECTION 9. Mutilated or Missing Warrant Certificates. In
case any of the Warrant Certificates shall be mutilated, lost, stolen or
destroyed, the Company may at its discretion issue and the Warrant Agent shall
countersign, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Warrant Certificate and indemnity in the sole discretion of the Warrant Agent.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.
SECTION 10. Reservation of Warrant Shares. The Company will
at all times reserve and keep available, free from preemptive rights, out of
the aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy an obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The Company or, if appointed, the transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid will be irrevocably authorized and directed at all
times to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise
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<PAGE> 13
of the rights of purchase represented by the Warrants. The Warrant Agent is
hereby irrevocably authorized to requisition from time to time from such
Transfer Agent the stock certificates required to honor outstanding Warrants
upon exercise thereof in accordance with the terms of this Agreement. The
Company will supply such Transfer Agent with duly executed certificates for
such purposes and will provide or otherwise make available any cash which may
be payable as provided in Section 12. The Company will furnish such Transfer
Agent a copy of all notices of adjustments and certificates related thereto
transmitted to each Holder pursuant to Section 14 hereof.
The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants made in accordance with the terms of this
Agreement will, upon payment of the Exercise Price therefor and issue thereof,
be validly authorized and issued, fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issuance thereof. The Company will take no action to increase
the par value of the Common Stock to an amount in excess of the Exercise Price,
and the Company will not enter into any agreements inconsistent with the rights
of Holders hereunder. The Company will use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Agreement. The Company shall not take any action
reasonably within its control, including the hiring of a broker to solicit
exercises, which would render unavailable an exemption from registration under
the Securities Act which might otherwise be available with respect to the
issuance of Warrant Shares upon exercise of any Warrants, unless there is an
effective registration statement with respect to such issuance.
SECTION 11. Obtaining Stock Exchange Listings. The Company
will from time to time take all action which may be necessary so that the
Warrant Shares, immediately upon their issuance upon the exercise of Warrants,
will be listed on the principal securities exchanges and markets within the
United States of America (including the NASDAQ National Market System), if any,
on which other shares of Common Stock are then listed. In the event that, at
any time during the period in which the Warrants are exercisable, the Common
Stock is not listed on any principal securities or exchanges or markets within
the United States of America, the Company will use its best efforts to permit
the Warrant Shares to be designated PORTAL securities in accordance with the
rules and regulations adopted by the National Association of Securities
Dealers, Inc. relating to trading in the Private Offering, Resales and Trading
through Automated Linkages market.
SECTION 12. Adjustment of Number of Warrant Shares Issuable.
The number of shares of Common Stock issuable upon the exercise of each Warrant
(the
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<PAGE> 14
"Exercise Rate") is subject to adjustment from time to time upon the occurrence
of the events enumerated in this Section 12. The Warrant Agent is not
responsible for any calculations or determinations made or to be made under
this Section 12. The Exercise Rate shall initially be one.
(a) Adjustment for Change in Capital Stock. If the
Company:
(1) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock or other capital stock of the
Company;
(2) subdivides, combines or reclassifies its outstanding
shares of Common Stock;
(3) makes a distribution to all Holders of its Common
Stock of rights, warrants or options to purchase Common Stock of the
Company at a price per share less than the Current Market Value (as
defined in Section 12(d)) at the Time of Determination (as defined
below); and
(4) makes distributions to stockholders of Common Stock
of the Company or rights, warrants or options to purchase Common Stock
of the Company;
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the Holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which he would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action; provided, however,
that notwithstanding the foregoing, upon the occurrence of an event described
in any of paragraphs (1), (3) or (4) above, which otherwise would have given
rise to an adjustment, no adjustment shall be made if the Company includes the
Holders of Warrants in such distribution pro rata to the number of shares of
Common Stock issued and outstanding (after giving effect to the Warrant Shares
as if they were issued and outstanding).
The adjustment which shall be calculated by the Company shall
become effective immediately after the record date in the case of a dividend or
distribution (the "Time of Determination") and immediately after the effective
date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Warrant upon exercise of
it may receive shares of two or more classes of capital stock of the Company,
the Board of Directors of the Company shall determine the allocation of the
adjusted Exercise Price
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<PAGE> 15
between the classes of capital stock. After such allocation, the exercise
privilege and the Exercise Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section.
Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Adjustment for Certain Issuances of Common Stock.
Subject to Section 12(a), if the Company issues or sells
shares of its Common Stock or distributes any rights, options or warrants to
all Holders of its Common Stock entitling them to purchase shares of Common
Stock, or securities convertible into or exchangeable for Common Stock (other
than pursuant to (1) the exercise of the Warrants, (2) any options, warrants or
rights outstanding as of the date of this Agreement, (3) without limiting any
options, warrants or rights outstanding pursuant to the immediately preceding
clause (2), any director's plans and employee stock option or purchase plans to
the extent that the aggregate number of shares of Common Stock of the Company
(or securities convertible into or exchangeable or exercisable for the Common
Stock of the Company) distributed under all such director's plans and employee
stock option and purchase plans does not exceed 2,300,000 shares of the
Company's Common Stock at any time (of which options to purchase 1,118,599
shares are currently outstanding)), at a price per share less than the Current
Market Value at the Time of Determination, the Exercise Rate shall be adjusted
in accordance with the formula:
E1 = E x (O + N)
-----
(O + (N x P)
-----
M
where:
E(1) = the adjusted Exercise Rate.
E = the Exercise Rate immediately prior to the Time of
Determination for any such distribution.
O = the number of Fully Diluted Shares (as defined in
Section 12(i)) outstanding on the Time of
Determination for any such issuance, sale or
distribution.
N = the number of additional shares of Common Stock
issued, sold or issuable upon exercise of such
rights, options or warrants.
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<PAGE> 16
P = the price received in the case of any issuance or
sale of Common Stock or exercise price per share of
such rights, options or warrants.
M = the Current Market Value per share of Common Stock on
the Time of Determination for any such issuance, sale
or distribution.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If at the end of the period during which any
such rights, options or warrants are exercisable, not all rights, options or
warrants shall have been exercised, the Warrant shall be immediately readjusted
to what it would have been if "N" in the above formula had been the number of
shares actually issued.
(c) Adjustment for Other Distribution.
Subject to Section 12(a), if the Company distributes to all
Holders of its Common Stock (i) any evidences of indebtedness of the Company or
any of its subsidiaries, (ii) any assets of the Company or any of its
subsidiaries (other than cash dividends or other cash distributions or
distributions from current or retained earnings other than any Extraordinary
Cash Dividend), or (iii) any rights, options or warrants to acquire any of the
foregoing or to acquire any other securities of the Company, the Exercise Rate
shall be adjusted in accordance with the formula:
E(1) = E x M
-----
M - F
where:
E(1) = the adjusted Exercise Rate.
E = the current Exercise Rate on the record date
mentioned below.
M = the Current Market Value per share of Common Stock on
the record date mentioned below.
F = the fair market value on the record date mentioned
below of the indebtedness, assets, rights, options or
warrants distributable to
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<PAGE> 17
one share of Common Stock, based on the number of
Fully Diluted Shares.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the
distribution. If an adjustment is made pursuant to clause (iii) above of this
subsection (c) as a result of the issuance of rights, options or warrants and
at the end of the period during which any such rights, options or warrants are
exercisable, not all such rights, options or warrants shall have been
exercised, the Warrant shall be immediately readjusted as if "F" in the above
formula was the fair market value on the record date of the indebtedness or
assets actually distributed upon exercise of such rights, options or warrants
divided by the number of shares of Common Stock outstanding on the record date.
Notwithstanding the foregoing provisions of this Section 12(c), (x) an event
which would otherwise give rise to an adjustment pursuant to this Section 12(c)
shall not give rise to such an adjustment if the Company includes the Holders
of the Warrants in such distribution pro rata to the number of shares of Common
Stock issued and outstanding after giving effect to the Warrant Shares as if
they were issued and outstanding and (y) no adjustment shall be made pursuant
to this Section 12(c) with respect to cash dividends other than Extraordinary
Cash Dividends.
This subsection does not apply to rights, options or warrants
referred to in subsection (b) of this Section 12.
(d) Adjustments for Mergers, Consolidations, Sale of
Assets, Distribution, etc.
If (x) the Company merges or consolidates with, or sells all
or substantially all of its property and assets to, another person (other than
an Affiliate of the Company) and consideration is payable to Holders of Common
Stock in exchange for their Common Stock in connection with such merger,
consolidation or sale which consists solely of cash, or (y) in the event of the
dissolution, liquidation or winding up of the Company, then the Holders of
Warrants shall be entitled to receive distributions on the date of such event
on an equal basis with Holders of Common Stock (or other securities issuable
upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the Exercise Price. Upon receipt of such
payment, if any, the rights, of a Holder shall terminate and cease and his or
her Warrants shall expire. In case of any such merger, consolidation or sale
of assets, the surviving or acquiring Person and, in the event of any
dissolution, liquidation or winding up of the Company, the Company shall
deposit promptly with the Warrant Agent the funds, if any, necessary to pay the
Holders of the Warrants. After receipt
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<PAGE> 18
of such deposit from such Person or the Company and after receipt of
surrendered Warrant Certificates, the Warrant Agent shall make payment by
delivering a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such Person or Persons as it may be directed in writing by the Holder
surrendering such Warrants.
(e) Current Market Value.
"Current Market Value" per share of Common Stock or of any
other security (herein collectively referred to as a "Security") at any date
shall be:
(1) if the Security is not registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (i)
the value of the Security determined in good faith by the Board of
Directors of the Company and certified in a board resolution, based on
the most recently completed arm's length transaction between the
Company and a person other than an Affiliate of the Company in which
such determination is necessary and the closing of which occurs on
such date or shall have occurred within the six months preceding such
date, (ii) if no such transaction shall have occurred on such date or
within such six-month period, the value of the Security most recently
determined as of a date within the six months preceding such date by
an Independent Financial Expert or (iii) if neither clause (i) nor
(ii) is applicable, the value of the Security determined as of such
date by an Independent Financial Expert, or
(2) if the Security is registered under the Exchange Act,
the average of the daily market prices for each business day during
the period commencing 15 business days before such date and ending on
the date one day prior to such date or, if the Security has been
registered under the Exchange Act for less than 15 consecutive
business days before such date, then the average of the daily market
prices for all of the business days before such date for which daily
market prices are available. If the market price is not determinable
for at least 10 business days in such period, the Current Market Value
of the Security shall be determined as if the Security was not
registered under the Exchange Act.
The "market price" for any Security on each business day
means: (A) if such Security is listed or admitted to trading on any securities
exchange, the closing price, regular way, on such day on the principal exchange
on which such Security is traded, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day, (B) if such Security
is not then listed or admitted to trading on any securities exchange, the last
reported sale price on such day, or if there is no such last reported sale
price on such day, the average of the closing bid and the asked prices on
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<PAGE> 19
such day, as reported by a reputable quotation source designated by the
Company, or (C) if neither clause (A) nor (B) is applicable, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, City of New York, customarily published on each business day,
designated by the Company. If there are no such prices on a business day, then
the market price shall not be determinable for such business day.
"Independent Financial Expert" shall mean (a) NatWest (or any
successor) or (b) another nationally recognized investment banking firm, a
nationally recognized regional investment banking firm or an internationally
reputable accounting firm selected by the Company reasonably acceptable to the
Warrant Agent (i) that does not (and whose directors, officers, employees and
Affiliates do not) have a direct or indirect material financial interest in the
Company, (ii) that has not been, and, at the time it is called upon to serve as
an Independent Financial Expert under this Agreement is not (and none of whose
directors, officers, employees or Affiliates is) a promoter, director or
officer of the Company, (iii) that has not been retained by the Company for any
purpose, other than to perform an equity valuation, within the preceding twelve
months, and (iv) that, in the reasonable judgement of the Board of Directors of
the Company (certified by a board resolution), is otherwise qualified to serve
as an independent financial advisor. Any such person may receive customary
compensation and indemnification by the Company for opinions or services it
provides as an Independent Financial Expert.
"Affiliate" shall mean, with respect to any person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such person. For the purposes of this definition,
"control" when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Extraordinary Cash Dividend" means cash dividends, subject to
the sentence below, with respect to the Common Stock the aggregate amount of
which in any fiscal year exceeds $500,000.
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<PAGE> 20
(f) When De Minimis Adjustment May Be Deferred.
No adjustment in the Exercise Rate need be made unless the
adjustment would require an increase or decrease of at least 5% in the Exercise
Rate. Notwithstanding the foregoing, any adjustments that are not made shall
be carried forward and taken into account in any subsequent adjustment,
provided that no such adjustment shall be deferred beyond the date on which a
Warrant is exercised.
All calculations under this Section 12 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(g) When No Adjustment Required.
If an adjustment is made upon the establishment of a record
date for a distribution subject to subsections (a), (b) or (c) hereof and such
distribution is subsequently cancelled, the Exercise Rate then in effect shall
be readjusted, effective as of the date when the Board of Directors determines
to cancel such distribution, to that which would have been in effect if such
record date had not been fixed.
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the amount of cash into which such
Warrants are exercisable. Interest will not accrue on the cash.
(h) Notice of Adjustment.
Whenever the Exercise Rate or Exercise Price is adjusted, the
Company shall provide the notices required by Section 14 hereof.
(i) Voluntary Reduction.
The Company from time to time may increase the Exercise Rate
by any amount for any period of time (including, without limitation,
permanently) if the period is at least 20 business days.
An increase of the Exercise Rate under this Subsection (i)
(other than a permanent increase) does not change or adjust the Exercise Rate
otherwise in effect for purposes of subsections (a), (b) or (c) of this Section
12.
(j) When Issuance or Payment May Be Deferred.
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<PAGE> 21
In any case in which this Section 12 shall require that an
adjustment in the Exercise Rate be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event (i) issuing to the Holder of any Warrant exercised after such record date
the Warrant Shares and other capital stock of the Company, if any, issuable
upon such exercise over and above the Warrant Shares and other capital stock of
the Company, if any, issuable upon such exercise on the basis of the Exercise
Rate prior to such adjustment, and (ii) paying to such Holder any amount in
cash in lieu of a fractional share pursuant to Section 13; provided, however,
that the Company shall deliver to the Warrant Agent and shall cause the Warrant
Agent, on behalf of and at the expense of the Company, to deliver to such
Holder a due bill or other appropriate instrument evidencing such Holder's
right to receive such additional Warrant Shares, other capital stock and cash
upon the occurrence of the event requiring such adjustment.
(k) Reorganizations.
In case of any capital reorganization, other than in the cases
referred to in Sections 12(a), (b), (c) or (d) hereof, or the consolidation or
merger of the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding shares of Common Stock
into shares of other stock or other securities or property), or the sale of the
property of the Company as an entirety or substantially as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
there shall thereafter be deliverable upon exercise of any Warrant (in lieu of
the number of shares of Common Stock theretofore deliverable) the number of
shares of stock or other securities or property to which a Holder of the number
of shares of Common Stock that would otherwise have been deliverable upon the
exercise of such Warrant would have been entitled upon such Reorganization if
such Warrant had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a duly adopted resolution certified by the
Company's Secretary or Assistant Secretary, shall be made in the application of
the provisions herein set forth with respect to the rights and interests of
Holders so that the provisions set forth herein shall thereafter be applicable,
as nearly as possible, in relation to any shares or other property thereafter
deliverable upon exercise of Warrants.
The Company shall not effect any such Reorganization unless
prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such Reorganization or
the corporation purchasing or leasing such assets or other appropriate
corporation or entity shall (i) expressly assume,
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<PAGE> 22
by a supplemental Warrant Agreement or other acknowledgment executed and
delivered to the Warrant Agent the obligation to deliver to the Warrant Agent
and to cause the Warrant Agent to deliver to each such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder maybe entitled to purchase, and all other obligations and
liabilities under this Agreement and (ii) enter into an agreement providing to
the Holders rights and benefits substantially similar to those enjoyed by the
Holders under the Registration Rights Agreement of even date herewith.
The foregoing provisions of this Section 12(k) shall apply to
successive Reorganization transactions.
(l) Form of Warrants.
Irrespective of any adjustments in the number or kind of
shares purchasable upon the exercise of the Warrants, Warrants theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
(m) Miscellaneous.
For purposes of this Section 12 the term "Fully Diluted
Shares" shall mean (i) the shares of Common Stock outstanding as of a specified
date, and (ii) shares of Common Stock into or for which rights, options,
warrants or other securities outstanding as of such date are exercisable or
convertible (other than the Warrants). In the event that at any time, as a
result of an adjustment made pursuant to this Section 12, the Holders of
Warrants shall become entitled to purchase any securities of the Company other
than, or in addition to, shares of Common Stock, thereafter the number or
amount of such other securities so purchasable upon exercise of each Warrant
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in subsections (a) through (1) of this Section 12, inclusive,
and the provisions of Sections 7, 8, 10 and 13 with respect to the Warrant
Shares or the Common Stock shall apply on like terms to any such other
securities.
SECTION 13. Fractional Interests. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If
more than one Warrant shall be presented for exercise in full at the same time
by the same Holder, the number of full Warrant Shares which shall be issuable
upon the exercise thereof shall be computed on the basis of the aggregate
number of Warrant Shares purchasable on exercise of the Warrants so presented.
If any fraction of a Warrant Share would,
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<PAGE> 23
except for the provisions of this Section 13, be issuable on the exercise of
any Warrants (or specified portion thereof), the Company shall pay an amount in
cash equal to the Current Market Value on the day immediately preceding the
date the Warrant is presented for exercise, multiplied by such fraction.
SECTION 14. Notices to Warrant Holders. Upon any adjustment
pursuant to Section 12 hereof, the Company shall give prompt written notice of
such adjustment to the Warrant Agent and shall cause the Warrant Agent, on
behalf of and at the expense of the Company, within 10 days after the receipt
of such notice from the Company, to mail by first class mail, postage prepaid,
to each Holder a notice of such adjustment(s) and shall deliver to the Warrant
Agent a certificate of the Chief Financial Officer of the Company, setting
forth in reasonable detail (i) the number of Warrant Shares purchasable upon
the exercise of each Warrant and the Exercise Price of such Warrant after such
adjustment(s), (ii) a brief statement of the facts requiring such adjustment(s)
and (iii) the computation by which such adjustment(s) was made. Where
appropriate, such notice may be given in advance and included as a part of the
notice required under the other provisions of this Section 14.
In case:
(a) the Company shall authorize the issuance to all
Holders of shares of Common Stock of rights, options or warrants to
subscribe for or purchase shares of Common Stock or of any other
subscription rights or warrants; or
(b) the Company shall authorize the distribution to all
Holders of shares of Common Stock of evidences of its indebtedness or
assets; or
(c) of any consolidation or merger to which the Company
is a part and for which approval of any shareholders of the Company is
required, or of the conveyance or transfer of the properties and
assets of the Company substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon exercise of
the Warrants (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange offer for
shares of Common Stock; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
-20-
<PAGE> 24
(e) the Company proposes to take any action that would
require an adjustment to the Exercise Rate or the Exercise Price
pursuant to Section 12 hereof;
then the Company shall give prompt written notice to the Warrant Agent and
shall cause the Warrant Agent, on behalf of and at the expense of the Company
to give to each of the registered Holders of the Warrant Certificates at his or
its address appearing on the Warrant register, at least 30 days (or 20 days in
any case specified in clauses (a) or (b) above) prior to the applicable record
date hereinafter specified, or the date of the event in the case of events for
which there is no record date, by first-class mail, postage prepaid, a written
notice containing information provided by the Company to the Warrant Agent and
stating (i) the date as of which the Holders of record of shares of Common
Stock to be entitled to receive any such rights, options, warrants or
distribution are to be determined, or (ii) the initial expiration date set
forth in any tender offer or exchange offer for shares of Common Stock, or
(iii) the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that Holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up. The failure by the Company or the Warrant Agent to give such
notice or any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any action.
The Company shall give prompt written notice to the Warrant
Agent (in no event less than 45 days prior to the designated record date) and
shall cause the Warrant Agent, on behalf of and at the expense of the Company
to give to each Holder written notice of any determination to make a
distribution to the Holders of its Common Stock of any cash dividends, assets,
debt securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, assets or other securities (other than Common
Stock, or rights, options, or warrants to purchase Common Stock) of the
Company, which notice shall state the nature and amount of such planned
dividend or distribution and the record date therefor, and shall be received by
the Holders at least 30 days prior to such record date therefor.
Nothing contained in this Agreement or in any Warrant
Certificate shall be construed as conferring upon the Holders the right to vote
or to consent or to receive notice as shareholders in respect of the meetings
of shareholders or the election of Directors of the Company or any other
matter, or any rights whatsoever as shareholders of the Company.
-21-
<PAGE> 25
SECTION 15. Notices to the Company and Warrant Agent. Any
notice or demand authorized by this Agreement to be given or made by the
Warrant Agent or by any Holder to or on the Company shall be sufficiently given
or made when received at the office of the Company expressly designated by the
Company as its office for purposes of this Agreement (until the Warrant Agent
is otherwise notified in accordance with this Section 15 by the Company), as
follows:
Source Media, Inc.
5400 LBJ Freeway
Suite 680
Dallas, TX 75231
Facsimile: (972) 701-5454
with a copy to:
Thompson & Knight, P.C.,
1700 Pacific Avenue
Suite 300
Dallas, TX 75231
Attention: Michael L. Bengston
Facsimile: (214) 969-1751
Any notice pursuant to this Agreement to be given by the
Company or by any Holder(s) to the Warrant Agent shall be sufficiently given
when received by the Warrant Agent at the address appearing below (until the
Company is otherwise notified in accordance with this Section by the Warrant
Agent).
ChaseMellon Shareholder Services, L.L.C.
2323 Bryan Street
Suite 2300
Dallas, TX 75201-2656
Facsimile: (214) 965-2233
SECTION 16. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the interests of any Holder of Warrants.
