-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NFklSpP5meg+IhJnnpnzUAvKGld8dg0tcp87NT/6MSrgCoCWoUbABih6H1KP+S6U dL/KXBxvmErP8uN8CPy+EQ== 0000950152-98-005766.txt : 19980701 0000950152-98-005766.hdr.sgml : 19980701 ACCESSION NUMBER: 0000950152-98-005766 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980630 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980630 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENT COMMUNICATIONS INC CENTRAL INDEX KEY: 0000913015 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 311492857 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 333-46435 FILM NUMBER: 98658519 BUSINESS ADDRESS: STREET 1: 400 WEST MARKET ST. STREET 2: SUITE 2510 CITY: LOUISVILLE STATE: KY ZIP: 40202 BUSINESS PHONE: 6062920300 MAIL ADDRESS: STREET 1: 50 EAST RIVERCENTER BLVD STREET 2: SUITE 180 CITY: COVINGTON STATE: KY ZIP: 41011 8-K 1 REGENT COMMUNICATIONS FORM 8-K 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 JUNE 30, 1998 (Date of earliest event reported -- June 15, 1998) REGENT COMMUNICATIONS, INC. (Exact name of registrant as specified in charter) DELAWARE 333-46435 31-1492857 (State of other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 50 EAST RIVERCENTER BOULEVARD SUITE 180 COVINGTON, KENTUCKY 41011 (Address of principal executive offices) (606) 292-0030 (Registrant's telephone number, including area code) 2 ITEM 1. CHANGES IN CONTROL OF REGISTRANT. On June 15, 1998, Regent Communications, Inc. (the "Company") acquired control of 31 radio stations located in California, Arizona, Michigan and Ohio through acquisitions of assets or stock for cash or by way of merger transactions. The cash needed for these transactions was provided by bank financing from the Company's senior credit facility with Bank of Montreal, Chicago Branch, General Electric Capital Corporation and Bank One, Indianapolis, NA, and by the proceeds from the sale of shares of the Company's convertible preferred stock, most of which having full voting rights. Additional shares of the Company's convertible preferred stock with full voting rights were issued in the merger transactions. Prior to these transactions, approximately 51.5% of the Company's outstanding voting stock was held by Terry S. Jacobs. As a result of these transactions, Mr. Jacobs now holds approximately 5.8% of the outstanding voting stock of the Company. The Company's voting stock is now dispersed among numerous stockholders with no single stockholder holding a majority. The Company's largest single stockholder is Blue Chip Capital Fund II Limited Partnership ("Blue Chip"), which holds 1,702,718 shares of the Series C Convertible Preferred Stock of the Company, representing approximately 23% of the Company's outstanding voting stock. John H. Wyant is a beneficial owner and manager of the general partner of Blue Chip as well as a beneficial owner and manager of the general partner of Miami Valley Venture Fund L.P. ("Miami Valley"), which holds 300,479 shares of the Series C Convertible Preferred Stock of the Company. All of these shares of Series C Convertible Preferred Stock were issued in exchange for shares of common stock of Faircom Inc. in the merger of Faircom Inc. with the Company on June 15, 1998. See Item 2 below. The Faircom Inc. common stock was acquired by Blue Chip and Miami Valley upon conversion prior to the merger of $7,500,000 in principal amount of subordinated notes of Faircom Inc. Together, Blue Chip and Miami Valley hold approximately 27% of the Company's outstanding voting stock. The Company's next largest stockholder is Waller-Sutton Media Partners, L.P. ("Waller-Sutton"), which purchased on June 15, 1998 1,000,000 shares of the Series F Convertible Preferred Stock of the Company for $5,000,000 and acquired an additional 400,640 shares of the Series C Convertible Preferred Stock of the Company by having purchased for $1,500,000 certain subordinated notes of Faircom Inc. which were ultimately converted into the Company's Series C Convertible Preferred Stock in the merger of Faircom with the Company. See Item 2 below. Waller-Sutton is managed by Waller-Sutton Management Group, Inc., of which William H. Ingram is Chairman of the Board of Directors. Mr. Ingram holds personally 50,000 shares of the Series F Convertible Preferred Stock of the Company which he acquired on June 15, 1998 at $5.00 per share. These combined holdings of Waller-Sutton and Mr. Ingram constitute approximately 19.5% of the outstanding voting shares of the Company, not including warrants held by Waller-Sutton and Mr. Ingram to purchase a total of 660,000 shares of the Company's common stock for $5.00 per share. The exercise of these warrants could increase Waller-Sutton's and Mr. Ingram's combined voting interest in the Company to approximately 26%. Waller-Sutton and Mr. Ingram have agreed, subject to certain conditions, to purchase an additional 1,050,000 shares of the Series F Convertible Preferred Stock of the Company at $5.00 per share to finance future acquisitions. Should this purchase occur, Waller-Sutton's and Mr. -2- 3 Ingram's combined voting interest in the Company, assuming exercise of their warrants in full, could increase to approximately 30.7%. In conjunction with these transactions, holders of approximately 82% of the outstanding voting stock of the Company entered into a Second Amended and Restated Stockholders' Agreement (the "Stockholders' Agreement") by which the parties to the Stockholders' Agreement agreed to vote all of their shares for the election of a specific group of seven individuals (to be identified from time to time) as the Board of Directors of the Company. Initially, this group will consist of Terry S. Jacobs, William L. Stakelin, Joel M. Fairman, William H. Ingram, Richard Patterson, R. Glen Mayfield, and John H. Wyant, and the voting agreements contained in the Stockholders' Agreement will assure their election. These voting agreements are to remain in effect until the Company has completed an underwritten public offering of the Company's common stock at not less than $12.00 per share (equitably adjusted for any stock splits, reverse stock splits, or stock dividends) and generating not less than $25,000,000 of gross proceeds to the Company (excluding the effect of any over-allotment option). Under the terms of the Stockholders' Agreement, the Company has agreed that, for so long as Waller-Sutton and the other purchasers of the Series F Convertible Preferred Stock of the Company, and their permitted transferees, own 10% or more of the voting stock of the Company, the Company may not take or permit to occur (and the parties to the Stockholders' Agreement will not consent to, authorize or vote for) any of the following events or actions, unless such has been approved in advance, in writing, by Waller-Sutton: (a) any merger or consolidation of the Company with any other entity, and any merger or consolidation of any subsidiary of the Company with any other entity other than the Company or another wholly-owned subsidiary of the Company; (b) the purchase or lease by the Company or any subsidiary thereof of any business or assets, other than the purchase or lease of assets in the ordinary course of business (not to include the purchase or lease of any radio broadcasting station or Federal Communications Commission ("FCC") license), or the execution of any agreement providing for the purchase, lease, construction or management of or in respect of radio broadcasting stations (including time brokerage agreements and local marketing agreements and the