-22-
<PAGE> 26
SECTION 17. Concerning the Warrant Agent. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement (and no implied
duties and obligations shall be read into this Agreement against the Warrant
Agent) upon the following terms and conditions, by all of which the Company and
the Holders, by their acceptance of Warrants, shall be bound:
(a) The statements contained herein and in the Warrant
Certificate shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of
the same except such as describe the Warrant Agent or any action taken
by it. The Warrant Agent assumes no responsibility with respect to
the distribution of the Warrants except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for and
shall incur no liability to the Company or any Holder for any failure
of the Company to comply with the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(c) The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself (through its employees) or by or through its attorneys
or agents (which shall not include its employees) and shall not be
responsible for the misconduct of any agent appointed with due care.
(d) The Warrant Agent may consult at any time with legal
counsel satisfactory to it (who may be counsel for the Company), and
the Warrant Agent shall incur no liability or responsibility to the
Company or to any Holder in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with the
opinion or the advice of such counsel.
(e) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter may be
deemed conclusively to be proved and established by a certificate
signed by the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, one of the Vice Presidents,
the Treasurer or the Secretary of the Company and delivered to the
Warrant Agent; and such certificate shall be full authorization to the
Warrant Agent for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such
certificate. Without limiting the foregoing, the Company shall notify
the Warrant Agent of the occurrence of the
-23-
<PAGE> 27
Separability Date on the Date it occurs, and until receipt of such
notice the Warrant Agent may (but need not) be entitled to assume that
any such date has not occurred.
(f) The Company agrees to pay the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent
in the performance of its duties under this Agreement, to reimburse
the Warrant Agent for all expenses, taxes and governmental charges and
other charges of any kind and nature (including attorneys' fees)
incurred by the Warrant Agent in the performance of its duties under
this Agreement (including, without limitation, reasonable fees and
expenses of counsel), and to indemnify the Warrant Agent and its
agents, employees, directors, officers and affiliates and save it and
them harmless against any and all liabilities, losses and expenses,
including, without limitation, judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the performance of
its duties under this Agreement, except as a result of the Warrant
Agent's negligence or bad faith. The obligations of the Company to
the Warrant Agent under this subparagraph (f) shall survive the
termination of the agency under this Agreement.
(g) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one or more
Holders shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this
provision shall not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether with or
without any such security or indemnity. All rights of action under
this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the
production thereof at any trial or other proceeding relative thereto,
and any such action, suit or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and any recovery
of judgment shall be for the ratable benefit of the Holders, as their
respective rights or interests may appear.
(h) The Warrant Agent and any stockholder, director,
officer or employee ("Related Parties") of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company
or become pecuniarily interested in any transactions in which the
Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement or such director, officer or
employee. Nothing herein shall preclude the Warrant Agent or any
Related Party from acting in any other capacity for the Company or for
any other legal
-24-
<PAGE> 28
entity including, without limitation, acting as Transfer Agent or as a
lender to the Company or an affiliate thereof.
(i) The Warrant Agent shall act hereunder solely as
agent, and its duties shall be determined solely by the provisions
thereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except
for its own negligence or bad faith.
(j) The Warrant Agent will not incur any liability or
responsibility to the Company or to any Holder for any action taken in
reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument reasonably
believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(k) The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Warrant Agent) or in respect of the validity or execution of any
Warrant (except its countersignature thereof); nor shall the Warrant
Agent by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Warrant Shares
(or other stock) to be issued pursuant to this Agreement or any
Warrant, or as to whether any Warrant Shares (or other stock) will,
when issued, be validly issued, fully paid and nonassessable, or as to
the Exercise Price or the number or amount of Warrant Shares or other
securities or other property issuable upon exercise of any Warrant.
(l) The Warrant Agent is hereby authorized and directed
to accept instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the Chief Executive Officer,
the President, the Chief Operating Officer, the Chief Financial
Officer, any Vice President or the Secretary of the Company, and to
apply to such officers for advice or instructions in connection with
its duties, and shall not be liable for and shall be fully protected
with respect to any action taken or suffered to be taken by it in good
faith and without negligence in accordance with instructions of any
such officer or officers.
(m) Before the Warrant Agent acts or refrains from acting
with respect to any matter contemplated by this Warrant Agreement, it may
require:
(1) an officers' certificate signed by two officers
stating that, in the opinion of the signers, all conditions precedent,
if any, provided for in this
-25-
<PAGE> 29
Warrant Agreement relating to the proposed action have been complied
with; and
(2) an opinion of counsel for the Company stating
that, in the opinion of such counsel, all such conditions precedent
have been complied with.
Each officers' certificate or opinion of counsel with respect
to compliance with a condition or covenant provided for in this Warrant
Agreement shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that in the opinion of such person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has been complied with.
The Warrant Agent shall not be liable for and shall be fully
protected with respect to any action it takes or omits to take in good faith in
reliance on any such certificate or opinion.
(n) No provision of this Agreement shall require the
Warrant Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
SECTION 18. Change of Warrant Agent. The Warrant Agent may
resign and be discharged from its duties under this Agreement by giving to the
Company 30 days' notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall
resign or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Warrant Agent. If the Company shall fail to
make such appointment within a period of 30 days after such removal or after it
has been notified in writing of
-26-
<PAGE> 30
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or by any Holder (who shall with such notice submit his Warrant for inspection
by the Company), then the Warrant Agent or any Holder may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Pending appointment of a successor to the Warrant Agent, either by the Company
or by such court, the duties of the Warrant Agent shall be carried out by the
Company. Any successor warrant agent, whether appointed by the Company or such
a court, shall be a suitable alternate, experienced in these duties and in good
standing, incorporated under the laws of the United States of America or any
State thereof or the District of Columbia and having at the time of its
appointment as warrant agent a combined capital and surplus of at least
$25,000,000. After appointment, the successor warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the former
Warrant Agent shall deliver and transfer to the successor warrant agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for such purpose. Failure to file
any notice provided for in this Section 18, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor warrant agent, as the case
may be. In the event of such resignation or removal, the Company or the
successor warrant agent shall mail by first class mail, postage prepaid, to
each Holder, written notice of such removal or resignation and the name and
address of such successor warrant agent.
SECTION 19. Identity of Transfer Agent. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares of
the Company's capital stock issuable upon the exercise of the Warrants, the
Company shall file with the Warrant Agent a statement setting forth the name
and address of such Transfer Agent.
SECTION 20. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company, the Warrant Agent or any
Holder of Warrants shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 21. Termination. This Agreement shall terminate on
the Expiration Date. Notwithstanding the foregoing, this Agreement will
terminate on any earlier date if all Warrants have been exercised or redeemed
pursuant to this Agreement.
SECTION 22. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of
-27-
<PAGE> 31
the State of New York and shall be governed by and construed in accordance with
the laws of said State, without regard to the conflict of law rules thereof.
SECTION 23. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company, the Warrant Agent and the registered Holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
the Company, the Warrant Agent and the registered Holders of the Warrant
Certificates.
SECTION 24. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
-28-
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
-----------------------------
Name: Michael G. Pate
Title: Chief Financial Officer
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
as Warrant Agent
By: /s/ R. JOHN DAVIS, VP
-----------------------------
Name: R. John Davis
Title: Vice President
-29-
<PAGE> 33
EXHIBIT A
[Form of Warrant Certificate]
[Face]
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE BY ITS ACQUISITION HEREOF OR A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a), (1), (2), (3) OR (7) OF REGULATION D
UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (B) IT IS
NOT A U.S. PERSON, IS NOT ACQUIRING THIS SECURITY FOR THE ACCOUNT OR BENEFIT OF
A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATORS UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL
NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT
THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER
THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS SECURITY,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO SOURCE MEDIA, INC.
("SOURCE") OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER FURNISHES TO THE
WARRANT AGENT, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY, AND IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE AMOUNT OF WARRANTS AT THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO SOURCE THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (C) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE, BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO SOURCE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR (F) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN
<PAGE> 34
EXHIBIT A
Page 2
OPINION OF COUNSEL ACCEPTABLE TO SOURCE) AND IN EACH CASE, IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO
REGISTER TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
<PAGE> 35
EXHIBIT A
Page 3
EXERCISABLE ON OR AFTER THE DATE OF ISSUANCE
AND ON OR BEFORE NOVEMBER 1, 2007
No. ______
Warrants
CUSIP No.:
Warrant Certificate
Source Media, Inc.
This Warrant Certificate certifies that _____________________ or
registered assigns, is the registered Holder of Warrants expiring November 1,
2007 (the "Warrants") to purchase shares of common stock (the "Common Stock")
of Source Media, Inc., a Delaware corporation (the "Company"). Each Warrant
entitles the Holder upon exercise to receive from the Company on or after the
date hereof and on or before 5: 00 p.m. New York City Time on November 1, 2007,
_______ fully paid and nonassessable shares of Common Stock (each a "Warrant
Share") at the initial exercise price (the "Exercise Price") of $.001 payable
in lawful money of the United States of America upon surrender of this Warrant
Certificate and payment of the Exercise Price at the office or agency of the
Warrant Agent, but only subject to the conditions set forth herein and in the
Warrant Agreement referred to on the reverse hereof. The Exercise Price and
number of Warrant Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement.
No Warrant may be exercised after 5:00 p.m., New York City
Time, on November 1, 2007, and to the extent not exercised by such time such
Warrants shall become void.
This Warrant Certificate shall not be valid unless
countersigned by the Warrant Agent, as such term is used in the Warrant
Agreement.
This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of New York.
<PAGE> 36
EXHIBIT A
Page 4
IN WITNESS WHEREOF, Source Media, Inc. has caused this Warrant
Certificate to be signed by its Chairman and by its Secretary.
Dated:
SOURCE MEDIA, INC.
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
Countersigned:
ChaseMellon Shareholder Services, L.L.C.
as Warrant Agent
By:
----------------------------------
Authorized Signature
<PAGE> 37
EXHIBIT A
Page 5
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring November 1, 2007, entitling the
Holder on exercise to receive shares of voting Common Stock, of the Company
(the "Common Stock"), $.001 par value, and are issued or to be issued pursuant
to a Warrant Agreement dated as of October 30, 1997 (the "Warrant Agreement"),
duly executed and delivered by the Company to ChaseMellon Shareholder Services,
L.L.C., a New Jersey limited liability company as warrant agent (the "Warrant
Agent"), which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Warrant Agent, the Company and the Holders (the words "Holders" or
"Holder" meaning the registered Holders or registered Holder) of the Warrants.
A copy of the Warrant Agreement may be obtained by the Holder hereof upon
written request to the Company.
Warrants may be exercised at any time on or after the date
hereof and on or before November 1, 2007, subject to extension as provided in
the Warrant Agreement. The Holder of Warrants evidenced by this Warrant
Certificate may exercise them by surrendering this Warrant Certificate, with
the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price in cash at the office of
the Warrant Agent. In the event that upon any exercise of Warrants evidenced
hereby the number of Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued to the Holder hereof or his
assignee a new Warrant Certificate evidencing the number of Warrants not
exercised. No adjustment shall be made for any dividends on any Common Stock
issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of
certain events the number of Warrants set forth on the face hereof may, subject
to certain conditions, be adjusted. No fractions of a share of Common Stock
will be issued upon the exercise of any Warrant, but the Company win pay the
cash value thereof determined as provided in the Warrant Agreement.
<PAGE> 38
EXHIBIT A
Page 6
Warrant Certificates, when surrendered at the office of the
Warrant Agent by the registered Holder thereof in person or by legal
representative or attorney duly authorized in writing, may be exchanged, in the
manner and subject to the limitations provided in the Warrant Agreement, but
without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentation for registration of transfer of this
Warrant Certificate at the office of the Warrant Agent a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferees in
exchange for this Warrant Certificate, subject to the limitations provided in
the Warrant Agreement, without charge except for any tax or other governmental
charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the
registered Holder(s) thereof as the absolute owner(s) of this Warrant
Certificate (notwithstanding any notation of ownership or other writing hereon
made by anyone), for the purpose of any exercise hereof, of any distribution to
the Holder(s) hereof, and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any Holder hereof to any rights
of a stockholder of the Company.
ELECTION TO EXERCISE
(TO BE EXECUTED UPON EXERCISE OF THE WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____ shares of Common
Stock of Source Media, Inc. and herewith tenders in payment for such Shares
$___________ in lawful money of the United States of America. In accordance
with the terms hereof. The undersigned requests that a certificate
representing such Shares be registered and delivered as follows:
-----------------------------------
Name
-----------------------------------
<PAGE> 39
EXHIBIT A
Page 7
Address
-----------------------------------
Delivery Address (if different)
If such number of Shares is less than the aggregate number of Shares
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the balance of such Shares be registered and delivered as follows:
-----------------------------------
Name
-----------------------------------
Address
-----------------------------------
Delivery Address (if different)
- --------------------------------------------------------------------------------
Social Security or
Other Taxpayer Identification Number of Holder
- --------------------------------------------------------------------------------
Signature
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever. If the certificate representing the
Shares or any Warrant Certificate representing Warrants not exercised is to be
registered in a name other than that in which this Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
Signature Guaranteed:
- ------------------------------
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
HOLDER DESIRES TO TRANSFER THE WARRANT CERTIFICATE)
For Value Received, the undersigned registered holder hereby sells, assigns and
transfers unto
<PAGE> 40
EXHIBIT A
Page 8
-----------------------------------
Name of Assignee
-----------------------------------
Address of Assignee
this Warrant Certificate, together with all right, title and interest therein,
and does irrevocably constitute and appoint
- --------------------------------------------------------------------------------
attorney, to transfer the within Warrant Certificate on the books of the
Warrant Agent, with full power of substitution.
- --------------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
Signature
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
Social Security or Other
Taxpayer Identification Number of Assignee
Signature Guaranteed:
- -------------------------
<PAGE> 41
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to purchase
Common Stock (the "Securities"), of
Source Media, Inc.
This Certificate relates to _________ Securities held in the
form of* ___________ a beneficial interest in ___________ Physical Warrants by
___________ (the "Transferor").
The Transferor:*
/ / has requested that the Warrant Agent by written order to
exchange or register the transfer of a Physical Warrant or Physical Warrants.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Warrant Agreement relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 6 of such Warrant
Agreement, and that the transfer of these Securities does not require
registration under the Securities Act of 1933, as amended (the "Act") because*:
/ / Such Security is being acquired for the Transferor's own
account, without transfer.
/ / Such Security is being transferred to an institutional
"accredited investor" (within the meaning of subparagraphs (a)(1), (2), (3) or
(7) of Rule 501 under the Act.
/ / Such Security is being transferred in reliance on
Regulation S under the Act.
/ / Such Security is being transferred in reliance on Rule 144
under the Act.
<PAGE> 42
EXHIBIT B
Page 2
/ / Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act
other than Rule 144A or Rule 144 or Regulation S under the Act to a person
other than an institutional "accredited investor.
-------------------------------
(INSERT NAME OF TRANSFEROR)
By:
----------------------------
(Authorized Signatory)
Date:
- ----------------------
*Check applicable box.
<PAGE> 43
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
[Date]
[Name of Warrant Agent]
[Address]
Attention: Corporate Trust Administration
Re: Source Media, Inc.
(the "Company") Warrants to purchase Common Stock (the
"Securities")
Ladies and Gentlemen:
In connection with our proposed purchase of Securities, of the
Company, we confirm that:
1. We have received such information as we deem
necessary in order to make our investment decision.
2. We understand that any subsequent transfer of the
Securities is subject to certain restrictions and conditions set forth in the
Warrant Agreement and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the Warrants of the Company
represented by this Certificate are subject to a Warrant Registration Rights
Agreement dated as of October 30, 1997, which contains provisions regarding
restrictions on the transfer and the mandatory transfer of such shares and
other matters.
<PAGE> 44
EXHIBIT C
Page 2
4. We understand that the offer and sale of the
Securities have not been registered under the Securities Act, and that the
Securities may not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons except as permitted in the following
sentence. We agree, on our own behalf-and on behalf of any accounts for which
we are acting as hereinafter stated, that if we should sell any Securities, we
will do so only (A) to the Company or any subsidiary thereof, (B) inside the
United States to an institutional "accredited investor" (as defined below)
that, prior to such transfer, furnishes (or has furnished on its behalf by a
U.S. broker-dealer) to the Warrant Agent a signed letter substantially in the
form hereof, (C) outside the United States in accordance with Regulation S
under the Securities Act, (D) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (E) pursuant
to an effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing Securities from us a notice advising
such purchaser that resales of the Securities are restricted as stated herein.
5. We understand that, on any proposed resale of
Securities, we will be required to furnish to the Warrant Agent and the
Company, such certification, legal opinions and other information as the
Warrant Agent and the Company may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We further understand
that the Securities purchased by us will bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
7. We are acquiring the Securities purchased by us for
our account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
<PAGE> 45
EXHIBIT C
Page 3
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
(Name of Transferor)
By:
------------------------------
(Authorized Signatory)
<PAGE> 46
EXHIBIT D
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
[Date]
[Name of Warrant Agent]
[Address]
Attention: Source Media, Inc.
Re: Source Media, Inc.
(the "Company") Warrants to purchase Common Stock (the
"Securities")
Dear Sirs:
In connection with our proposed sale of __________ of the
Securities, we confirm that such sale has been effected pursuant to and in
accordance with Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person
in the United States;
(2) either (a) at the time the buy offer was originated,
the transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States,
or (b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf knows that the transaction has been prearranged with a buyer in the
United States;
<PAGE> 47
EXHIBIT D
Page 2
(3) no directed selling efforts have been made in the
United States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
(Name of Transferor)
By:
-----------------------------
(Authorized Signatory)
<PAGE> 1
EXHIBIT 4.4
EXECUTION COPY
UNIT AGREEMENT
UNIT AGREEMENT dated as of October 30, 1997 between Source
Media, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., a New Jersey limited liability company
("ChaseMellon" or the "Unit Agent"), organized under the laws of the State of
New Jersey.
WHEREAS, the Company proposes to issue 800,000 shares of its
13 1/2% Senior PIK Preferred Stock (the "Senior PIK Preferred Stock") and
warrants (the "Warrants") to purchase 447,000 shares of its Common Stock, par
value $0.001 per share (the "Common Stock"), in the form of 800 units (the
"Units"), with each Unit consisting of 1,000 shares of Senior PIK Preferred
Stock and 558.75 Warrants to purchase one share of Common Stock;
WHEREAS, the Company and ChaseMellon in its capacity as
warrant agent for the Warrants (the "Warrant Agent") and transfer agent for the
Senior PIK Preferred Stock (the "Transfer Agent") desire to appoint ChaseMellon
to act as their agent for the purpose of issuing certificates ("Unit
Certificates") representing the Units and registration of transfers and
exchanges thereof. ChaseMellon in such capacity is referred to herein as the
"Unit Agent";
WHEREAS, the Units will be exchangeable for the Senior PIK
Preferred Stock and Warrants represented thereby immediately upon sale by the
Initial Purchasers (the "Separability Date");
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Unit Agent. (a) The Company
hereby appoints the Unit Agent to act as agent for the Company in accordance
with the instructions set forth hereinafter in this Agreement, and the Unit
Agent hereby accepts such appointment.
(b) The Transfer Agent and the Company hereby appoint the
Unit Agent as a co-transfer agent for the Senior PIK Preferred Stock for so
long as the Senior PIK Preferred Stock is represented by the Units. In its
capacity as a co-transfer agent, the Unit Agent shall have the rights and
obligations provided for a transfer agent in the Certificate of Designation
governing the Senior PIK Preferred Stock.
-1-
<PAGE> 2
(c) The Warrant Agent and the Company hereby appoint the
Unit Agent as an agent of the Warrant Agent for the purposes of maintaining a
register of the registered owners of and the registration of transfers and
exchanges of the Warrants represented by the Units.
SECTION 2. Unit Certificates. (a) The Units will be issued
in registered form as definitive Unit certificates substantially in the form of
Exhibit A attached hereto.
(b) Legends. Each Unit Certificate evidencing the Units
(and all Units issued in exchange therefor or substitution thereof) shall bear
a legend substantially to the following effect:
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE BY ITS ACQUISITION HEREOF OR A BENEFICIAL INTEREST HEREIN,
THE HOLDER (1) REPRESENTS THAT (A) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A), (1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS
SECURITY FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION
S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE
TIME PERIOD REFERRED TO UNDER RULE 144(K) (TAKING INTO ACCOUNT THE
PROVISIONS OF RULE 144(D) UNDER THE SECURITIES ACT, IF APPLICABLE)
UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF
THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO SOURCE MEDIA, INC. ("SOURCE") OR ANY SUBSIDIARY THEREOF, (B)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER FURNISHES TO THE WARRANT AGENT, A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY, AND IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE AMOUNT OF WARRANTS OR WARRANT SHARES
-2-
<PAGE> 3
AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO SOURCE THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE, BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO SOURCE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR (F) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO SOURCE) AND IN EACH
CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902
OF REGULATIONS S UNDER THE SECURITIES ACT. THE UNIT AGREEMENT, DATED
AS OF OCTOBER 30, 1997, BETWEEN SOURCE AND CHASEMELLON SHAREHOLDER
SERVICES, L.L.C., CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO
REFUSE TO REGISTER TRANSFER OF THIS SECURITY IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
SECTION 3. Execution of Unit Certificates. Each Unit
Certificate shall be signed on behalf of the Company by its Chairman of the
Board or its President, Chief Executive Officer, Chief Operating Officer,
Treasurer, Chief Financial Officer or a Vice President and by its Secretary or
an Assistant Secretary. Each such signature upon the Unit Certificates may be
in the form of a facsimile signature of the present or any future Chairman of
the Board, President, Vice President, Chief Financial Officer, Treasurer,
Secretary or Assistant Secretary and may be imprinted or otherwise reproduced
on the Unit Certificates and for that purpose the Company may adopt and use the
facsimile signature of any person who shall have been Chairman of the Board,
President, Chief Executive Officer, Chief Operating Officer, Vice President,
Treasurer, Chief Financial Officer, Secretary or Assistant Secretary,
notwithstanding the fact that at the time the Unit Certificates shall be
countersigned and delivered or disposed of such officer shall have ceased to
hold such office.
-3-
<PAGE> 4
In case any officer of the Company who shall have signed any
of the Unit Certificates shall cease to be such officer before the Unit
Certificates so signed shall have been countersigned by the Unit Agent, or
disposed of by the Company, such Unit Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Unit Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Unit Certificate, shall be a proper officer of the Company to sign such
Unit Certificate, although at the date of the execution of this Unit Agreement
any such person was not such officer.
Unit Certificates shall be dated the date of counter-signature
by the Unit Agent.
SECTION 4. Registration and Countersignature. The Unit
Agent, on behalf of the Company and upon written direction of the Company,
shall number and register the Unit Certificates in a register as they are
issued by the Company.
Unit Certificates shall be manually countersigned by the Unit
Agent and shall not be valid for any purpose unless so countersigned. The Unit
Agent shall, upon written instructions of the Chairman of the Board, the
President, Chief Executive Officer, Chief Operating Officer, a Vice President,
Chief Financial Officer, Treasurer, the Secretary or an Assistant Secretary of
the Company, initially countersign and deliver not more than 800 Units and
shall thereafter countersign and deliver Units in accordance with the written
instructions of the foregoing officers.
The Company and the Unit Agent may deem and treat the
registered holder(s) of the Unit Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes, and neither the Company nor the Unit Agent shall be
affected by any notice to the contrary.
SECTION 5. Separation of the Senior PIK Preferred Stock and
Warrants. After the Separability Date, the Senior PIK Preferred Stock and the
Warrants represented by the Units shall be separately transferable. Upon
presentation after the Separability Date of any Unit Certificate for exchange
for Senior PIK Preferred Stock and Warrants or for registration of transfer or
otherwise, (i) the Unit Agent shall notify the Transfer Agent and the Warrant
Agent of the number of Units so presented, the registered owner thereof, such
owner's registered address, the nature of any legends or restrictive
endorsements set forth on such Unit Certificate and any other information
provided by the holder thereof in connection therewith, (ii) the
-4-
<PAGE> 5
Transfer Agent, if the requirements of the Certificate of Designation with
respect to the Senior PIK Preferred Stock for such transaction and any
applicable legend are met based solely on the certification by the transferor
on the Preferred Stock, shall promptly register, authenticate and deliver a new
Senior PIK Preferred Stock Certificate equal in number of shares of Senior PIK
Preferred Stock represented by such Unit Certificate in accordance with the
direction of such holder and (iii) the Warrant Agent, if the requirements for
such transactions are met as confirmed by the Company to the Warrant Agent,
shall promptly countersign, register and deliver a new Warrant Certificate for
the number of Warrants previously represented by such Unit Certificate in
accordance with the directions of such holder. The Warrant Agent and the
Transfer Agent will notify the Unit Agent of any additional requirements in
connection with a particular transfer or exchange.
Following the Separability Date, no Unit Certificates shall be
issued upon transfer or exchange of Unit Certificates, or otherwise.
SECTION 6. Rights of Unit Holders. The registered owner of a
Unit Certificate shall have all the rights and privileges of a registered owner
of the number of shares of Senior PIK Preferred Stock represented thereby and
the number of Warrants represented thereby and shall be treated as the
registered owner thereof for all purposes. The Company agrees that it shall be
bound by all provisions of the Certificate of Designation governing the Senior
PIK Preferred Stock and that the Senior PIK Preferred Stock and Warrants
represented by each Unit Certificate shall be deemed valid and obligatory
obligations of the Company.
SECTION 7. Unit Agent. The Unit Agent undertakes the duties
and obligations imposed by this Agreement (and no implied duties and
obligations shall be read into this Agreement against the Unit Agent) upon the
following terms and conditions, by all of which the Company and the holders of
Units, by their acceptance thereof, shall be bound:
(a) The statements contained herein and in the Unit
Certificates shall be taken as statements of the Company, and the Unit Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Unit Agent or action taken or to be taken by it. The Unit Agent
assumes no responsibility with respect to the distribution of the Unit
Certificates except as herein otherwise provided.
(b) The Unit Agent shall not be responsible for and shall
incur no liability to the Company or any holder of the Units for any failure of
the Company to
-5-
<PAGE> 6
comply with any of the covenants in this Agreement or in the Unit Certificates
to be complied with by the Company.
(c) The Unit Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Unit Agent
shall incur no liability or responsibility to the Company or to any holder of
any Unit Certificate in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of
such counsel provided, that the foregoing clause shall not apply if the Unit
Agent is found to have acted with willful misconduct or gross negligence.
(d) The Unit Agent shall incur no liability or
responsibility to the Company or to any holder of any Unit Certificate for any
action taken in reliance on any Unit Certificate, certificate of shares,
notice, resolution, waiver, consent, order, certificate or other paper,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Unit Agent
reasonable compensation for all services rendered by the Unit Agent in
connection with this Agreement, to reimburse the Unit Agent for all expenses,
taxes and governmental charges and other charges of any kind and nature
(including attorneys' fees) incurred by the Unit Agent in the connection with
this Agreement and to indemnify the Unit Agent and its agents, employees,
directors, officers and affiliates and save it and them harmless against any
and all liabilities, losses and expenses including without limitation
judgments, costs and counsel fees and actual expenses, for anything done or
omitted by the Unit Agent in connection with this Agreement except as a result
of the Unit Agent's gross negligence or willful misconduct. The obligation of
the Company to the Unit Agent under this subparagraph (e) shall survive the
termination of the agency under this Agreement.
(f) The Unit Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
unless the Company or one or more registered holders of Unit Certificates shall
furnish the Unit Agent with security and indemnity for any costs and expenses
which may be incurred acceptable to the Unit Agent. This provision shall not
affect the power of the Unit Agent to take such action as it may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Units my be enforced by the
Unit Agent without the possession of any of the Unit Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Unit Agent shall be brought
in its name as Unit Agent for the benefit of holders of Unit Certificates and
any recovery of judgment shall
-6-
<PAGE> 7
be for the ratable benefit of the registered holders of the Units, as their
respective rights or interests may appear.
(g) The Unit Agent, and any stockholder, director,
officer or employee of it (the "Related Parties"), may buy, sell or deal in any
of the securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Unit Agent under this Agreement. Nothing herein shall preclude the Unit Agent
or such Related Parties from acting in any other capacity for the Company or
for any other legal entity.
(h) The Unit Agent shall act hereunder solely as agent
for the Company, the Transfer Agent and the Warrant Agent, and its duties shall
be determined solely by the provisions hereof. The Unit Agent shall not be
liable for anything which it may do or refrain from doing in connection with
this Agreement except for its own gross negligence or bad faith or willful
misconduct.
(i) Before the Unit Agent acts or refrains from acting
with respect to any matter contemplated by this Unit Agreement, it may require:
(1) an officers' certificate signed by two officers
stating that, in the opinion of the signers, all conditions precedent,
if any, provided for in this Unit Agreement relating to the proposed
action have been complied with; and
(2) an opinion of counsel for the Company stating
that, in the opinion of such counsel, all such conditions precedent
have been complied with.
Each officers' certificate or opinion of counsel with respect
to compliance with a condition or covenant provided for in this Unit Agreement
shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that in the opinion of such person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
-7-
<PAGE> 8
(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has been complied with.
The Unit Agent shall not be liable for and shall be fully
protected with respect to any action it takes or omits to take in good faith in
reliance on any such certificate or opinion.
(j) In the absence of bad faith on its part, the Unit
Agent may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Unit Agent and conforming to the requirements of this Unit
Agreement. However, the Unit Agent shall examine the certificates and opinions
to determine whether or not they conform to the requirements of this Unit
Agreement.
(k) The Unit Agent may rely and shall be fully protected
in relying upon any document believed by it to be genuine and to have been
signed or presented by the proper person. The Unit Agent need not investigate
any fact or matter stated in the document.
(l) The Unit Agent may act through agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
SECTION 8. Notices to Company and Unit Agent, Transfer Agent
and Warrant Agent. Any notice or demand authorized by this Agreement to be
given or made to or on the Company shall be sufficiently given or made when and
if deposited in the mail, first class or registered, postage paid, addressed
If to the Company:
Source Media, Inc.
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
Attention: Chief Financial Officer
Facsimile: (214) 890-9014
-8-
<PAGE> 9
with a copy to:
Thompson & Knight
1700 Pacific Avenue
Suite 3300
Attention: Michael L. Bengtson, Esq.
Facsimile: (214) 969-1751
If to the Unit Agent, Warrant Agent or the Transfer Agent:
ChaseMellon Shareholder Services, L.L.C.
2323 Bryan Street
Suite 2300
Dallas, TX 75201-2656
Facsimile: (214) 965-2233
The parties hereto by notice to the other parties may
designate additional or different addresses for subsequent communications or
notice.
Any notice to be mailed to a holder of Units shall be mailed
to him or her at the address that appears on the register of Units maintained
by the Unit Agent. Copies of any such communication shall also be mailed to
the Unit Agent, Transfer Agent and Warrant Agent. The Unit Agent shall furnish
the Company, the Transfer Agent or the Warrant Agent promptly when requested
with a list of registered holders of Units for the purpose of mailing any
notice or communication to the holders of the Senior PIK Preferred Stock or
Warrants and at such other times as may be reasonably requested.
SECTION 9. Change of Unit Agent. The Unit Agent may resign
and be discharged from its duties under this Agreement by giving to the Company
30 days' notice in writing. The Unit Agent may be removed by like notice to
the Unit Agent from the Company. If the Unit Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Unit Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Unit Agent or by any holder of the Units (who shall with such
notice submit his Unit for inspection by the Company), then the Unit Agent or
any such holder may apply to any court of competent jurisdiction for the
appointment of a successor to the Unit Agent. Pending appointment of a
successor to the Unit Agent, either by the Company or by such court, the duties
of the Unit Agent shall be
-9-
<PAGE> 10
carried out by the Company. Any successor Unit Agent, whether appointed by the
Company or such a court, shall be a suitable alternate, experienced in these
duties and in good standing, incorporated under the laws of the United States
of America or any State thereof or the District of Columbia and having at the
time of its appointment as Unit Agent a combined capital and surplus of at
least $25,000,000. After appointment, the successor Unit Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Unit Agent without further act or deed; but the former Unit
Agent shall deliver and transfer to the successor Unit Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for such purpose. Failure to file any notice
provided for in this Section 9, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Unit Agent
or the appointment of the successor Unit Agent, as the case may be. In the
event of such resignation or removal, the Company or the successor Unit Agent
shall mail by first class mail, postage prepaid, to each holder of the Units,
written notice of such removal or resignation and the name and address of such
successor Unit Agent.
SECTION 10. Supplements and Amendments. The Company, the
Transfer Agent, the Warrant Agent and the Unit Agent may from time to time
supplement or amend this Agreement without the approval of any holders of Unit
Certificates in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company, the Transfer Agent, the Warrant
Agent and the Unit Agent may deem necessary or desirable and which shall not in
any way adversely affect the interests of the holders of Unit Certificates.
Any amendment or supplement to this Agreement that has a material adverse
effect on the interests of the Unit holders shall require the written consent
of registered holders of a majority of the then outstanding Units.
SECTION 11. Successors. All covenants and provisions of this
Agreement by or for the benefit of the Company, the Transfer Agent, the Warrant
Agent or the Unit Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 12. Governing Law. THIS AGREEMENT AND EACH UNIT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND
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<PAGE> 11
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE,
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
SECTION 13. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company, the Transfer Agent, the Warrant Agent, the Unit Agent and the
registered holders of the Unit Certificates any legal or equitable right,
remedy or claim under this Agreement, but this Agreement shall be for the sole
and exclusive benefit of the Company, the Transfer Agent, the Warrant Agent,
the Unit Agent and the registered holders of the Unit Certificates.
SECTION 14. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
----------------------------------
Name: Michael G. Pate
Title: Chief Financial Officer
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
as Transfer Agent,
Warrant Agent and Unit Agent
By: /s/ R. JOHN DAVIS, VP
----------------------------------
Name: R. John Davis
Title: Vice President
<PAGE> 13
EXHIBIT A
[FORM OF SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS
ACQUISITION HEREOF, THE SECURITYHOLDER (1) REPRESENTS THAT IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) or (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR")
OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE UNIT AGENT A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY, (C) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER
THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR PURCHASING PURSUANT TO CLAUSE (2)(B) ABOVE, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE UNIT AGENT AND THE ISSUER SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
<PAGE> 14
EXHIBIT A
Page 2
SOURCE MEDIA, INC.
Units Consisting of 1,000 Shares of
Senior PIK Preferred Stock
and 558.75 Warrants, each to Purchase One
Share of Common Stock
No. CUSIP No. [ ]
SOURCE MEDIA, INC., a Delaware corporation (the "Company"),
which term includes any successor corporation, hereby certifies that [ ]
is the owner of [ ] Units as described above, transferable only on
the books of the Company by the holder thereof in person or by his or her duly
authorized attorney on surrender of this Certificate properly endorsed. Each
Unit consists of 1,000 shares of 13.5% Senior PIK Preferred Stock ("Senior PIK
Preferred Stock") and 558.75 Warrants to purchase one share of Common Stock,
par value $0.01 per share, of the Company (the "Warrants"). This Unit is
issued pursuant to the Unit Agreement (the "Unit Agreement") dated as of
October 30, 1997 among the Company and ChaseMellon Shareholder Services, L.L.C,
as Unit Agent (the "Unit Agent"), Transfer Agent and Warrant Agent, and is
subject to the terms and provisions contained therein, to all of which terms
and provisions the holder of this Unit Certificate consents by acceptance
hereof. The terms of the Senior PIK Preferred Stock are governed by a
Certificate of Designation filed with the Secretary of State of Delaware on
October 29, 1997 (the "Certificate of Designation"), are subject to the terms
and provisions contained therein, to all of which terms and provisions the
holder of this Unit Certificate consents by acceptance hereof.
Reference is made to the further provisions of this Unit Certificate
contained herein, which will for all purposes have the same effect as if set
forth at this place. Reference is also made to the Warrant Agreement (the
"Warrant Agreement") dated as of October 30, 1997 between the Company and
ChaseMellon Shareholder Services, L.L.C., as Warrant Agent, which governs the
terms of the Warrants, to all of which terms and provisions the holder of this
Unit Certificate consents by acceptance hereof. Copies of the Unit Agreement,
Certificate of Designation and Warrant Agreement are on file at the office of
the Company, 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas 75231,
Facsimile: (214) 890-9014, Attention: Corporate Secretary, and are available
to any holder on written request and without cost.
<PAGE> 15
EXHIBIT A
Page 3
The Senior PIK Preferred Stock and Warrants of the Company represented
by this Unit Certificate shall be immediately detachable and separately
transferable until the next day after the sale by the Initial Purchasers.
Dated:
SOURCE MEDIA, INC.
By:
----------------------------------
Name:
Title:
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES
By:
----------------------------------
Authorized Signatory
<PAGE> 16
EXHIBIT A
Page 4
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint agent to transfer this Security on the books of the
Company. The agent may substitute another to act for him.
Date:
------------------------------
Your Signature:
----------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee:
- -----------------------------------
<PAGE> 17
EXHIBIT A
Page 5
(Signatures must be guaranteed by an
"eligible guarantor institution" meeting
the requirements of the Unit Agent,
which requirements will include
membership or participation in the
Securities Transfer Agents Medallion
Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Unit Agent in addition
to, or in substitution for, STAMP, all
in accordance with the Securities
Exchange Act of 1934, as amended.)
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
===================================
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
Dated as of October 30, 1997
by and among
SOURCE MEDIA, INC.
and
NATWEST CAPITAL MARKETS LIMITED
and
PRUDENTIAL SECURITIES INCORPORATED
as the Initial Purchasers
===================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions...................................................................................... 1
2. Shelf Registration............................................................................... 4
3. Registration Procedures.......................................................................... 5
4. Registration Expenses............................................................................ 13
5. Indemnification.................................................................................. 14
6. Rule 144......................................................................................... 18
7. Underwritten Registrations....................................................................... 18
8. Miscellaneous. .................................................................................. 18
(a) No Inconsistent Agreements......................................................... 18
(b) Adjustments Affecting Transfer Restricted Warrant Certificates..................... 19
(c) Amendments and Waivers............................................................. 19
(d) Notices............................................................................ 19
(e) Successors and Assigns............................................................. 20
(f) Counterparts....................................................................... 20
(g) Headings........................................................................... 21
(h) Governing Law...................................................................... 21
(i) Severability....................................................................... 21
(j) Preferred Stock Held by the Company or Their Affiliates............................ 21
(k) Third Party Beneficiaries.......................................................... 21
</TABLE>
(i)
<PAGE> 3
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
This Common Stock Registration Rights Agreement (the "Agreement") is dated
as of October 30, 1997, by and among Source Media, Inc., a Delaware corporation
(the "Company"), NatWest Capital Markets Limited and Prudential Securities
Incorporated (each an "Initial Purchaser" and collectively the "Initial
Purchasers").
This Agreement is entered into in connection with the Purchase Agreement,
dated October 23, 1997, among the Company and the Initial Purchasers (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchasers of 800 units (the "Units") consisting of 1,000 shares of 13 1/2%
Senior PIK Preferred Stock (the "Preferred Stock") and 558.75 Warrants (the
"Warrants"), each Warrant to purchase one share of common stock. Full exercise
of the Warrants would result in the purchase of 447,000 shares of common stock
(the "Warrant Shares"), or approximately 3% of the Company's shares on a fully
diluted basis. In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
set forth in this Agreement for the benefit of the Initial Purchasers and their
direct and indirect transferees. The execution and delivery of this Agreement is
a condition to the obligation of the Initial Purchasers to purchase the Units
under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Advice: Has the meaning provided in the last paragraph of Section 3 hereof.
Agreement: Has the meaning provided in the first introductory paragraph
hereto.
Closing Date: Has the meaning provided in the Purchase Agreement.
Company: Has the meaning provided in the first introductory paragraph
hereto.
Effectiveness Date: The 75th day after the Filing Date.
Effectiveness Period: Has the meaning provided in Section 2(a) hereof.
Event Date: Has the meaning provided in Section 4(b) hereof.
<PAGE> 4
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Filing Date: The day six months after the Issue Date.
Holder: Any holder of Warrant Shares.
Indemnified Person: Has the meaning provided in Section 5(c) hereof.
Indemnifying Person: Has the meaning provided in Section 5(c) hereof.
Initial Purchasers: Has the meaning provided in the first introductory
paragraph hereto.
Inspectors: Has the meaning provided in Section 3(o) hereof.
Issue Date: The date on which the Warrants were sold to the Initial
Purchasers pursuant to the Purchase Agreement.
NASD: Has the meaning provided in Section 3(s) hereof.
Participant: Has the meaning provided in Section 5(a) hereof.
Paying Agent: ChaseMellon as Paying Agent for the Warrant Certificates.
Persons: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Preferred Stock: Has the meaning provided in the second introductory
paragraph hereto.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any infor mation previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Warrant Shares covered by such Registration Statement including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
-2-
<PAGE> 5
Purchase Agreement: Has the meaning provided in the second introductory
paragraph hereto.
Records: Has the meaning provided in Section 3(o) hereof.
Registration Statement: Any registration statement of the Company,
including that covers any of the Warrant Shares pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144(k): Rule 144(k) promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Registration: Has the meaning provided in Section 2(a) hereof.
Shelf Registration Statement: shall mean a "shelf" registration statement
of the Company which covers all of the Warrant Shares on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be adopted by
the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
Underwritten registration or underwritten offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
Units: Has the meaning provided in the second paragraph hereto.
Warrant Certificates: Means the Warrant Certificates as provided in the
Warrant Agreement.
Warrant Shares: Has the meaning provided in the second introductory
paragraph hereto.
-3-
<PAGE> 6
Warrants: Has the meaning provided in the second introductory paragraph
hereto.
2. Shelf Registration
(a) Shelf Registration. The Company shall file with the SEC no later than
the Filing Date a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the Warrant Shares (the
"Shelf Registration"). The Shelf Registration shall be on Form S-3 or another
appropriate form permitting registration of such Warrant Shares for resale by
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall not permit
any securities other than the Warrant Shares to be included in the Shelf
Registration, except to the extent that the Company is unable to obtain waivers
of registration rights from the persons listed on Schedule A which the Company
shall use its best efforts to obtain.
The Company shall use its best efforts to cause the Shelf Registration to
be declared effective under the Securities Act by the Effectiveness Date and to
keep the Shelf Registration continuously effective under the Securities Act
until the date which is two years from the Issue Date (the "Effectiveness
Period"), subject to extension pursuant to the last paragraph of Section 3
hereof, or such shorter period ending when all the Warrant Shares covered by the
Shelf Registration have been sold in the manner set forth and as contemplated in
the Shelf Registration or such Warrant Shares become eligible for resale without
volume restrictions pursuant to Rule 144(k) under the Securities Act.
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be
effective for any reason at any time during the Effectiveness Period (other than
because of the sale of all of the securities registered thereunder), the Company
shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall promptly supplement and
amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested for
such purpose by the Holders of a majority of the Warrant Shares covered by such
Registration Statement.
3. Registration Procedures
In connection with the filing of any Registration Statement pursuant to
Section 2 hereof, the Company shall effect such registration(s) to permit the
sale of the securities covered thereby in accordance with the intended method or
methods of disposition thereof, and pursuant thereto and in connection with any
Registration Statement filed by the Company hereunder, the Company shall:
-4-
<PAGE> 7
(a) Prepare and file with the SEC prior to the Filing Date a Registration
Statement as prescribed by Section 2 hereof, and use its best efforts to cause
such Registration Statement to become effective and remain effective as provided
herein; provided, however, that, the Company shall, if requested in writing,
furnish to and afford the Holders of the Warrant Shares covered by such
Registration Statement and their counsel, a reasonable opportunity to review
copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to be filed
(in each case at least three business days prior to such filing). The Company
shall not file any Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which the Holders must be afforded an
opportunity to review prior to the filing of such document under the immediately
preceding sentence, if the Holders of a majority of the Warrant Shares covered
by such Registration Statement or their counsel, shall object directly to the
Company in writing, which writing shall set forth a reasonable basis for such
objection.
(b) Prepare and file with the SEC such amendments and post-effective amend
ments to the Shelf Registration as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period, cause the related
Prospectus to be supplemented by any Prospectus supplement required by
applicable law, and as so sup plemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented;
the Company shall be deemed not to have used its best efforts to keep a
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in selling Holders of the Warrant
Shares covered thereby not being able to sell such Warrant Shares during that
period unless such action is required by applicable law or unless the Company
complies with this Agreement, including, without limitation, the provisions of
paragraph 3(j) hereof and the last paragraph of this Section 3.
(c) Notify the selling Holders of Warrant Shares and their counsel promptly
(but in any event within two business days), and confirm such notice in writing,
(i) when a Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act (including in such notice a written statement that any Holder
may, upon request, obtain, at the sole expense of the Company, one conformed
copy of such Registration Statement or post-effective amendment including
financial statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the SEC of any
stop order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose,
-5-
<PAGE> 8
(iii) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement, (iv) of the hap pening of any event, the existence of
any condition or any information becoming known that makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in or amendments or supplements to
such Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (v) of the determination by the Company that a
post-effective amendment to a Registration Statement would be appro priate.
(d) Use its best efforts to prevent the issuance of any order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of a Prospectus or suspending the qualification (or exemption
from qualification) of any of the Warrant Shares for sale in any jurisdiction,
and, if any such order is issued, to use its best efforts to obtain the
withdrawal of any such order at the earliest possible moment.
(e) Furnish to each selling Holder of Warrant Shares who so requests and to
such Holder's counsel, at the sole expense of the Company, one conformed copy of
the Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules, and, if
requested, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(f) Deliver to each selling Holder of Warrant Shares and such Holder's
counsel, at the sole expense of the Company, as many copies of the Prospectus or
Prospectuses (including each form of preliminary prospectus) and each amendment
or supplement thereto and any documents incorporated by reference therein as
such Persons may reasonably request; and, subject to the last paragraph of this
Section 3, the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders of Warrant
Shares, in connection with the offering and sale of the Warrant Shares covered
by such Prospectus and any amendment or supplement thereto.
(g) Prior to any public offering of Warrant Shares to use its best efforts
to register or qualify such Warrant Shares (and to cooperate with selling
Holders of Warrant Shares and their counsel in connection with the registration
or qualification (or exemption from such registration or qualification) of such
Warrant Shares) for offer and sale under
-6-
<PAGE> 9
the securities or Blue Sky laws of such jurisdictions within the United States
as any selling Holder, reasonably request in writing; provided, however, that
where Warrant Shares are offered other than through an underwritten offering,
the Company agrees to cause their counsel to perform Blue Sky investigations and
file registrations and qualifications required to be filed pursuant to this
Section 3(g); keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Warrant Shares covered by the applicable Registration Statement; provided,
however, that the Company shall not be required to (A) qualify generally to do
business in any jurisdiction where it is not then so qualified, (B) take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to taxation
in excess of a nominal dollar amount in any such jurisdiction where it is not
then so subject.
(h) Cooperate with the selling Holders of Warrant Shares, to facilitate the
timely preparation and delivery of certificates representing Warrant Shares to
be sold, which certificates shall not bear any restrictive legends and shall be
in a form eligible for deposit with The Depository Trust Company; and enable
such Warrant Shares to be in such denominations and registered in such names as
the Holders may reasonably request.
(i) Use its best efforts to cause the Warrant Shares covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Holders
thereof, to dispose of such Warrant Shares, except as may be required solely as
a consequence of the nature of a selling Holder's business, in which case the
Company will cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(j) Upon the occurrence of any event contemplated by paragraph 3(c)(v) or
3(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 3(a)
hereof) file with the SEC, at the sole expense of the Company, a supplement or
post-effective amend ment to the Registration Statement or a supplement to the
related Prospectus or any docu ment incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Warrant Shares being sold thereunder any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, that this Section 3(j) shall not be deemed to require
the Company to disclose any information that, in the good faith opinion of the
management of the Company, is not yet required to be disclosed and would not be
in the best interests of the Company to disclose, so long as the Company
complies with all applicable laws and government regulations and the last
paragraph of this Section 3.
-7-
<PAGE> 10
(k) Prior to the effective date of the first Registration Statement
relating to the Warrant Shares, provide a CUSIP number for the Warrant Shares.
(l) In connection with any underwritten offering initiated by the Company
of Warrant Shares pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings of securities similar to the
Warrant Certificates and take all such other actions as are reasonably requested
by the managing underwriter or underwriters in order to facilitate the
registration or the disposition of such Warrant Shares and, in such connection,
(i) make such representations and warranties to, and covenants with, the
underwriters with respect to the business of the Company and its respective
subsidiaries and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily made by Company to underwriters in underwritten offerings of
securities similar to the Warrant Certificates, and confirm the same in writing
if and when requested; (ii) obtain the written opinion of counsel to the Company
and written updates thereof in form, scope and substance reasonably satisfactory
to the managing underwriter or underwriters, addressed to the underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings of securities similar to the Warrant Certificates and such other
matters as may be reasonably requested by the managing underwriter or
underwriters; (iii) obtain "cold comfort" letters and updates thereof in form,
scope and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of any of the Company or of any business acquired by any of the
Company for which financial state ments and financial data are, or are required
to be, included or incorporated by reference in the Registration Statement),
addressed to each of the underwriters, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings of securities similar to the Warrant
Certificates and such other matters as reasonably requested by the managing
underwriter or underwriters; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 5 hereof (or such other provisions and
procedures acceptable to Holders of a majority of Warrant Shares covered by such
Registration Statement and the managing underwriter or underwriters or agents)
with respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
(m) Make available for inspection by any selling Holder of such Warrant
Shares being sold and any attorney, accountant or other agent retained by any
such selling Holder (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable busi ness hours, all financial and other
records, pertinent corporate documents and instruments of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably
-8-
<PAGE> 11
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Company
and its respective subsidiaries to make available for inspection all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records which the Company determines, in good faith, to be
confidential and any Records which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction, (iii)
disclosure of such information is, in the opinion of counsel (a copy of which
shall be delivered to the Company) for any Inspector, necessary or advisable in
connection with any action, claim, suit or proceeding, directly or indirectly,
involving or potentially involving such Inspector and arising out of, based
upon, relating to, or involving this Agreement, or any transactions contemplated
hereby or arising hereunder, or (iv) the information in such Records has been
made gener ally available to the public. Each selling Holder of Warrant Shares
will be required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the secu rities of the Company unless and
until such information is generally available to the public. Each selling Holder
of such Warrant Shares will be required to further agree that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company to undertake
appropriate action to prevent disclosure of the Records deemed confidential at
the Company's sole expense.
(n) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Warrant Shares are sold to underwriters in a firm commitment or
best efforts underwritten offering and (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(o) Cooperate with each seller of Warrant Shares covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Warrant Shares and their respective counsel in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD").
-9-
<PAGE> 12
(p) Use its best efforts to take all other steps necessary or advisable to
effect the registration of the Warrant Shares covered by a Registration
Statement contemplated hereby.
The Company may require each seller of Warrant Shares as to which any
Registration Statement is being effected to furnish to the Company such
information regarding such seller and the distribution of such Warrant Shares as
the Company may, from time to time, reasonably request. The Company may exclude
from such Registration Statement the Warrant Shares of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Warrant Shares agrees by acquisition of such Warrant Shares
that, upon actual receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(c)(ii), 3(c)(iv), 3(c)(v), or 3(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Warrant
Shares covered by such Registration Statement or Prospectus to be sold by such
Holder, until such Holder's receipt of the copies of the supple mented or
amended Prospectus contemplated by Section 3(j) hereof, or until it is advised
in writ ing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amendments or
supplements thereto. In the event the Company shall give any such notice, each
of the Effectiveness Period shall be extended by the number of days during such
periods from and including the date of the giving of such notice to and
including the date when each seller of Warrant Shares covered by such
Registration Statement shall have received (x) the copies of the supplemented or
amended Prospectus contemplated by Section 3(j) hereof or (y) the Advice. In the
event the Company does not give any such notice within five business days, each
Holder shall return such Registration Statement or Prospectus to the Company or
destroy all copies of such Registration Statement or Prospectus; and if so
requested by the Company, shall certify that all copies of the Registration
Statement or Prospectus were destroyed.
4. Registration Expenses. All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall be borne by the Company
whether or not the Shelf Registration is filed or becomes effective, including,
without limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings with the SEC, (B) fees with respect
to filings required to be made with the NASD in connection with an underwritten
offering and (C) fees and expenses of compliance with state securities or Blue
Sky laws (including, without limitation, reasonable fees and disbursements of
the Company's counsel in connection with Blue Sky qualifications of the Warrant
Shares and determination of the eligibility of the Warrant Shares for investment
under the laws of such jurisdictions where the holders of Warrant Shares are
located, (ii) printing expenses, including, without limitation, expenses of
printing certificates for Warrant Shares in a form eligible for deposit with The
Depository Trust
-10-
<PAGE> 13
Company and of printing Prospectuses if the printing of Prospectuses is
requested by Holders of a majority of the Warrant Shares or the managing
underwriter or underwriters, if any, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 3(m)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance by or incident to such performance), (vi) rating agency fees, if
any, (vii) Securities Act liability insurance, if the Company desires such
insurance, (viii) fees and expenses of all other Persons retained by the
Company, (ix) internal expenses of the Company (including, without limitation,
all salaries and expenses of officers and employees of the Company performing
legal or accounting duties), (x) the expense of any annual audit, (ix) the fees
and expenses incurred in connection with the listing of the securities to be
registered on any securities exchange or any inter-dealer quotation system, if
applicable, and (xii) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement.
5. Indemnification. (a) The Company agrees to indemnify and hold harmless
each Holder of Warrant Shares offered pursuant to a Shelf Registration
Statement, the affiliates, directors, officers, agents, representatives and
employees of each such Person or its affiliates, and each other Person, if any,
who controls any such Person or its affiliates within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a
"Participant") from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Warrant Shares is registered
(or any amendment thereto) or related Prospectus (or any amendments or
supplements thereto) or any related preliminary prospectus, or caused by,
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company will not be required to
indemnify a Participant if (i) such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished to
the Company in writing by or on behalf of such Participant expressly for use
therein or (ii) if such Participant sold to the person asserting the claim the
Warrant Shares which are the subject of such claim and such untrue statement or
omission or alleged untrue statement or omission was contained or made in any
pre liminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and the Prospectus does not contain any other untrue
statement or omission or alleged untrue statement or omission of a material fact
that was the subject matter of the related proceeding and such Participant
failed to deliver or provide a copy of the Prospectus (as amended or
supplemented) to such Person with or prior to the confirmation of the sale of
such Warrant Shares sold to such Person if required by applicable laws, unless
such failure to deliver or provide a copy of the
-11-
<PAGE> 14
Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 3 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company, its respective directors, officers, agents,
representatives, employees and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each Participant,
but only (i) with reference to information furnished to the Company in writing
by or on behalf of such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus or (ii) with respect to any untrue statement or representation made
by such Participant in writing to the Company.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person shall have the right to retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided, however,
that the failure to so notify the Indemnifying Person shall not relieve it of
any obligation or liability which it may have hereunder or otherwise (unless and
only to the extent that such failure results in the loss or compromise of any
material rights or defenses by the Indemnifying Person). In any such proceeding,
any Indemnified Person shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Person shall not, in connection with any
one such proceeding or separate but substantially similar related proceeding in
the same jurisdiction arising out of the same general allegations, be liable for
the reasonable fees and expenses of more than one separate firm (in addition to
any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of Warrant
Shares sold by all such Participants and any such separate firm for the Company,
its directors, their officers and such control Persons of the Company shall be
designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its prior written
consent, but if settled
-12-
<PAGE> 15
with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, the Indemnifying Person agrees to indemnify and hold
harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A) includes
an unconditional written release of such Indemnified Person, in form and
substance reasonably satisfactory to such Indemnified Person, from all liability
on claims that are the subject matter of such proceeding and (B) does not
include any statement as to an admis sion of fault, culpability or failure to
act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in Sections 5(a) and 5(b) hereof is
for any reason unavailable to, or insufficient to hold harmless, an Indemnified
Person in respect of any losses, claims, damages or liabilities referred to
therein, then each Indemnifying Person under such paragraphs, in lieu of
indemnifying such Indemnified Person thereunder and in order to provide for just
and equitable contribution, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Preferred
Stock or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purposes) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant
-13-
<PAGE> 16
from sales of Warrant Shares exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this Section 5
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
6. Rule 144. The Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner in accordance
with the requirements of the Securities Act and the Exchange Act and, if at any
time the Company is not required to file such reports, it will, upon the request
of any Holder of Warrant Shares, make publicly available annual reports and such
information, documents and other reports of the type specified in Sections 13
and 15(d) of the Exchange Act. The Company further covenants for so long as any
Warrant Shares remain outstanding, to make available to any Holder or beneficial
owner of Warrant Shares in connection with any sale thereof and any prospective
purchaser of such Warrant Shares from such Holder or beneficial owner the
information required by the Securities Act in order to permit resales of such
Warrant Shares pursuant to Rule 144.
7. Underwritten Registrations. If any of the Warrant Shares covered by any
Shelf Registration are to be sold in an underwritten offering, the investment
banker or investment bankers and manager or managers that will manage the
offering will be selected by the Holders of a majority of such Warrant Shares
included in such offering and reasonably acceptable to the Company.
No Holder of Warrant Shares may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Warrant Shares on the basis provided in any underwriting arrangements approved
by the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
8. Miscellaneous. (a) No Inconsistent Agreements. The Company has not
entered, as of the date hereof, and the Company shall not, after the date of
this Agreement, enter into any agreement with respect to any of its securities
that is inconsistent with the rights granted to the Holders of Warrant Shares in
this Agreement or otherwise conflicts with the provisions hereof. Other than as
provided in Schedule A attached hereto, the Company has not entered and none of
the Company will enter into any agreement with respect to any of its securities
which will grant to any Person piggy-back registration rights with respect to a
Registration Statement.
-14-
<PAGE> 17
(b) Adjustments Affecting Warrant Shares. The Company shall not, directly
or indirectly, take any action with respect to the Warrant Shares as a class
that would adversely affect the ability of the Holders of Warrant Shares to
include such Warrant Shares in a registration undertaken pursuant to this
Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Holders of not less than a majority of the then outstanding
Warrant Shares. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders of Warrant Shares whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect,
impair, limit or compromise the rights of other Holders of Warrant Shares may be
given by Holders of at least a majority of the Warrant Shares being sold by such
Holders pursuant to such Registration Statement; provided, however, that the
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, next-day air courier or facsimile:
1. if to a Holder of the Warrant Shares, at the most current address of
such Holder, set forth on the records of the registrar under the
Indenture, with a copy in like manner to the Initial Purchasers as
follows:
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Attention: Roger Hoit
with a copy to:
White & Case
1155 Avenue of the Americas
New York, NY 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell, Esq.
2. if to the Initial Purchasers, at the addresses specified in Section
10(d)(1);
-15-
<PAGE> 18
3. if to the Company, as follows:
Source Media, Inc.
5400 LBJ Freeway
Suite 680
Dallas, TX 75240
Attention: Maryann Walsh, Esq.
with a copy to:
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, TX 75201
Attention: Michael L. Bengtson, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign holds Registerable Preferred Stock.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
-16-
<PAGE> 19
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
-17-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed the Agreement as of the date
first written above.
Company:
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
---------------------------
Name: Michael G. Pate
Title: Chief Financial Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written:
NATWEST CAPITAL MARKETS LIMITED
By: /s/ NS GOULBECK
---------------------------
Name: NS Goulbeck
Title: Director
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ CHRISTOPHER J. BARBER
---------------------------
Name: Christopher J. Barber
Title: Managing Director
-1-
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
===========================================================
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
Dated as of October 30, 1997
by and among
SOURCE MEDIA, INC.
and
NATWEST CAPITAL MARKETS LIMITED
and
PRUDENTIAL SECURITIES INCORPORATED
as the Initial Purchasers
===========================================================
13.5% SENIOR PIK PREFERRED STOCK
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Additional Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8. Rules 144 and 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9. Underwritten Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Adjustments Affecting Transfer Restricted Preferred Stock . . . . . . . . . . . . . . . . . . . . . 26
(c) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(e) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(f) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(g) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(h) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(i) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(j) Preferred Stock Held by the Company or Their Affiliates . . . . . . . . . . . . . . . . . . . . . . 29
(k) Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
(i)
<PAGE> 3
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
This Preferred Stock Registration Rights Agreement (the
"Agreement") is dated as of October 30, 1997, by and among Source Media, Inc.,
a Delaware corporation (the "Company"), NatWest Capital Markets Limited and
Prudential Securities Incorporated (each an "Initial Purchaser" and
collectively the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement, dated October 23, 1997, among the Company and the Initial Purchasers
(the "Purchase Agreement"), which provides for the sale by the Company to the
Initial Purchasers of 800 units (the "Units") consisting of 1,000 shares of
13.5% Senior PIK Preferred Stock (the "Preferred Stock") with warrants to
purchase an aggregate of 447,000 shares of common stock of the Company. In
order to induce the Initial Purchasers to enter into the Purchase Agreement,
the Company has agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchasers and their direct and
indirect transferees. The execution and delivery of this Agreement is a
condition to the obligation of the Initial Purchasers to purchase the Preferred
Stock under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Dividends: Has the meaning provided in Section
4(a) hereof.
Advice: Has the meaning provided in the last paragraph of
Section 5 hereof.
Agreement: Has the meaning provided in the first introductory
paragraph hereto.
Applicable Period: Has the meaning provided in Section 2(b)
hereof.
Certificate of Designation: means the certificate of
designation governing the Preferred Stock and the Exchange Preferred Stock.
<PAGE> 4
Closing Date: Has the meaning provided in the Purchase
Agreement.
Company: Has the meaning provided in the first introductory
paragraph hereto.
Effectiveness Date: The 120th day after the Issue Date.
Effectiveness Period: Has the meaning provided in Section
3(a) hereof.
Event Date: Has the meaning provided in Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Offer: Has the meaning provided in Section 2(a)
hereof.
Exchange Preferred Stock: The shares of 13.5% Senior PIK
Preferred Stock of the Company that are identical to the Preferred Stock in all
material respects, except that the provisions regarding restrictions on
transfer shall be modified, as provided in the Certificate of Designation, and
the issuance thereof pursuant to the Exchange Offer shall have been registered
pursuant to an effective Registration Statement in compliance with the
Securities Act.
Exchange Registration Statement: Has the meaning provided in
Section 2(a) hereof.
Filing Date: The 45th day after the Issue Date.
Holder: Any holder of Transfer Restricted Preferred Stock.
Indemnified Person: Has the meaning provided in Section 7(c)
hereof.
Indemnifying Person: Has the meaning provided in Section 7(c)
hereof.
Initial Purchasers: Has the meaning provided in the first
introductory paragraph hereto.
Inspectors: Has the meaning provided in Section 5(o) hereof.
Issue Date: The date on which the original Preferred Stock
was sold to the Initial Purchasers pursuant to the Purchase Agreement.
-2-
<PAGE> 5
NASD: Has the meaning provided in Section 5(s) hereof.
Participant: Has the meaning provided in Section 7(a) hereof.
Participating Broker-Dealer: Has the meaning provided in
Section 2(b) hereof.
Paying Agent: ChaseMellon as Paying Agent for the Preferred
Stock.
Persons: An individual, trustee, corporation, partnership,
limited liability company, joint stock company, trust, unincorporated
association, union, business association, firm or other legal entity.
Preferred Stock: Has the meaning provided in the second
introductory paragraph hereto.
Private Exchange: Has the meaning provided in Section 2(b)
hereof.
Private Exchange Preferred Stock: Has the meaning provided in
Section 2(b) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, and all other amendments and
supplements to the Prospectus, with respect to the terms of the offering of any
portion of the Transfer Restricted Preferred Stock covered by such Registration
Statement including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: Has the meaning provided in the second
introductory paragraph hereto.
Records: Has the meaning provided in Section 5(o) hereof.
Registration Statement: Any registration statement of the
Company, including, but not limited to, the Exchange Registration Statement,
that covers any of the Transfer Restricted Preferred Stock pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement,
-3-
<PAGE> 6
including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144(k): Rule 144(k) promulgated under the Securities
Act, as such Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC as a replacement
thereto having substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than
Rule 144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: Has the meaning provided in Section 2(c)
hereof.
Shelf Registration: Has the meaning provided in Section 3(a)
hereof.
Shelf Registration Statement: shall mean a "shelf"
registration statement of the Company and the Guarantors which covers all of
the Transfer Restricted Preferred Stock on an appropriate form under Rule 415
under the 1933 Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
TIA: The Trust Indenture Act of 1939, as amended.
Transfer Restricted Preferred Stock: Each share of Preferred
Stock upon original issuance of the Preferred Stock and at all times subsequent
thereto, each share of Exchange Preferred Stock as to which Section 2(c)(v)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Preferred Stock upon original issuance thereof and at
all times subsequent thereto, until in the case of any such Preferred Stock,
Exchange Preferred Stock or Private Exchange
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<PAGE> 7
Preferred Stock, as the case may be, the earliest to occur of (i) a
Registration Statement (other than, with respect to any Exchange Preferred
Stock as to which Section 2(c)(v) hereof is applicable, the Exchange
Registration Statement) covering such Preferred Stock, Exchange Preferred Stock
or Private Exchange Preferred Stock, as the case may be, has been declared
effective by the SEC and such Preferred Stock, Exchange Preferred Stock or
Private Exchange Preferred Stock, as the case may be, has been disposed of in
accordance with such effective Registration Statement, (ii) such Preferred
Stock, Exchange Preferred Stock or Private Exchange Preferred Stock, as the
case may be, is, or may be, sold in compliance with Rule 144(k), or (iii) such
Preferred Stock, Exchange Preferred Stock or Private Exchange Preferred Stock,
as the case may be, ceases to be outstanding for purposes of the Certificate of
Designation.
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
(a) The Company agrees to file with the SEC no later than the
Filing Date an offer to exchange (the "Exchange Offer") any and all shares of
Preferred Stock (other than the Private Exchange Preferred Stock, if any) for a
like number of shares of Exchange Preferred Stock. The Exchange Offer shall be
registered under the Securities Act on the appropriate form (the "Exchange
Registration Statement") and shall comply with all applicable tender offer
rules and regulations under the Exchange Act and state securities or Blue Sky
Laws. The Company agrees to use its best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities Act no
later than the 120th day after the Issue Date; (y) keep the Exchange Offer open
for at least 30 business days (or longer if required by applicable law) after
the date that notice of the Exchange Offer is mailed to the Holders; and (z)
consummate the Exchange Offer on or prior to the 180th day following the Issue
Date. If after such Exchange Registration Statement is declared effective by
the SEC, the Exchange Offer or the issuance of the Exchange Preferred Stock
thereunder is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such Exchange
Registration Statement shall be deemed not to have become effective for
purposes of this Agreement until each stop order, injunction or other order or
requirement is no longer in effect. Each Holder who participates in the
Exchange Offer will be required to represent that any Exchange Preferred Stock
received by it will be acquired in the ordinary course of its business, that at
the time of the consummation of the Exchange Offer such Holder will have no
arrangement or understanding with any Person to participate in the distribution
of the Exchange Preferred Stock in violation of the provisions of the
Securities Act, and that such Holder in not an "affiliate" of the Company
within the meaning of the Securities Act.
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<PAGE> 8
Upon consummation of the Exchange Offer in accordance with this Section 2, the
Company shall have no further obligation to register Transfer Restricted
Preferred Stock (other than Private Exchange Preferred Stock and other than in
respect of any Exchange Preferred Stock as to which clause 2(c)(v) hereof
applies) pursuant to Section 3 hereof. No securities other than the Exchange
Preferred Stock shall be included in the Exchange Registration Statement.
(b) The Company shall include within the Prospectus contained
in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which shall
contain a summary statement of the positions taken or policies made by the
Staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Preferred Stock received by such broker-dealer in the
Exchange Offer (a "Participating Broker-Dealer"), whether such positions or
policies have been publicly disseminated by the Staff of the SEC or such
positions or policies, in the judgment of the Initial Purchasers, represent the
prevailing views of the Staff of the SEC. Such "Plan of Distribution" section
shall also expressly permit the use of the Prospectus by all Persons subject to
the prospectus delivery requirements of the Securities Act, including all
Participating Broker-Dealers, and include a statement describing the means by
which Participating Broker-Dealers may resell the Exchange Preferred Stock.
The Company shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange
Preferred Stock; provided, however, that such period shall not exceed 180 days
after the consummation of the Exchange Offer (or such longer period if extended
pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, either of the
Initial Purchasers holds any Preferred Stock acquired by it and having the
status of an unsold allotment in the initial distribution, the Company shall,
upon the request of the Initial Purchasers, simultaneously with the delivery of
the Exchange Preferred Stock in the Exchange Offer issue and deliver to the
Initial Purchasers in exchange (the "Private Exchange") for such Preferred
Stock held by the Initial Purchasers a like number of shares of Preferred Stock
of the Company, that is identical in all material respects to the Exchange
Preferred Stock (the "Private Exchange Preferred Stock") (and which is issued
pursuant to the same Certificate of Designation as the Exchange Preferred
Stock)
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<PAGE> 9
except for the placement of a restrictive legend on such Private Exchange
Preferred Stock. The Private Exchange Preferred Stock shall if permissible
bear the same CUSIP number as the Exchange Preferred Stock.
Dividends on the Exchange Preferred Stock and the Private
Exchange Preferred Stock will accumulate from the last dividend payment date on
which dividends were paid on the Preferred Stock surrendered in exchange
therefor or, if no dividends have been paid on the Preferred Stock, from the
Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming
part of the Exchange Registration Statement, together with an
appropriate letter of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of New
York;
(3) permit Holders to withdraw tendered Preferred Stock
at any time prior to the close of business, New York time, on the last
business day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Company shall:
(1) accept for exchange all Preferred Stock tendered and
not validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(2) deliver to the Trustee for cancellation all Preferred
Stock so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver
promptly to each Holder of Preferred Stock, Exchange Preferred Stock
or Private Exchange Preferred Stock, as the case may be, the number of
shares of the Preferred Stock of such Holder so accepted for exchange.
The Exchange Preferred Stock and the Private Exchange
Preferred Stock are to be issued under (i) the Certificate of Designation or
(ii) a Certificate of
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<PAGE> 10
Designation identical in all material respects to the Certificate of
Designation, which in either event shall provide that (1) the Exchange
Preferred Stock shall not be subject to the transfer restrictions set forth in
the Certificate of Designation and (2) the Private Exchange Preferred Stock
shall be subject to the transfer restrictions set forth in the Certificate of
Designation. The Certificate of Designation shall provide that the Exchange
Preferred Stock, the Private Exchange Preferred Stock and the Preferred Stock
shall vote and consent together on all matters as to which they have the right
to vote or consent as one class and that none of the Exchange Preferred Stock,
the Private Exchange Preferred Stock or the Preferred Stock will have the right
to vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently
prevailing interpretations of the Staff of the SEC, the Company is not
permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated within 180 days after the Issue Date, (iii) any holder of Private
Exchange Preferred Stock so requests at any time after the consummation of the
Private Exchange, or (iv) any Holder (other than the Initial Purchaser) is not
eligible to participate in the Exchange Offer, then the Company shall promptly
deliver written notice thereof (the "Shelf Notice") to the Trustee and, in the
case of clauses (i) and (ii) above, all Holders, in the case of clause (iii)
above, the Holders of the Private Exchange Preferred Stock and, in the case of
clause (iv) above, the affected Holder, and shall file a Shelf Registration
pursuant to Section 3 hereof, provided, however, that in the case of clause
(iii) above such Holders shall pay all reasonable registration expenses of the
Company as described in Section 6 hereof in connection with such Shelf
Registration.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) Shelf Registration. The Company shall as promptly as
reasonably practicable file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Transfer Restricted Preferred Stock (the "Shelf Registration"). If the
Company shall not have yet filed an Exchange Registration Statement, the
Company shall use its best efforts to file with the SEC the Shelf Registration
on or prior to the Filing Date. The Shelf Registration shall be on Form S-3 or
another appropriate form permitting registration of such Transfer Restricted
Preferred Stock for resale by Holders in the manner or manners designated by
them (including, without limitation, one or more underwritten offerings). The
Company shall not permit any securities other than the Transfer Restricted
Preferred Stock to be included in the Shelf Registration, except to the extent
that the Company
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<PAGE> 11
is unable to obtain waivers of registration rights from the persons listed on
Schedule A, which the Company shall use its best efforts to obtain.
The Company shall use its best efforts to cause the Shelf
Registration to be declared effective under the Securities Act by the 120th day
after the Preferred Stock Shelf Request and to keep the Shelf Registration
continuously effective under the Securities Act until the date which is two
years from the Issue Date, subject to extension pursuant to the last paragraph
of Section 5 hereof, or such shorter period ending when all shares of Transfer
Restricted Preferred Stock covered by the Shelf Registration have been sold in
the manner set forth and as contemplated in the Shelf Registration or such
Transfer Restricted Preferred Stock becomes eligible for resale without volume
restrictions pursuant to Rule 144 and or the Securities Act.
(b) Withdrawal of Stop Orders. If the Shelf Registration
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company shall use its best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall
promptly supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested for such purpose by the Holders of a majority of the shares of the
Transfer Restricted Preferred Stock covered by such Registration Statement or
by any underwriter of such Transfer Restricted Preferred Stock.
4. Additional Dividends
(a) The Company and the Initial Purchaser agree that the
Holders of Transfer Restricted Preferred Stock will suffer damages if the
Company fails to fulfill its obligations under Section 2 or Section 3 hereof
and that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, the Company agrees to pay, as liquidated damages and
as the sole and exclusive remedy therefor, additional dividends on the
Preferred Stock ("Additional Dividends") under the circumstances and to the
extent set forth below:
(i) if the Preferred Stock Exchange Offer Registration
Statement or Preferred Stock Shelf Registration Statement is not filed
within, in the case of the Preferred Stock Exchange Offer Registration
Statement, 45 days following the Preferred Stock Issue Date or, in the
case of the Preferred Stock Shelf
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<PAGE> 12
Registration Statement, within 45 days following a Preferred Stock
Shelf Request, Preferred Stock Additional Dividends shall accrue on
the Preferred Stock over and above the stated rate of 0.50% per annum
for the first 30 days commencing on the 46th day after the Preferred
Stock Issue Date or such Preferred Stock Shelf Request, respectively,
such Additional Dividends increasing by an additional 0.50% per annum
at the beginning of each subsequent 30-day period;
(ii) if the Preferred Stock Exchange Offer Registration
Statement or Preferred Stock Shelf Registration Statement is not
declared effective within, in the case of the Preferred Stock Exchange
Offer Registration Statement, 120 days following the Preferred Stock
Issue Date or, in the case of Preferred Stock Shelf Registration
Statement, 120 days following a Preferred Stock Shelf Request,
Additional Dividends shall accrue on the Preferred Stock over and
above the stated Additional Dividends at a rate of 0.50% per annum for
the first 30 days commencing on the 121st day after the Preferred
Stock Issue Date or such Preferred Stock Shelf Request, respectively,
such Additional Dividends increasing by an additional 0.50% per annum
at the beginning of each subsequent 30-day period; or
(iii) if (A) the Company has not exchanged all Preferred
Stock validly tendered in accordance with the terms of the Preferred
Stock Exchange Offer on or prior to 180 days after the Preferred Stock
Issue Date or (B) the Preferred Stock Exchange Offer Registration
Statement ceases to be effective at any time prior to the time that
the Preferred Stock Exchange Offer is consummated or (C) if
applicable, the Preferred Stock Shelf Registration Statement has been
declared effective and such Preferred Stock Shelf Registration
Statement ceases to be effective at any time prior to the second
anniversary of the Preferred Stock Issue Date (unless all the
Preferred Stock has been sold thereunder), then Additional Dividends
shall accrue on the Preferred Stock over and above the stated
Additional Dividends at a rate of 0.50% per annum for the first 30
days commencing on (x) the 181st day after the Preferred Stock Issue
Date with respect to the Preferred Stock validly tendered and not
exchanged by the Company, in the case of (A) above, or (y) the day the
Preferred Stock Exchange Offer Registration Statement ceases to be
effective or usable for its intended purpose in the case of (B) above,
or (z) the day such Preferred Stock Shelf Registration Statement
ceases to be effective in the case of (C) above, such Additional
Dividends increasing by an additional 0.50% per annum at the beginning
of each subsequent 30- day period.
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<PAGE> 13
provided, however, that the Additional Dividends on the Preferred Stock may not
exceed in the aggregate 2.0% per annum; and provided, further, that (1) upon
the filing of the Preferred Stock Exchange Offer Registration Statement or
Preferred Stock Shelf Registration Statement (in the case of clause (i) above),
(2) upon the effectiveness of the Preferred Stock Exchange Offer Registration
Statement or Preferred Stock Shelf Registration Statement (in the case of (ii)
above), or (3) upon the exchange of Exchange Preferred Stock for all Preferred
Stock tendered (in the case of clause (iii)(A) above), or upon the
effectiveness of the Preferred Stock Exchange Offer Registration Statement
which had ceased to remain effective (in the case of clause (iii)(B) above), or
upon the effectiveness of the Preferred Stock Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii)(C) above),
Additional Dividends on the Preferred Stock as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Company shall notify the Paying Agent within one
business day after each and every date on which an event occurs in respect of
which Additional Dividends are required to be paid (an "Event Date"). The
Company shall pay the Additional Dividends due on the Transfer Restricted
Preferred Stock by depositing with the Paying Agent (which shall not be the
Company for these purposes) for the Transfer Restricted Preferred Stock, in
trust, for the benefit of the holders thereof, prior to 11:00 A.M. on the next
dividend payment date specified by the Certificate of Designation (or such
other certificate of designation), sums or shares of the Preferred Stock, as
the case may be, sufficient to pay the Additional Dividends then due. Any
amounts of Additional Dividends due pursuant to clauses (a)(i), (a)(ii) or
(a)(iii) of this Section 4 will be payable to the Holders of affected Preferred
Stock in cash or shares of the Preferred Stock, as the case may be, quarterly
on each dividend payment date specified by the Certificate of Designation (or
such other certificate of designation) to the record holders entitled to
receive the dividend payment to be made on such date, commencing with the first
such date occurring after any such Additional Dividends commence to accrue.
The amount of Additional Dividends will be determined by multiplying the
applicable Additional Dividends rate by the liquidation preference of the
affected Transfer Restricted Preferred Stock of such Holders, multiplied by a
fraction, the numerator of which is the number of days such Additional
Dividends rate was applicable during such period (determined on the basis of a
360-day year comprised of twelve 30-day months and, in the case of a partial
month, the actual number of days elapsed), and the denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Company shall effect such
registration(s) to permit the sale
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<PAGE> 14
of the securities covered thereby in accordance with the intended method or
methods of disposition thereof, and pursuant thereto and in connection with any
Registration Statement filed by the Company hereunder, the Company shall:
(a) Prepare and file with the SEC prior to the Filing
Date a Registration Statement or Registration Statements as prescribed
by Sections 2 or 3 hereof, and use its best efforts to cause each such
Registration Statement to become effective and remain effective as
provided herein; provided, however, that, if (1) such filing is
pursuant to Section 3 hereof, or (2) a Prospectus contained in an
Exchange Registration Statement filed pursuant to Section 2 hereof is
required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Preferred Stock during the
Applicable Period, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company
shall, if requested in writing, furnish to and afford the Holders of
the Transfer Restricted Preferred Stock covered by such Registration
Statement or each such Participating Broker-Dealer, as the case may
be, their counsel and the managing underwriters, if any, a reasonable
opportunity to review copies of all such documents (including copies
of any documents to be incorporated by reference therein and all
exhibits thereto) proposed to be filed (in each case at least three
business days prior to such filing). The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must be afforded an
opportunity to review prior to the filing of such document under the
immediately preceding sentence, if the Holders of a majority in
aggregate principal amount of the Transfer Restricted Preferred Stock
covered by such Registration Statement, or any such Participating
Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall object directly to the Company in writing,
which writing shall set forth a reasonable basis for such objection.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange
Registration Statement, as the case may be, as may be necessary to
keep such Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period or until consummation of
the Exchange Offer, as the case may be; cause the related Prospectus
to be supplemented by any Prospectus supplement required by applicable
law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities
Act; and comply with the provisions of the Securities Act and the
Exchange Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement as so amended or in
such Prospectus as so supplemented and with
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<PAGE> 15
respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus; the
Company shall be deemed not to have used its best efforts to keep a
Registration Statement effective during the Applicable Period if it
voluntarily takes any action that would result in selling Holders of
the Transfer Restricted Preferred Stock covered thereby or
Participating Broker-Dealers seeking to sell Exchange Preferred Stock
not being able to sell such Transfer Restricted Preferred Stock or
such Exchange Preferred Stock during that period unless such action is
required by applicable law or unless the Company complies with this
Agreement, including, without limitation, the provisions of paragraph
5(k) hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Preferred Stock during the
Applicable Period, notify the selling Holders of Transfer Restricted
Preferred Stock, or each such Participating Broker-Dealer, as the case
may be, their counsel and the managing underwriters, if any, promptly
(but in any event within two business days), and confirm such notice
in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same
has become effective under the Securities Act (including in such
notice a written statement that any Holder may, upon request, obtain,
at the sole expense of the Company, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the
SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that
purpose, (iii) if at any time when a Prospectus is required by the
Securities Act to be delivered in connection with sales of the
Transfer Restricted Preferred Stock or resales of Exchange Preferred
Stock by Participating Broker-Dealers the representations and
warranties of the Company contained in any agreement (including any
underwriting agreement), contemplated by Section 5(n) hereof cease to
be true and correct, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Transfer Restricted Preferred Stock or the Exchange Preferred Stock to
be sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for
such purpose, (v) of the
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<PAGE> 16
happening of any event, the existence of any condition or any
information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in
or amendments or supplements to such Registration Statement,
Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and
(vi) of the determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate.
(d) Use its best efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any
of the Transfer Restricted Preferred Stock or the Exchange Preferred
Stock for sale in any jurisdiction, and, if any such order is issued,
to use its best efforts to obtain the withdrawal of any such order at
the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section
3 hereof and if requested by the managing underwriter or underwriters
(if any), or the Holders of a majority in aggregate principal amount
of the Transfer Restricted Preferred Stock being sold in connection
with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as
the managing underwriter or underwriters (if any), such Holders, or
counsel for any of them reasonably request to be included therein,
(ii) make all required filings of such prospectus supplement or such
post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment, and (iii)
supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Preferred Stock during the
Applicable Period, furnish to each selling Holder of Transfer
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<PAGE> 17
Restricted Preferred Stock and to each such Participating
Broker-Dealer who so requests and to counsel and each managing
underwriter, if any, at the sole expense of the Company, one conformed
copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to
be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Preferred Stock during the
Applicable Period, deliver to each selling Holder of Transfer
Restricted Preferred Stock, or each such Participating Broker-Dealer,
as the case may be, their respective counsel, and the underwriters, if
any, at the sole expense of the Company, as many copies of the
Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Transfer
Restricted Preferred Stock or each such Participating Broker-Dealer,
as the case-may be, and the underwriters or agents, if any, and
dealers (if any), in connection with the offering and sale of the
Transfer Restricted Preferred Stock covered by, or the sale by
Participating Broker-Dealers of the Exchange Preferred Stock pursuant
to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Transfer Restricted
Preferred Stock or any delivery of a Prospectus contained in the
Exchange Registration Statement by any Participating Broker-Dealer who
seeks to sell Exchange Preferred Stock during the Applicable Period,
to use its best efforts to register or qualify such Transfer
Restricted Preferred Stock (and to cooperate with selling Holders of
Transfer Restricted Preferred Stock or each such Participating
Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with
the registration or qualification (or exemption from such registration
or qualification) of such Transfer Restricted Preferred Stock) for
offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer, or the managing underwriter or
underwriters reasonably request in writing; provided, however, that
where Exchange Preferred Stock held by Participating Broker-Dealers or
Transfer Restricted Preferred
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<PAGE> 18
Stock are offered other than through an underwritten offering, the
Company agrees to cause their counsel to perform Blue Sky
investigations and file registrations and qualifications required to
be filed pursuant to this Section 5(h); keep each such registration or
qualification (or exemption therefrom) effective during the period
such Registration Statement is required to be kept effective and do
any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Exchange Preferred
Stock held by Participating Broker-Dealers or the Transfer Restricted
Preferred Stock covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to (A)
qualify generally to do business in any jurisdiction where it is not
then so qualified, (B) take any action that would subject it to
general service of process in any such jurisdiction where it is not
then so subject or (C) subject itself to taxation in excess of a
nominal dollar amount in any such jurisdiction where it is not then so
subject.
(i) If a Shelf Registration is filed pursuant to Section
3 hereof, cooperate with the selling Holders of Transfer Restricted
Preferred Stock and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Preferred Stock to be sold, which
certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depository Trust Company; and
enable such Transfer Restricted Preferred Stock to be in such
denominations and registered in such names as the managing underwriter
or underwriters, if any, or Holders may reasonably request.
(j) Use its best efforts to cause the Transfer Restricted
Preferred Stock covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities as
may be necessary to enable the Holders thereof or the underwriter or
underwriters, if any, to dispose of such Transfer Restricted Preferred
Stock, except as may be required solely as a consequence of the nature
of a selling Holder's business, in which case the Company will
cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Preferred Stock during the
Applicable Period, upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable
prepare and (subject to Section 5(a) hereof) file with the SEC, at the
sole expense of the
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<PAGE> 19
Company, a supplement or post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or
file any other required document so that, as thereafter delivered to
the purchasers of the Transfer Restricted Preferred Stock being sold
thereunder or to the purchasers of the Exchange Preferred Stock to
whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
provided, that this Section 5(k) shall not be deemed to require the
Company to disclose any information that, in the good faith opinion of
the management of the Company, is not yet required to be disclosed and
would not be in the best interests of the Company to disclose, so long
as the Company complies with all applicable laws and government
regulations and the last paragraph of this Section 5.
(l) Prior to the effective date of the first Registration
Statement relating to the Transfer Restricted Preferred Stock, provide
a CUSIP number for the Transfer Restricted Preferred Stock or Exchange
Preferred Stock, as the case may be.
(m) In connection with any underwritten offering
initiated by the Company of Transfer Restricted Preferred Stock
pursuant to a Shelf Registration, enter into an underwriting agreement
as is customary in underwritten offerings of securities similar to the
Preferred Stock and take all such other actions as are reasonably
requested by the managing underwriter or underwriters in order to
facilitate the registration or the disposition of such Transfer
Restricted Preferred Stock and, in such connection, (i) make such
representations and warranties to, and covenants with, the
underwriters with respect to the business of the Company and its
respective subsidiaries and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by Company to
underwriters in underwritten offerings of securities similar to the
Preferred Stock, and confirm the same in writing if and when
requested; (ii) obtain the written opinion of counsel to the Company
and written updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters, addressed to
the underwriters covering the matters customarily covered in opinions
requested in underwritten offerings of securities similar to the
Preferred Stock and such other matters as may be reasonably requested
by the managing underwriter or underwriters; (iii) obtain "cold
comfort" letters and updates thereof in form, scope and substance
reasonably
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<PAGE> 20
satisfactory to the managing underwriter or underwriters from the
independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any
subsidiary of any of the Company or of any business acquired by any of
the Company for which financial statements and financial data are, or
are required to be, included or incorporated by reference in the
Registration Statement), addressed to each of the underwriters, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings of securities similar to the Preferred Stock
and such other matters as reasonably requested by the managing
underwriter or underwriters; and (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 7 hereof
(or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Transfer Restricted
Preferred Stock covered by such Registration Statement and the
managing underwriter or underwriters or agents) with respect to all
parties to be indemnified pursuant to said Section. The above shall
be done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Preferred Stock during the
Applicable Period, make available for inspection by any selling Holder
of such Transfer Restricted Preferred Stock being sold, or each such
Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Transfer Restricted Preferred
Stock, if any, and any attorney, accountant or other agent retained by
any such selling Holder or each such Participating Broker-Dealer, as
the case may be, or underwriter (collectively, the "Inspectors"), at
the offices where normally kept, during reasonable business hours, all
financial and other records, pertinent corporate documents and
instruments of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise
any applicable due diligence responsibilities, and cause the officers,
directors and employees of the Company and its respective subsidiaries
to make available for inspection all information reasonably requested
by any such Inspector in connection with such Registration Statement.
Records which the Company determine, in good faith, to be confidential
and any Records which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records is necessary to avoid or correct a misstatement or
omission in such Registration Statement, (ii) the release of such
Records is ordered pursuant
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<PAGE> 21
to a subpoena or other order from a court of competent jurisdiction,
(iii) disclosure of such information is, in the opinion of counsel (a
copy of which shall be delivered to the Company) for any Inspector,
necessary or advisable in connection with any action, claim, suit or
proceeding, directly or indirectly, involving or potentially involving
such Inspector and arising out of, based upon, relating to, or
involving this Agreement, or any transactions contemplated hereby or
arising hereunder, or (iv) the information in such Records has been
made generally available to the public. Each selling Holder of such
Registrable Securities and each such Participating Broker-Dealer will
be required to agree that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the
Company unless and until such information is generally available to
the public. Each selling Holder of such Transfer Restricted Preferred
Stock and each such Participating Broker-Dealer will be required to
further agree that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company to undertake appropriate action to
prevent disclosure of the Records deemed confidential at the Company's
sole expense.
(o) Comply with all applicable rules and regulations of
the SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the
end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Transfer Restricted Preferred Stock are
sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(p) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Transfer Restricted Preferred Stock
by Holders to the Company (or to such other Person as directed by the
Company) in exchange for the Exchange Preferred Stock or the Private
Exchange Preferred Stock, as the case may be, the Company shall mark,
or cause to be marked, on such Transfer Restricted Preferred Stock
that such Transfer Restricted Preferred Stock is being cancelled in
exchange for the Exchange Preferred Stock or the Private Exchange
Preferred Stock, as the case may be; in no event shall such Transfer
Restricted Preferred Stock be marked as paid or otherwise satisfied.
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<PAGE> 22
(q) Cooperate with each seller of Transfer Restricted
Preferred Stock covered by any Registration Statement and each
underwriter, if any, participating in the disposition of such Transfer
Restricted Preferred Stock and their respective counsel in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD").
(r) Use its best efforts to take all other steps
necessary or advisable to effect the registration of the Transfer
Restricted Preferred Stock covered by a Registration Statement
contemplated hereby.
The Company may require each seller of Transfer Restricted
Preferred Stock as to which any Registration Statement is being effected to
furnish to the Company such information regarding such seller and the
distribution of such Transfer Restricted Preferred Stock as the Company may,
from time to time, reasonably request. The Company may exclude from such
Registration Statement the Transfer Restricted Preferred Stock of any seller
who unreasonably fails to furnish such information within a reasonable time
after receiving such request. Each seller as to which any Shelf Registration
is being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such seller not materially misleading.
Each Holder of Transfer Restricted Preferred Stock and each
Participating Broker-Dealer agrees by acquisition of such Transfer Restricted
Preferred Stock or Exchange Preferred Stock to be sold by such Participating
Broker-Dealer, as the case may be, that, upon actual receipt of any notice from
the Company of the happening of any event of the kind described in Section
5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith
discontinue disposition of such Transfer Restricted Preferred Stock or Exchange
Preferred Stock, as the case may be, covered by such Registration Statement or
Prospectus to be sold by such Holder or Participating Broker-Dealer, as the
case may be, until such Holder's or Participating Broker-Dealer's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(k) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any amendments or supplements thereto. In the event the Company shall
give any such notice, each of the Effectiveness Period and the Applicable
Period shall be extended by the number of days during such periods from and
including the date of the giving of such notice to and including the date when
each seller of Transfer Restricted Preferred Stock covered by such Registration
Statement or Exchange Preferred Stock to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice. In the event the Company does not give any such notice within five
business days, each
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<PAGE> 23
Holder shall return such Registration Statement or Prospectus to the Company or
destroy all copies of such Registration Statement or Prospectus; and if so
requested by the Company, shall certify that all copies of the Registration
Statement or Prospectus were destroyed.
6. Registration Expenses
(a) All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings with the SEC,
(B) fees with respect to filings required to be made with the NASD in
connection with an underwritten offering and (C) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of the Company's counsel in
connection with Blue Sky qualifications of the Transfer Restricted Preferred
Stock or Exchange Preferred Stock and determination of the eligibility of the
Transfer Restricted Preferred Stock or Exchange Preferred Stock for investment
under the laws of such jurisdictions (x) where the holders of Transfer
Restricted Preferred Stock are located, in the case of the Exchange Preferred
Stock, or (y) as provided in Section 5(h) hereof, in the case of Transfer
Restricted Preferred Stock or Exchange Preferred Stock to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Transfer Restricted Preferred Stock or Exchange Preferred Stock in a form
eligible for deposit with The Depository Trust Company and of printing
Prospectuses if the printing of Prospectuses is requested by the managing
underwriter or underwriters, if any, by the Holders of a majority in aggregate
principal amount of the Transfer Restricted Preferred Stock included in any
Registration Statement or sold by any Participating Broker-Dealer, as the case
may be, (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(n)(iii)
hereof (including, without limitation, the expenses of any special audit and
"cold comfort" letters required by or incident to such performance by or
incident to such performance), (vi) rating agency fees, if any, and any fees
associated with making the Transfer Restricted Preferred Stock or Exchange
Preferred Stock eligible for trading through The Depository Trust Company,
(vii) Securities Act liability insurance, if the Company desires such
insurance, (viii) fees and expenses of all other Persons retained by the
Company, (ix) internal expenses of the Company (including, without limitation,
all salaries and expenses of officers and employees of the Company performing
legal or accounting duties), (x) the expense of any annual audit, (ix) the fees
and expenses incurred in connection with the listing of the securities to be
registered on any securities
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<PAGE> 24
exchange or any inter-dealer quotation system, if applicable, and (xii) the
expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements, securities sales agreements,
indentures and any other documents necessary in order to comply with this
Agreement.
(b) The Company shall reimburse the Holders of the Transfer
Restricted Preferred Stock being registered in a Shelf Registration for the
reasonable fees and disbursements of not more than one counsel chosen in
writing by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Preferred Stock to be included in such Registration
Statement. In addition, the Company, shall reimburse the Initial Purchasers
for 50% (but not more than $10,000 or such other amount as may be mutually
agreed to by the Initial Purchasers and the Company) of the reasonable fees and
expenses of one counsel in connection with the Exchange Offer which shall be
White & Case, and shall not be required to pay any other legal expenses of the
Initial Purchaser in connection therewith.
7. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Holder of Transfer Restricted Preferred Stock offered
pursuant to a Shelf Registration Statement and each Participating Broker-Dealer
selling Exchange Preferred Stock during the Applicable Period, the affiliates,
directors, officers, agents, representatives and employees of each such Person
or its affiliates, and each other Person, if any, who controls any such Person
or its affiliates within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act (each, a "Participant") from and against any
and all losses, claims, damages and liabilities (including, without limitation,
the reasonable legal fees and other expenses actually incurred in connection
with any suit, action or proceeding or any claim asserted) caused by, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement pursuant to which the
offering of such Transfer Restricted Preferred Stock or Exchange Preferred
Stock, as the case may be, is registered (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related
preliminary prospectus, or caused by, arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be required to indemnify a Participant if (i) such
losses, claims, damages or liabilities are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Transfer Restricted Preferred Stock or
Exchange Preferred Stock which is the subject of such claim and such untrue
statement or omission or alleged untrue statement or omission was contained or
made in any
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<PAGE> 25
preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and the Prospectus does not contain any other untrue
statement or omission or alleged untrue statement or omission of a material
fact that was the subject matter of the related proceeding and such Participant
failed to deliver or provide a copy of the Prospectus (as amended or
supplemented) to such Person with or prior to the confirmation of the sale of
such Transfer Restricted Preferred Stock or Exchange Preferred Stock sold to
such Person if required by applicable laws, unless such failure to deliver or
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its respective directors, officers,
agents, representatives, employees and each Person who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each Participant, but only (i) with reference to information furnished to the
Company in writing by or on behalf of such Participant expressly for use in any
Registration Statement or Prospectus, any amendment or supplement thereto, or
any preliminary prospectus or (ii) with respect to any untrue statement or
representation made by such Participant in writing to the Company.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such Person (the
"Indemnified Person") shall promptly notify the Person against whom such
indemnity may be sought (the "Indemnifying Person") in writing, and the
Indemnifying Person shall have the right to retain counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified Person and
any others the Indemnifying Person may reasonably designate in such proceeding
and shall pay the reasonable fees and expenses actually incurred by such
counsel related to such proceeding; provided, however, that the failure to so
notify the Indemnifying Person shall not relieve it of any obligation or
liability which it may have hereunder or otherwise (unless and only to the
extent that such failure results in the loss or compromise of any material
rights or defenses by the Indemnifying Person). In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests
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<PAGE> 26
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Person shall not, in connection with any
one such proceeding or separate but substantially similar related proceeding in
the same jurisdiction arising out of the same general allegations, be liable
for the reasonable fees and expenses of more than one separate firm (in
addition to any local counsel) for all Indemnified Persons, and that all such
fees and expenses shall be reimbursed promptly as they are incurred. Any such
separate firm for the Participants and such control Persons of Participants
shall be designated in writing by Participants who sold a majority in interest
of Transfer Restricted Preferred Stock and Exchange Preferred Stock sold by all
such Participants and any such separate firm for the Company, its directors,
their officers and such control Persons of the Company shall be designated in
writing by the Company. The Indemnifying Person shall not be liable for any
settlement of any proceeding effected without its prior written consent, but if
settled with such consent or if there be a final non-appealable judgment for
the plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, the Indemnifying Person agrees to indemnify and
hold harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. No Indemnifying Person shall, without
the prior written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A)
includes an unconditional written release of such Indemnified Person, in form
and substance reasonably satisfactory to such Indemnified Person, from all
liability on claims that are the subject matter of such proceeding and (B) does
not include any statement as to an admission of fault, culpability or failure
to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in Sections 7(a) and
7(b) hereof is for any reason unavailable to, or insufficient to hold harmless,
an Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Preferred
Stock or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in
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<PAGE> 27
respect thereof). The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purposes) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, in no event
shall a Participant be required to contribute any amount in excess of the
amount by which proceeds received by such Participant from sales of Transfer
Restricted Preferred Stock or Exchange Preferred Stock, as the case may be,
exceeds the amount of any damages that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A. The Company covenants that it will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder in a
timely manner in accordance with the requirements of the Securities Act and the
Exchange Act and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Transfer Restricted
Preferred Stock, make publicly available annual reports and such information,
documents and other reports of the type specified in Sections 13 and 15(d) of
the Exchange Act. The Company further covenants for so long as any Transfer
Restricted Preferred Stock remain outstanding, to make available to any Holder
or beneficial owner of Transfer Restricted Preferred Stock in connection with
any sale
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<PAGE> 28
thereof and any prospective purchaser of such Transfer Restricted Preferred
Stock from such Holder or beneficial owner the information required by Rule
144(d)(4) under the Securities Act in order to permit resales of such Transfer
Restricted Preferred Stock pursuant to Rule 144A.
9. Underwritten Registrations. If any of the Transfer
Restricted Preferred Stock covered by any Shelf Registration are to be sold in
an underwritten offering, the investment banker or investment bankers and
manager or managers that will manage the offering will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Preferred Stock included in such offering and reasonably acceptable to the
Company.
No Holder of Transfer Restricted Preferred Stock may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Transfer Restricted Preferred Stock on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
10. Miscellaneous. (a) No Inconsistent Agreements. The
Company has not entered, as of the date hereof, and the Company shall not,
after the date of this Agreement, enter into any agreement with respect to any
of its securities that is inconsistent with the rights granted to the Holders
of Transfer Restricted Preferred Stock in this Agreement or otherwise conflicts
with the provisions hereof. Other than as provided in Schedule A attached
hereto, the Company has not entered and none of the Company will enter into any
agreement with respect to any of its securities which will grant to any Person
piggy-back registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Transfer Restricted Preferred
Stock. The Company shall not, directly or indirectly, take any action with
respect to the Transfer Restricted Preferred Stock as a class that would
adversely affect the ability of the Holders of Transfer Restricted Preferred
Stock to include such Transfer Restricted Preferred Stock in a registration
undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the Holders of not less than a majority in aggregate
principal amount of the then outstanding Transfer Restricted Preferred Stock.
Notwithstanding the foregoing, a
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<PAGE> 29
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Transfer Restricted
Preferred Stock whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect, impair, limit or
compromise the rights of other Holders of Transfer Restricted Preferred Stock
may be given by Holders of at least a majority in aggregate principal amount of
the Transfer Restricted Preferred Stock being sold by such Holders pursuant to
such Registration Statement; provided, however, that the provisions of this
sentence may not be amended, modified or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Transfer Restricted
Preferred Stock or any Participating Broker- Dealer, at the
most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of
the registrar under the Indenture, with a copy in like manner
to the Initial Purchaser as follows:
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Attention: Roger Hoit
with a copy to:
White & Case
1155 Avenue of the Americas
New York, NY 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell, Esq.
2. if to the Initial Purchaser, at the addresses\
specified in Section 10(d)(1);
3. if to the Company, as follows:
Source Media, Inc.
8140 Walnut Mill Lane
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<PAGE> 30
Suite 1000
Dallas, TX 75231
Attention: Maryann Walsh, Esq.
with a copy to:
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, TX 75201
Attention: Michael L. Bengtson, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one
business day after being timely delivered to a next-day air courier; and when
receipt is acknowledged by the addressee, if sent by facsimile.
(e) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties hereto; provided, however, that this Agreement shall not inure to the
benefit of or be binding upon a successor or assign of a Holder unless and to
the extent such successor or assign holds Registerable Preferred Stock.
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning thereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
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<PAGE> 31
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(j) Preferred Stock Held by the Company or Their Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registerable Preferred Stock is required hereunder, Registerable Preferred
Stock held by the Company or its affiliates (as such term is defined in Rule
405 under the Securities Act) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registerable
Preferred Stock and Participating Broker-Dealers are intended third party
beneficiaries of this Agreement and this Agreement may be enforced by such
Persons.
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<PAGE> 32
IN WITNESS WHEREOF, the parties have executed the Agreement as
of the date first written above.
Company:
SOURCE MEDIA, INC.
By: /s/ MICHAEL G. PATE
------------------------------
Name: Michael G. Pate
Title: Chief Financial Officer
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written:
NATWEST CAPITAL MARKETS LIMITED
By: /s/ N. COULBECK
----------------------------
Name: NB Coulbeck
Title: Director
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ CHRISTOPHER J. BARBER
----------------------------
Name: Christopher J. Barber
Title: Managing Director
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<PAGE> 33
SCHEDULE A
Piggy-Back Registration Rights
<PAGE> 34
SCHEDULE B
Adjustments Reflecting Transfer Restricted Preferred Stock
<PAGE> 1
EXHIBIT 10.3
EXECUTION COPY
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of October 30, 1997, made by the
grantors listed on the signature pages hereof (each individually a "Grantor"
and collectively the "Grantors"), in favor of U.S. Trust Company of Texas,
N.A., in its capacity as collateral agent (in such capacity, the "Collateral
Agent") for the ratable benefit of the Holders (the "Noteholders") of the 12%
Senior Secured Notes due 2004 (the "Notes") issued by Source Media, Inc., a
Delaware corporation (the "Company") under the Indenture dated as of October
30, 1997, between the Company and U.S. Trust Company of Texas, N.A., in its
capacity as trustee (the "Indenture").
W I T N E S S E T H :
WHEREAS, the Company, NatWest Capital Markets Limited and
Prudential Securities Incorporated (together, the "Initial Purchasers") have
entered into a Purchase Agreement dated October 23, 1997 (the "Purchase
Agreement"), pursuant to which, among other things, the Initial Purchasers have
agreed to purchase the Notes from the Company; and
WHEREAS, it is a condition precedent to the obligations of the
Initial Purchasers to purchase the Notes under the Purchase Agreement, that the
Grantors shall have executed and delivered this Security Agreement to the
Collateral Agent;
NOW, THEREFORE, in consideration of the premises and to induce
the Initial Purchasers to enter into the Purchase Agreement and to purchase the
Notes, the Grantors hereby agree with the Collateral Agent, as follows:
1. Defined Terms. Unless otherwise defined herein, terms
which are defined in the Indenture and used herein are so used as so defined,
and the meanings assigned to terms defined herein or in the Indenture shall be
equally applicable to both the singular and plural forms of such terms; the
following terms which are defined in the Uniform Commercial Code in effect in
the State of New York on the date hereof are used herein as so defined:
Accounts, Chattel Paper, Documents, Equipment, Farm Products, General
Intangibles, Instruments, Inventory and Proceeds; and the following terms shall
have the following meanings:
"Closing Date" means October 30, 1997.
"Code" means the Uniform Commercial Code as from time to time
in effect in the State of New York.
<PAGE> 2
"Collateral" shall have the meaning assigned to it in Section
2 of this Security Agreement.
"Computer Hardware and Software Collateral" means (a) all
computer and other electronic data processing hardware, integrated computer
systems, central processing units, memory units, display terminals, printers,
features, computer elements, card readers, tape drives, hard and soft disk
drives, cables, electrical supply hardware, generators, power equalizers,
accessories and all peripheral devices and other related computer hardware; (b)
all software programs (including both source code, object code and related
applications and data files), whether now owned, licensed or leased or
hereafter acquired by each Grantor, designed for use on the computers and
electronic data processing hardware described in clause (a) above; (c) all
firmware associated therewith; (d) all documentation (including flow charts,
logic diagrams, manuals, guides and specifications) with respect to such
hardware, software and firmware described in the preceding clauses (a) through
(c); and (e) all rights with respect to all of the foregoing, including,
without limitation, any and all copyrights, licenses, options, warranties,
service contracts, program services, test rights, maintenance rights, support
rights, improvement rights, renewal rights and indemnifications and any
substitutions, replacements, additions or model conversions of any of the
foregoing.
"Contracts" means the contracts entered into by each Grantor,
including, without limitation, (a) all rights of each Grantor to receive moneys
due and to become due to it thereunder or in connection therewith, (b) all
rights of each Grantor to damages arising out of, or for, breach or default in
respect thereof and (c) all rights of each Grantor to perform and exercise all
remedies thereunder.
"Copyright License" means any written agreement naming any
Grantor as licensor or licensee or granting any right under any Copyright,
including the agreements described in Schedule I hereto.
"Copyrights" means (a) all copyrights of any Grantor, whether
published or unpublished and whether now or hereafter in force throughout the
world, all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Copyright office referred to in Schedule
I hereto and (b) all renewals thereof.
"ICT Group" means any and all Subsidiaries of ICT including,
but not limited to, Cable Share (U.S.) Limited, Cable Share International,
Inc., and 1229501 Ontario, Inc.
"Obligations" shall mean the unpaid principal amount of, or
any premium applicable to, and interest on the Notes (including, without
limitation, interest accruing after the maturity of the Notes and interest
accruing after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to any Grantor,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) and all other obligations and
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<PAGE> 3
liabilities of any Grantor to the Holders 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 Notes, the Indenture or this Security Agreement (in each such case as
the same may be amended, supplemented or modified from time to time) and any
other document made, delivered or given in connection therewith or herewith,
whether on account of principal, premium, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel) or otherwise.
"Patent License" means any agreement providing for the grant
by or to any Grantor of any right under any patent or patent application, or
any Patent, and all license rights, immunities from suit and all other rights
and interests conferred by or to any Grantor with respect to patents, patent
applications, utility models and utility model applications under all licenses
and agreements, including but not limited to all licenses and agreements
between any 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.
"Patents" means any and all now or in the future issued or
registered, anywhere in the world, patents and utility models, and any and all
now or in the future filed, anywhere in the world, patent applications and
utility model applications, whose subject matter is now or hereafter conceived,
or reduced to practice, or which is now or hereafter owned, acquired or
controlled, by any Grantor under which such Grantor has the right to grant
licenses; and all divisions, continuations, and continuations-in-part of,
substitutions for and additions to any of the foregoing patent and utility
model applications directly or through one or more intervening applications,
and all reissues, reexaminations, renewals, and extensions of any such patents
and utility models, including, without limitation, any thereof referred to in
Schedule II hereto.
"Security" means any "security," as such term is defined in
Article 8 of the Code and, in any event, shall include, but not be limited to,
any obligation of an "issuer" (as such term is defined in Article 8 of the
Code), or a share, participation, or other interest in an issuer or in property
or an enterprise of an issuer: (a) which is represented by a Security
certificate in bearer or registered form, or the transfer of which may be
registered upon books maintained for that purpose by or on behalf of the
issuer; (b) which is one of a class or series or by its terms is divisible into
a class or series of shares, participations, interests, or obligations; and (c)
which (i) is, or is of a type, dealt in or traded on securities exchanges or
securities markets; or (ii) is a medium for investment and by its terms
expressly provides that it is a security governed by Article 8 of the Code.
"Security Agreement" means this Security Agreement, as
amended, supplemented or otherwise modified from time to time.
"Termination Date" means the date upon which the Grantors
under this Security Agreement, the Pledgors under the Pledge Agreement and the
Company under the Indenture have fulfilled all obligations under the Notes and
the aforementioned agreements.
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<PAGE> 4
"Trademark License" means any agreement providing for the
grant by or to any Grantor of any right to use any Trademark, including,
without limitation, any thereof referred to in Schedule III hereto.
"Trademarks" means (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers of any Grantor,
now existing anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, and the goodwill associated therewith, all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, any thereof referred to in Schedule
III hereto, and (b) all renewals thereof.
2. Grant of Security Interest. As collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, each Grantor hereby
grants to the Collateral Agent a security interest for the benefit of the
Holders in all of the following property now owned or at any time hereafter
acquired by such Grantor or in which such Grantor now has or at any time in the
future may acquire any right, title or interest (collectively, the
"Collateral"):
(i) all 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 Instruments;
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<PAGE> 5
(xiii) all Inventory;
(xiv) all Trademarks;
(xv) all Trademark Licenses; and
(xvi) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing.
3. Rights of the Collateral Agent; Limitations on the
Collateral Agent's Obligations.
(a) Grantors Remain Liable under Accounts and Contracts.
Anything herein to the contrary notwithstanding, each Grantor shall remain
liable under each of its 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 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 any 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, each Grantor shall notify
account debtors on its Accounts and parties to the Contracts that the Accounts
and each Contract have been assigned to the Collateral Agent for the benefit of
the Holders 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 each Grantor
shall furnish all such assistance and information as the Collateral Agent may
require in connection therewith. At any time and from time to time, upon the
Collateral Agent's request and at the expense of each
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<PAGE> 6
Grantor, each Grantor shall cause independent public accountants or others
satisfactory to the Collateral Agent to furnish to the Collateral Agent reports
showing reconciliations, aging and test verifications of, and trial balances
for, the 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 any Grantor, shall be
forthwith (and, in any event, within two Business Days) deposited by such
Grantor in the exact form received, duly indorsed by such Grantor to the
Collateral Agent if required, in a special collateral account maintained by the
Collateral Agent, and, until so turned over, shall be held by such Grantor in
trust for the Collateral Agent, segregated from other funds of such Grantor.
Each deposit of any such Proceeds shall be accompanied by a report identifying
in reasonable detail the nature and source of the payments included in the
deposit. All Proceeds constituting collections of 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 applicable Grantor or to whomsoever
may be lawfully entitled to receive the same. After the occurrence and during
the continuance of an Event of Default, at the Collateral Agent's request, the
Grantors shall deliver to the Collateral Agent all original and other documents
evidencing, and relating to, the agreements and transactions which gave rise to
the Accounts, including, without limitation, all original orders, invoices and
shipping receipts.
4. Representations and Warranties. Each Grantor hereby
represents and warrants that:
(a) Title; No Other Liens. Except for the Lien granted
to the Collateral Agent pursuant to this Security Agreement, such Grantor owns
each item of the Collateral free and clear of any and all Liens or claims of
others except as permitted by the Indenture. No security agreement, financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except as permitted by
the Indenture and such as may have been filed in favor of the Collateral Agent,
pursuant to this Security Agreement.
(b) Perfected First Priority Liens. The Liens granted
pursuant to this Security Agreement will constitute upon the completion of all
necessary filings or notices in proper public offices or the taking of any
necessary possessions or similar acts, perfected Liens on all Collateral, which
are, except as permitted by the Indenture, prior to all other Liens on such
Collateral created by such Grantor and in existence on the date hereof and
which are enforceable as such against all creditors of such Grantor.
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<PAGE> 7
(c) Accounts. The amount represented by such Grantor to
the Collateral Agent from time to time as owing by each account debtor or by
all account debtors in respect of the Accounts will at such time be the correct
amount actually owing by such account debtor or debtors thereunder. No amount
payable to such Grantor under or in connection with any Account is evidenced by
any Instrument or Chattel Paper which has not been delivered to the Collateral
Agent. The place where each Grantor keeps its records concerning the Accounts
is set forth on Schedule IV hereto.
(d) Consents. No consent of any party to any Contract is
required, or purports to be required, in connection with the execution,
delivery and performance of this Security Agreement.
(e) Bank Accounts. The bank accounts with the banks
listed on Schedule V hereto are the only bank or deposit accounts that such
Grantor 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. Each Grantor's chief
executive office and chief place of business is located at the offices listed
in Schedule VII.
(h) Farm Products. None of the Collateral constitutes,
or is the Proceeds of, Farm Products.
(i) Governmental Obligors. None of the obligors on any
Account is a Governmental Authority.
5. Covenants. Each Grantor covenants and agrees with the
Collateral Agent, from and after the date of this Security Agreement until the
Obligations are paid in full:
(a) Further Documentation; Pledge of Instruments and
Chattel Paper. At any time and from time to time, upon the written request of
the Collateral Agent, and at the sole expense of each Grantor, each Grantor
will promptly and duly execute and deliver such further instruments and
documents and take such further action as the Collateral Agent may reasonably
request for the purpose of obtaining or preserving the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, the filing of any financing or continuation statements
under the Uniform Commercial Code in effect in any such jurisdiction with
respect to the Liens created hereby. Each Grantor also hereby authorizes the
Collateral Agent to file any such financing or continuation statement without
the signature of such Grantor to the extent permitted by applicable law. A
carbon, photographic or other reproduction of this Security Agreement shall be
sufficient as a financing statement for filing in any jurisdiction. If any
amount payable under or in
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<PAGE> 8
connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent, to be held as Collateral pursuant to this
Security Agreement.
(b) Indemnification. Each Grantor agrees to pay, and to
save the Collateral Agent harmless from, any and all liabilities, costs and
expenses (including, without limitation, legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise, sales
or other taxes which may be payable or determined to be payable with respect to
any of the Collateral, (ii) with respect to, or resulting from, any delay in
complying with any requirement of law applicable to any of the Collateral or
(iii) in connection with any of the transactions contemplated by this Security
Agreement. In any suit, proceeding or action brought by the Collateral Agent
under any Account or Contract for any sum owing thereunder, or to enforce any
provisions of any Account or Contract, each Grantor will save, indemnify and
keep the Collateral Agent harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction or liability whatsoever of the account debtor or obligor thereunder,
arising out of a breach by such Grantor of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing to or
in favor of such account debtor or obligor or its successors from such Grantor.
(c) Maintenance of Records. Each Grantor will keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments received
and all credits granted with respect to the Accounts. For the Collateral
Agent's further security, the Collateral Agent shall have a security interest
in all of each Grantor's books and records pertaining to the Collateral, and
each Grantor shall turn over any such books and records for inspection at the
office of such Grantor to the Collateral Agent or to its representatives during
normal business hours at the request of the Collateral Agent.
(d) Limitation on Liens on Collateral. Each Grantor (x)
will not create, incur or permit to exist, will defend the Collateral against,
and will take such other action as is necessary to remove, any Lien or claim on
or to the Collateral, other than the Liens created hereby and other than as
permitted pursuant to the Indenture, and (y) will defend the right, title and
interest of the Collateral Agent in and to any of the Collateral against the
claims and demands of all Persons whomsoever.
(e) Limitations on Dispositions of Collateral. Each
Grantor will not sell, transfer, lease or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so except 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 Indenture.
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<PAGE> 9
(f) Limitations on Modifications, Waivers, Extensions of
Contracts and Agreements Giving Rise to Accounts. Each 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 each Grantor over a period of time, each 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 such Grantor.
(h) Further Identification of Collateral. Each 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. Each Grantor will advise the Collateral
Agent promptly, in reasonable detail of, (i) any Lien (other than Liens created
hereby or permitted under the Indenture) on, or claim asserted against, any of
the Collateral, (ii) the opening by such Grantor of any bank or deposit account
after the Closing Date, (iii) any Account arising after the Closing Date with
respect to which the obligor thereon is a Governmental Authority and (iv) the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on the aggregate value of the Collateral or on the
Liens created hereunder.
(j) Changes in Locations, Name, etc. Each Grantor will
not (i) change the location of its chief executive office/chief place of
business from that specified in Section 4(g) or remove its books and records
from the location specified in Section 4(c), (ii) permit any of the Inventory
or Equipment to be kept at a location other than that specified in Section 4(f)
or (iii) change its name, identity or corporate structure to such an extent
that any financing statement filed by the Collateral Agent in connection with
this Agreement would become misleading, unless it shall have given the
Collateral Agent at least 30 days' prior written notice thereof.
(k) Copyrights. (i) Each Grantor (either itself or
through licensees) will (a) employ each Copyright with appropriate copyright
notice consistent with its past practice and (b)
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<PAGE> 10
not knowingly (and not permit any licensee or sublicensee thereof knowingly to)
do any act or knowingly omit to do any act whereby any Copyright or any portion
of the Copyright may become invalidated.
(ii) Each Grantor will not (either itself or through
licensees) knowingly do any act, or omit to do any act, whereby any Copyright
or any portion of the Copyrights may become injected into the public domain.
(iii) Each Grantor shall notify the Collateral Agent
immediately if it knows, or has reason to know, that any Copyright or any
portion of the Copyrights may become injected into the public domain or of any
adverse determination (including, without limitation, the institution of, or
any such determination or development in, any court or tribunal in the United
States or any other country) regarding such Grantor's ownership of any
Copyright or any portion of the Copyrights.
(iv) Each Grantor will, with respect to any Copyright that
such Grantor registers after the Closing Date or any Copyright License that
such Grantor knowingly acquires after the Closing Date, promptly (i) take all
actions necessary so that the Collateral Agent shall obtain a perfected
security interest in such Copyright or Copyright License and (ii) provide to
the Collateral Agent a revised Schedule I hereto listing all registered
Copyright and all Copyright Licenses owned by such Grantor.
(v) On each December 31 of each year following the Closing
Date (or, if the Collateral Agent so requests in writing, more often), each
Grantor either itself or through any agent, employee, licensee or designee,
shall provide to the Collateral Agent a document confirming the Collateral
Agent's security interest in all Copyrights and Copyright Licenses acquired by
such Grantor during the preceding calendar year. Upon request of the
Collateral Agent, each 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 each Grantor hereby constitutes the
Collateral Agent its attorney-in-fact to file all such writings for the
foregoing purposes, all lawful acts of such attorney being hereby ratified and
confirmed; such power being coupled with an interest is irrevocable until the
Obligations are paid in full.
(vi) Each Grantor will take all reasonable and necessary
steps as it shall deem appropriate under the circumstances, to maintain and
pursue each application (and to obtain the relevant registration) and to
maintain each registration of each Copyright owned by such Grantor including,
without limitation, filing of applications for renewal, where necessary.
(vii) Each Grantor will promptly notify the Collateral Agent
of any infringement of any Copyright or any portion of the Copyrights of which
it becomes aware and will take all appropriate steps to stop the infringement
as are reasonably mutually agreed upon by such Grantor and the Collateral
Agent.
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(viii) Each Grantor will deliver to the Collateral Agent on
the Closing Date an assignment of security interest in United States Copyrights
substantially in the form of Annex C hereto.
(l) Trademarks. (i) Each Grantor (either itself or
through licensees) will, with respect to each Trademark, (i) continue to use
such Trademark to the extent necessary to maintain such Trademark in full force
free from any claim of abandonment for non-use, if consistent with its overall
business plan or if to do otherwise would be an unsound commercial and business
judgment, (ii) maintain as in the past the quality of products and services
offered under such Trademark, (iii) employ such Trademark with the appropriate
notice of registration, (iv) not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby any Trademark
may become invalidated other than solely (x) through the discontinuance of the
sale of goods or the provision of services or (y) the abandonment of a
Trademark where, in each such case covered by (x) and (y) above, the Collateral
Agent shall have received not less than fifteen (15) days' prior written notice
of any such discontinuance or abandonment and such Grantor shall have acted in
a manner consistent with its overall business plan and the exercise of sound
commercial and business judgment. Nothing in this Security Agreement shall
restrict such Grantor from adding new goods and services to its business or,
upon not less than fifteen (15) days' prior written notice to the Collateral
Agent and in a manner consistent with such Grantor's overall business plan and
the exercise of sound commercial and business judgment, discontinuing the
provision of goods or services and thereby abandoning any Trademark relating
thereto.
(ii) Each Grantor will notify the Collateral Agent
immediately if it knows, or has reason to know, that any application or
registration relating to any Trademark may become abandoned, or of any adverse
determination or development (including, without limitation, the institution
of, or any such determination or development in, any proceeding in the United
States Patent and Trademark Office or any court or tribunal in any country)
regarding such Grantor's ownership of any Trademark or its right to register
the same or to keep and maintain the same.
(iii) Each Grantor will, with respect to any Trademark that
such Grantor registers after the Closing Date or any Trademark License that
such Grantor acquires after the Closing Date, promptly (i) take all actions
necessary so that the Collateral Agent shall obtain a perfected security
interest in such Trademark or Trademark License and (ii) provide to the
Collateral Agent a revised Schedule III hereto listing all registered
Trademarks and all Trademark Licenses owned by such Grantor.
(iv) On each December 31 of each year following the Closing
Date (or, if the Collateral Agent so requests in writing, more often), each
Grantor either itself or through any agent, employee, licensee or designee,
shall provide to the Collateral Agent, a document confirming the Collateral
Agent's security interest in any Trademark with respect to which such Grantor
has filed an application for registration during the preceding calendar year.
Upon request of the Collateral
-11-
<PAGE> 12
Agent, each 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 such Grantor relating thereto or
represented thereby, and each Grantor hereby constitutes the Collateral Agent
its attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations are
paid in full.
(v) Each Grantor will take all reasonable and necessary
steps, including, without limitation, in any proceeding before the United
States Patent and Trademark office, or any similar office or agency in any
other country or any political subdivision thereof, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain each
registration of the Trademarks, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of incontestability.
Notwithstanding the foregoing, each Grantor may decline to maintain and pursue
each of its applications and decline to maintain each of its registrations as
aforesaid upon not less than fifteen (15) days' prior written notice to the
Collateral Agent and if to so decline is consistent with such Grantor's overall
business plan and is an exercise of sound commercial and business judgment.
(vi) In the event that any Trademark included in the
Collateral is infringed, misappropriated or diluted by a third party, each
Grantor shall promptly notify the Collateral Agent after it learns thereof and
shall promptly take all appropriate steps to stop the infringement as are
reasonably mutually agreed upon by such Grantor and the Collateral Agent.
(vii) Each Grantor will deliver to the Collateral Agent on
the Closing Date an assignment of security interest in United States Trademarks
substantially in the form of Annex A hereto.
(m) Patents. (i) Each Grantor will notify the
Collateral Agent immediately if it knows, or has reason to know, that any
application relating to any Patent may become abandoned or of any adverse
determination or development (including, without limitation, the institution
of, or any such determination or development in, any proceeding in the United
States Patent and Trademark Office or any court or tribunal in any country)
regarding such Grantor's ownership of any Patent.
(ii) Each Grantor will, with respect to any Patent that
such Grantor obtains after the Closing Date or any Patent License that such
Grantor acquires after the Closing Date, promptly (i) take all actions
necessary so that the Collateral Agent shall obtain a perfected security
interest in such Patent or Patent License and (ii) provide to the Collateral
Agent a revised Schedule II hereto listing all Patents and all Patent Licenses
owned by such Grantor.
-12-
<PAGE> 13
(iii) On each December 31 of each year following the
Closing Date (or, if the Collateral Agent so requests in writing, more often),
each Grantor either itself or through any agent, employee, licensee or
designee, shall provide to the Collateral Agent, a document confirming the
Collateral Agent's security interest in any Patent or Patent License which such
Grantor has obtained during the preceding calendar year. Upon request of the
Collateral Agent, each 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 each Grantor hereby constitutes the Collateral Agent its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations are
paid in full.
(iv) Each Grantor will take all reasonable and necessary
steps, including, without limitation, in any proceeding before the United
States Patent and Trademark Office, or any similar office or agency in any
other country or any political subdivision thereof, to maintain and pursue each
patent or application for patent and to maintain each Patent, including,
without limitation, payment of maintenance fees. Notwithstanding the
foregoing, each Grantor may decline to maintain and pursue each of its patents
and applications for patents and decline to maintain each Patent as aforesaid
upon not less than fifteen (15) days' prior written notice to the Collateral
Agent and if to so decline is consistent with such Grantor's overall business
plan and is an exercise of sound commercial and business judgment.
(v) In the event that any Patent included in the
Collateral is infringed by a third party, each Grantor shall promptly notify
the Collateral Agent after it learns thereof and shall promptly take all
appropriate steps to stop the infringement as are reasonably mutually agreed
upon by such Grantor and the Collateral Agent.
(vi) Each Grantor will deliver to the Collateral Agent on
the Closing Date an assignment of security interest in United States Patents
substantially in the form of Annex B hereto.
(n) Patent Licenses. Each Grantor shall comply with its
obligations under each of its license agreements relating to each Patent.
6. Collateral Agent's Appointment as Attorney-in-Fact.
(a) Powers. Each Grantor hereby irrevocably constitutes and
appoints the Collateral Agent and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, from time to time (in the Collateral Agent's
discretion) for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement, and, without limiting the generality of
the foregoing, each Grantor hereby gives the Collateral Agent the power and
right, on
-13-
<PAGE> 14
behalf of such Grantor, without notice to or assent by such Grantor, except any
notice required by law referred to in Section 9 hereof, to do the following:
(i) at any time when any Event of Default shall have
occurred and is continuing, in the name of such Grantor or its own
name, or otherwise, 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 Security Agreement and to
pay all or any part of the premiums therefor and the costs thereof;
and
(iii) upon the occurrence and during the continuance of any
Event of Default, (A) to direct any party liable for any payment under
any of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Collateral Agent or as the
Collateral Agent shall direct; (B) to ask for or demand, collect,
receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or
arising out of any Collateral; (C) to sign and indorse any invoices,
freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (D) to
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect of
any Collateral; (E) to defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (F) to settle,
compromise or adjust any suit, action or proceeding described in
clause (E) above and, in connection therewith, to give such discharges
or releases as the Collateral Agent may deem appropriate; (G) to
assign any Copyright or Trademark (along with the goodwill of the
business to which any such Copyright or Trademark pertains),
throughout the world for such term or terms, on such conditions, and
in such manner, as the Collateral Agent shall in its sole discretion
determine; and (H) generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though the Collateral Agent were the
absolute owner thereof for all purposes, and to do, at the Collateral
Agent's option and such Grantor's expense, at any time, or from time
to time, all acts and things which the Collateral Agent deems
necessary to protect, preserve or realize upon the Collateral and the
Collateral Agent's Liens thereon and to effect the intent of this
Security Agreement, all as fully and effectively as the Grantor might
do.
-14-
<PAGE> 15
Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until the Obligations are paid in full.
(b) Other Powers. Each Grantor also authorizes the
Collateral Agent, at any time and from time to time, to execute, in connection
with the sale provided for in Section 9 hereof, any endorsements, assignments
or other instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on Collateral Agent's Part. The powers
conferred on the Collateral Agent hereunder are solely to protect the
Collateral Agent's interests in the Collateral and shall not impose any duty
upon the Collateral Agent to exercise any such powers. The Collateral Agent
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to such Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7. Performance by Collateral Agent of Each Grantor's
Obligations. If any Grantor fails to perform or comply with any of its
agreements contained herein and the Collateral Agent, as provided for by the
terms of this Security Agreement, shall itself perform or comply, or otherwise
cause performance or compliance, with such agreement, the expenses of the
Collateral Agent incurred in connection with such performance or compliance,
together with interest thereon at a rate per annum specified in the Indenture,
shall be payable by such Grantor to the Collateral Agent on demand and shall
constitute Obligations secured hereby.
8. Proceeds. In addition to the rights of the Collateral
Agent specified in Section 3(d) with respect to payments of Accounts, it is
agreed that if an Event of Default shall occur and be continuing (a) all
Proceeds received by each Grantor consisting of cash, checks and other
instruments shall be held by such Grantor in trust for the Collateral Agent,
segregated from other funds of such Grantor, and shall, forthwith upon receipt
by such Grantor, be turned over to the Collateral Agent in the exact form
received by such Grantor (duly indorsed by such Grantor to the Collateral
Agent, if required), and (b) any and all such Proceeds received by the
Collateral Agent (whether from such Grantor or otherwise) may, in the sole
discretion of the Collateral Agent, be held by the Collateral Agent as
collateral security for, and/or then or at any time thereafter may be applied
by the Collateral Agent against, the Obligations (whether matured or
unmatured), such application to be in such order as the Collateral Agent shall
elect. Any balance of such Proceeds remaining after the Obligations shall have
been paid in full shall be paid over to such Grantor or to whomsoever may be
lawfully entitled to receive the same.
9. Remedies. If an Event of Default shall occur and be
continuing, the Collateral Agent may exercise, in addition to all other rights
and remedies granted to it in this Security Agreement and in any other
instrument or agreement securing, evidencing or relating to the
-15-
<PAGE> 16
Obligations, all rights and remedies of a secured party under the Code.
Without limiting the generality of the foregoing, the Collateral Agent, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon any Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are, to the extent permitted by applicable law,
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do
any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Collateral Agent or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Collateral Agent shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in such Grantor,
which right or equity is hereby waived, to the extent permitted by applicable
law, or released. Each Grantor further agrees, at the Collateral Agent's
request, to assemble the Collateral and make it available to the Collateral
Agent at places which the Collateral Agent shall reasonably select, whether at
such Grantor's premises or elsewhere. The Collateral Agent shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all costs and expenses of every kind incurred therein
or incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Collateral Agent hereunder,
including, without limitation, reasonable attorneys' fees and disbursements, to
the payment in whole or in part of the Obligations, in such order as the
Collateral Agent may elect, and only after such application and after the
payment by the Collateral Agent of any other amount required by any provision
of law, including, without limitation, Section 9-504(1)(c) of the Code, need
the Collateral Agent account for the surplus, if any, to such Grantor. To the
extent permitted by applicable law, such Grantor waives all claims, damages and
demands it may acquire against the Collateral Agent arising out of the exercise
by them of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition. Each Grantor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Collateral Agent to collect such deficiency.
In furtherance, but not in limitation of, the foregoing, if an
Event of Default shall occur and be continuing, each Grantor shall assign,
license, or sublicense, as requested by Collateral Agent, any or all of the
Patent Licenses to the Collateral Agent.
10. Limitation on Duties Regarding Preservation of
Collateral. The Collateral Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession,
under Section 9-207 of the Code or otherwise, shall be to deal with it in the
same manner as the Collateral Agent deals with similar property for its own
account. Neither the
-16-
<PAGE> 17
Collateral Agent, nor any of its directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of any Grantor or
otherwise.
11. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest until the Obligations are indefeasibly paid in
full.
12. Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in this
Security Agreement are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.
14. No Waiver; Cumulative Remedies. The Collateral Agent
shall not by any act (except by a written instrument pursuant to Section 15
hereof), delay, indulgence, omission or otherwise be deemed to have waived any
right or remedy hereunder or to have acquiesced in any Default or Event of
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Collateral Agent,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Collateral Agent of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Collateral Agent would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
15. Waivers and Amendments; Successors and Assigns. None
of the terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
each Grantor and the Collateral Agent, provided that any provision of this
Security Agreement may be waived by the Collateral Agent in a written letter or
agreement executed by the Collateral Agent or by facsimile transmission from
the Collateral Agent. This Security Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of the
Collateral Agent, the Holders and their respective successors and assigns.
-17-
<PAGE> 18
16. Termination of Security Interest; Release of
Collateral. (a) Upon the repayment in full of all Obligations, the security
interest granted in the Collateral pursuant to this Security Agreement shall
terminate and all rights to the Collateral shall revert to the Grantors.
(b) Upon any such termination of the security interest
granted in the Collateral pursuant to this Security Agreement or release of
Collateral pursuant to this Section, the Collateral Agent will, at the expense
of each Grantor, execute and deliver to each Grantor such documents as such
Grantor shall reasonably request to evidence the termination of such security
interest and deliver to such Grantor all Collateral so released then in its
possession.
17. Notices. All notices or other communications
provided for hereunder shall be in writing and sent by first class mail or
nationwide overnight delivery service, (i) if to a Grantor, addressed to it at
its chief executive office listed in Schedule VII, or at such other address as
such Grantor shall have specified to the Collateral Agent, and (ii) if to the
Collateral Agent, addressed to it at 2001 Ross Avenue, Suite 2700, Dallas, TX
75201.
18. Grant of Access to Trademark, Trademark License,
Copyright, Copyright License, Patent or Patent License or Collateral. For the
purposes of enabling the Collateral Agent to exercise rights and remedies under
Sections 6 and 9 hereof at such time as the Collateral Agent shall be lawfully
entitled to exercise such rights and remedies, each Grantor hereby grants to
the Collateral Agent during the continuance of an Event of Default access to
all media in which any Trademark, Copyright, Patent, Trademark License,
Copyright License or Patent License may be recorded or stored and to all
computer and automatic machinery software and programs used for the compilation
or printout thereof to the extent that such Grantor may lawfully do so.
19. Integration. This Security Agreement represents the
agreement of each Grantor and the Collateral Agent with respect to the subject
matter hereof, and there are no promises, undertakings, representations or
warranties by the Collateral Agent relative to subject matter hereof not
expressly set forth or referred to herein or in the other Notes and Units
Purchase Documents.
20. GOVERNING LAW. THIS SECURITY AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF EACH GRANTOR UNDER THIS 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.
-18-
<PAGE> 19
IN WITNESS WHEREOF, each Grantor has caused this Security
Agreement to be duly executed and delivered as of the date first above written.
GRANTORS: SOURCE MEDIA, INC.
By /s/ MICHAEL G. PATE
-------------------------------
Name: Michael G. Pate
Title: Chief Financial Officer
SMI HOLDINGS, INC.
By /s/ MICHAEL G. PATE
-------------------------------
Name: Michael G. Pate
Title: Chief Financial Officer
IT NETWORK, INC.
By /s/ MARYANN WALSH
-------------------------------
Name: Maryann Walsh
Title: Vice President
INTERACTIVE CHANNEL, INC.
By /s/ MARYANN WALSH
-------------------------------
Name: Maryann Walsh
Title: Vice President
-19-
<PAGE> 20
CABLESHARE (U.S.) LIMITED
By /s/ MICHAEL G. PATE
-------------------------------
Name: Michael G. Pate
Title: Director
Accepted and Agreed:
U.S. TRUST COMPANY OF TEXAS, N.A.
as Collateral Agent
By /s/ BILL BARBER
---------------------------------
Name: Bill Barber
Title: Vice President
-20-
<PAGE> 21
SCHEDULE I
Copyrights and Copyright Licenses
Source Media, Inc.
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.
SMI Holdings, Inc.
None
IT Network, Inc.
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.
Interactive Channel, Inc.
Cableshare (U.S.) Limited
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> 22
SCHEDULE II
Patents and Patent Licenses
<TABLE>
<CAPTION>
U.S. Patent No. Description Expiration
--------------- ----------- ----------
<S> <C>
Source Media, Inc. 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.
SMI Holdings, Inc. None
IT Network, Inc. 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.
</TABLE>
<PAGE> 23
SCHEDULE II
Page 2
<TABLE>
<CAPTION>
U.S. Patent No. Description Expiration
--------------- ----------- ----------
<S> <C> <C> <C>
Second Amendment to Development and
Licensing Agreement, dated March 17, 1997.
Interactive Channel, Inc. US 4,792,849 Digital interactive communication system August 2007
US 4,829,372 Presentation player to serve users within a August 2007
digital interactive communication system
US 4,860,123 Video/audio presentation of still-frame October 2007
images for electronic store
US 4,905,094 System to assemble video/audio June 2008
presentations
US 5,113,496 Interconnection structure with redundancy May 2009
for communication of media presentations
US 5,119,188 Digital audio-video presentation display June 2009
system
US 5,191,410 Communications system for particular March 2010
multimedia presentations to multiple
viewers
US 5,195,092 Distribution system for presentation of a March 2010
continuous flow of information, using fixed
frames
US 5,208,665 Presentation player in digital format to May 2010
distribute information to viewers via
television
</TABLE>
<PAGE> 24
SCHEDULE II
Page 3
<TABLE>
<CAPTION>
U.S. Patent No. Description Expiration
--------------- ----------- ----------
<S> <C>
Cableshare (U.S.) Limited 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.
</TABLE>
<PAGE> 25
SCHEDULE III
Trademarks and Trademark Licenses
<TABLE>
<CAPTION>
Trademark Name Serial/ Application or
-------------- Registration Registration
Number Date
- ---------------------------------------------------------------- -------------
<S> <C>
Source Media, Inc.
None
SMI Holdings, Inc.
None
IT Network, Inc.
None
Interactive Channel, Inc.
There are presently five (5) registered U.S. trademarks, TEACHERS ASSISTANTS PROGRAM (TAP)(R), THE IT
NETWORK(R) 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."
Cableshare (U.S.) Limited
None
</TABLE>
<PAGE> 26
SCHEDULE IV
Location of Records Regarding Accounts
--------------------------------------
Source Media, Inc.
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
SMI Holdings, Inc.
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
IT Network, Inc.
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
Interactive Channel, Inc.
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
Cableshare (U.S.) Limited
8140 Walnut Hill Lane, Suite 1000
Dallas, Texas 75231
<PAGE> 27
SCHEDULE V
Bank Accounts
-------------
Source Media, Inc.
None
SMI Holdings, Inc.
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
IT Network, Inc.
None
Interactive Channel, Inc.
None
<PAGE> 28
SCHEDULE V
Page 2
Cableshare (U.S.) Limited
None
<PAGE> 29
SCHEDULE VI
Location of Inventory and Equipment
-----------------------------------
Source Media, Inc.
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
SMI Holdings, Inc.
None
IT Network, Inc.
5055 California Avenue
Suite 310
Bakersfield, CA
420 South Beverly Drive
Suite 211
Beverly Hills, CA
269 West Alameda Avenue
Unit E
Burbank, CA
100 Park Offices
<PAGE> 30
SCHEDULE VI
Page 2
Suite 114-G
Chapel Hill, NC
8140 Walnut Hill Lane
Suite 1000
Dallas, TX
39159 Paseo Padre Parkway
Suite 238
Fremont, CA
5586 North Palm Avenue
Suite B-2
Fresno, CA
11752 Garden Grove Blvd.
Suite 213
Garden Grove, CA
16303 South Western Avenue
Suite 11
Gardena, CA
525 North Belt East
Suite 380G
Houston, TX
5575 Lake Park Way
Suite 100
La Mesa, CA
426 Fourteenth St.
Suite 112
Modesto, CA
1440 Broadway
<PAGE> 31
SCHEDULE VI
Page 3
Suite 817
Oakland, CA
101 E. Green Street
Suite 6
Pasadena, CA
18645 Sherman Way
Suite 115
Resada, CA
777 Campus Commons Road
Suite 200
Sacramento, CA
302 N. Camino Real
Suite 17
San Clemente, CA
9655 Granite Ridge Drive
Suite 36
San Diego, CA
220 Montgomery Street
Suite 1087
San Francisco, CA
12 South First Street
Suite 202
San Jose, CA
28819 Crow Canyon Road
Suite 201A
San Ramon, CA
831 State Street, Suite 300
<PAGE> 32
SCHEDULE VI
Page 4
Santa Barbara, CA
343 East Main Street
Suite 819
Stockton, CA
301 Georgia Street Plaza
Suite 380
Vallejo, CA
122 Escondido Avenue
Suite B
Vista, CA
7700 Ball Road
Suite E/F
Windsor, CA
615 North Euclid Avenue
Ontario, Canada
5601 Executive Drive
Suite 200
Irving, TX
50 Vashell Way
1st Floor
Orinda, CA
One Lincoln Centre
5400 LBJ
Suite 680
Dallas, TX
150 Dufferin Avenue
Suite 906
<PAGE> 33
SCHEDULE VI
Page 5
London, Ontario, Canada
505 Central Avenue
Pacific Grove, CA 93950
9047 Soquel Drive Building
Santa Cruz, CA 95060
7830 State Line Road
Suite 101
Prairie Village, KS 66208
[Alliance Media]
1344 Harrodsburg Road
Lexington, KY 40504
[Charlotte Observer]
600 S. Tryon Street
Charlotte, NC 28232
[Blue Valley]
30 Victoria Street
Hamilton, Bermuda HMDX
[Coastal - Savannah]
6555 Abercorn
Suite 206
Savannah, GA 31406
[Dalton Area Talkin]
P.O. Box 2485
Dalton, GA 30720
[Kiwi Publishing]
P.O. Box 1757
<PAGE> 34
SCHEDULE VI
Page 6
St. George, UT 84771
[Mast Advertising]
118 Lee Parkway
Suite 307
Chattanooga, TN 34721
[Pennco Publishing]
1900 North 99 West
Suite H
McMinnville, OR 97128
Interactive Channel, Inc.
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
102 North Cascade
Suite 250
Colorado Springs, CO
Sullivan & Worcester LLP
767 Third Avenue, 39th Floor
New York, NY 10017
Cablevision Systems Corporation
One Media Cross Ways
Woodbury, NY 11797
Cablevision Systems Corporation
179 Armory Street
Brookline, MA 02146
Cableshare (U.S.) Limited
None
<PAGE> 35
SCHEDULE VII
Chief Executive Offices
-----------------------
Source Media, Inc.
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
SMI Holdings, Inc.
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
IT Network, Inc.
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
Interactive Channel, Inc.
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
Cableshare (U.S.) Limited
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
<PAGE> 36
SCHEDULE VII
Page 2
Annex A
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES TRADEMARKS
FOR GOOD AND VALUABLE CONSIDERATION, receipt
and sufficiency of which are hereby acknowledged, the undersigned with
principal offices at the address set forth next to their name appearing in the
signature pages hereof, (each individually an "Assignor" and collectively the
"Assignors") hereby assigns and grants to U.S. Trust Company of Texas, N.A., as
Collateral Agent, with principal offices at 2001 Ross Avenue, Suite 2700,
Dallas, TX 75201 (the "Assignee"), a security interest in (i) all of the
Assignors' right, title and interest in and to the United States trademarks,
trademark registrations and trademark applications (the "Marks") set forth on
Schedule A attached hereto, together with (ii) all Proceeds (as such term is
defined in the Security Agreement referred to below) and products of the Marks,
(iii) the goodwill of the businesses symbolized by the Marks and (iv) all
causes of action arising prior to or after the date hereof for infringement of
any of the Marks or unfair competition regarding the same.
THIS ASSIGNMENT is made to secure the full and prompt
performance and payment of all the Obligations of the Assignors, as such term
is defined in the Security Agreement among the Assignors, the other assignors
party thereto and the Assignee, dated as of October 30, 1997 (as amended from
time to time, the "Security Agreement"). Upon the occurrence of the
Termination Date (as defined in the Security Agreement), the
<PAGE> 37
ANNEX A
Page 2
Assignee shall, upon such satisfaction, execute, acknowledge, and deliver to
the Assignors an instrument in writing releasing the security interest in the
Marks acquired under this Assignment.
This Assignment has been granted in conjunction with the
security interest granted to the Assignee under the Security Agreement. The
rights and remedies of the Assignee with respect to the security interest
granted herein are without prejudice to, and are in addition to those set forth
in the Security Agreement, all terms and provisions of which are incorporated
herein by reference. In the event that any provisions of this Assignment are
deemed to conflict with the Security Agreement, the provisions of the Security
Agreement shall govern.
<PAGE> 38
ANNEX A
Page 3
IN WITNESS WHEREOF, the undersigned have executed this
Assignment of Security Interest as of the ____ day of _______, ____.
SOURCE MEDIA, INC.,
as Assignor
By
------------------------------------
Name:
Title:
SMI HOLDINGS, INC.
as Assignor
By
------------------------------------
Name:
Title:
IT NETWORK, INC.,
as Assignor
By
------------------------------------
Name:
Title:
<PAGE> 39
ANNEX A
Page 4
INTERACTIVE CHANNEL, INC.
as Assignor
By
------------------------------------
Name:
Title:
CABLESHARE (U.S.) LIMITED,
as Assignor
By
------------------------------------
Name:
Title:
U.S. TRUST COMPANY OF TEXAS, N.A.
as Collateral Agent and Assignee
By
------------------------------------
Name:
Title:
<PAGE> 40
[To be notarized for each signatory]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _______, ____ before me personally came
____________ who, being by me duly sworn, did state as follows: that [s]he is
______________ of __________________________, that [s]he is authorized to
execute the foregoing Assignment of Security Interest on behalf of said
corporation and that [s]he did so by authority of the Board of Directors of
said corporation.
____________________________
Notary Public
<PAGE> 41
Annex B
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES PATENTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt
and sufficiency of which are hereby acknowledged, the undersigned with
principal offices at the address set forth next to their name appearing in the
signature pages hereof (each individually an "Assignor" and collectively the
"Assignors") hereby assigns and grants to U.S. Trust Company of Texas, N.A., as
Collateral Agent, with principal offices at 2001 Ross Avenue, Suite 2700,
Dallas, TX 75201 (the "Assignee"), a security interest in (i) all of the
Assignors' right, title and interest in and to the United States patents (the
"Patents") set forth on Schedule A attached hereto, together with (ii) all
Proceeds (as such term is defined in the Security Agreement referred to below)
and products of the Patents and (iii) all causes of action arising prior to or
after the date hereof for infringement of any of the Patents or unfair
competition regarding the same.
THIS ASSIGNMENT is made to secure the full and prompt
performance and payment of all the Obligations of the Assignors, as such term
is defined in the Security Agreement among the Assignors, the other assignors
party thereto and the Assignee, dated as of October 30, 1997 (as amended from
time to time, the "Security Agreement"). Upon the occurrence of the
Termination Date (as defined in the Security Agreement), the Assignee shall,
upon such satisfaction, execute, acknowledge, and deliver to the Assignors
<PAGE> 42
ANNEX B
Page 2
an instrument in writing releasing the security interest in the Patents
acquired under this Assignment.
This Assignment has been granted in conjunction with the
security interest granted to the Assignee under the Security Agreement. The
rights and remedies of the Assignee with respect to the security interest
granted herein are without prejudice to, and are in addition to those set forth
in the Security Agreement, all terms and provisions of which are incorporated
herein by reference. In the event that any provisions of this Assignment are
deemed to conflict with the Security Agreement, the provisions of the Security
Agreement shall govern.
<PAGE> 43
ANNEX B
Page 3
IN WITNESS WHEREOF, the undersigned have executed this
Assignment of Security Interest as of the ____ day of _______, ____.
Address:
SOURCE MEDIA, INC.,
as Assignor
By
-------------------------------------
Name:
Title:
SMI HOLDINGS, INC.
as Assignor
By
-------------------------------------
Name:
Title:
IT NETWORK, INC.,
as Assignor
By
-------------------------------------
Name:
Title:
<PAGE> 44
ANNEX B
Page 4
INTERACTIVE CHANNEL, INC.
as Assignor
By
-------------------------------------
Name:
Title:
CABLESHARE (U.S.) LIMITED,
as Assignor
By
-------------------------------------
Name:
Title:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Collateral Agent and Assignee
By
-------------------------------------
Name:
Title:
<PAGE> 45
[Notarized for each signatory]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _______, ____ before me personally came
_______________, who being duly sworn, did depose and say that [s]he is
_________________ of ____________________, that [s]he is authorized to execute
the foregoing Assignment of Security Interest on behalf of said corporation and
that [s]he did so by authority of the Board of Directors of said Corporation.
_________________________
Notary Public
<PAGE> 46
ANNEX C
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES COPYRIGHTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency
of which are hereby acknowledged, the undersigned with principal offices at the
address set forth next to their name appearing in the signature pages hereof
(each individually an "Assignor" and collectively the "Assignors") is the owner
of all right, title and interest in and to the United States copyrights and
associated United States copyright registrations and applications for
registration set forth in Schedule A attached hereto;
WHEREAS, U.S. Trust Company of Texas, N.A., as Collateral
Agent, having its principal offices at 2001 Ross Avenue, Suite 2700, Dallas, TX
75201 (the "Assignee"), desires to acquire a security interest in, and lien on,
all of Assignors' right, title and interest in and to Assignors' copyrights and
copyright registrations and applications therefor; and
WHEREAS, the Assignors are willing to assign to the Assignee,
and to grant to the Assignee a security interest in and lien upon the
copyrights and copyright registrations and applications therefor described
above;
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, and subject to the terms and
conditions of the Security Agreement, dated as of October 30, 1997, among the
Assignors, the other assignors from
<PAGE> 47
ANNEX C
Page 2
time to time party thereto and the Assignee (as amended from time to time, the
"Security Agreement"), each of the Assignors hereby assigns to the Assignee,
and grants to the Assignee a security interest in and a lien upon, all of
Assignors' right, title and interest in and to Assignors' copyrights and
copyright registrations and applications more particularly set forth on
Schedule A attached hereto, (the "Copyrights") together with (i) all Proceeds
(as such term is defined in the Security Agreement referred to below) of the
Copyrights, and (ii) all causes of action arising prior to or after the date
hereof for infringement of any Copyright.
This ASSIGNMENT OF SECURITY INTEREST is made to secure the
satisfactory performance and payment of all the Obligations (as such term is
defined in the Security Agreement) of the Assignors and shall be effective as
of the date of the Security Agreement. Upon the occurrence of the Termination
Date (as defined in the Security Agreement), the Assignee shall, upon such
satisfaction, execute, acknowledge, and deliver to the Assignors an instrument
in writing releasing the security interest in the Copyrights acquired under
this Assignment of Security Interest.
This Assignment of Security Interest has been granted in
conjunction with the security interest granted to Assignee under the Security
Agreement. The rights and remedies of the Assignee with respect to the
security interest granted herein are without
<PAGE> 48
ANNEX C
Page 3
prejudice to, and are in addition to those set forth in the Security Agreement,
all terms and provisions of which are incorporated herein by reference. In the
event that any provisions of this Assignment of Security Interest are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
IN WITNESS WHEREOF, the undersigned have executed this
Assignment as of the _____ day of _____________, ____.
SOURCE MEDIA, INC.,
as Assignor
By
---------------------------
Name:
Title:
SMI HOLDINGS, INC.
as Assignor
By
---------------------------
Name:
Title:
IT NETWORK, INC.,
as Assignor
<PAGE> 49
ANNEX C
Page 4
By
---------------------------
Name:
Title:
<PAGE> 50
ANNEX C
Page 5
INTERACTIVE CHANNEL, INC.
as Assignor
By
---------------------------
Name:
Title:
CABLESHARE (U.S.) LIMITED,
as Assignor
By
---------------------------
Name:
Title:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Collateral Agent and Assignee
By
---------------------------
Name:
Title:
<PAGE> 51
[Notary for each signatory]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of ____________, ____, before me personally
came ______________ who, being by me duly sworn, did state as follows: that
[s]he is _______________ of __________________, that [s]he is authorized to
execute the foregoing Assignment of Security Interest on behalf of said
corporation and that [s]he did so by authority of the Board of Directors of
said corporation.
_________________________
Notary Public
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-K into Source Media, Inc.'s previously filed
Form S-8 Registration Statements File No. 333-31439, 333-30197, 333-00142 and
333-00144 and Source Media, Inc.'s previously filed Form S-3 Registration
Statement No. 333-37279.
Arthur Andersen LLP
Kansas City, Missouri,
November 7, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (File No.
333-37279) and in the Registration Statements on Form S-8 (File Nos. 333-30197,
333-31439, 333-00142 and 333-00144) of Source Media, Inc. of our report dated
October 1, 1997 relating to the financial statements of Voice News Network,
Inc., which appears on page F-35 of this Form 8-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
November 10, 1997
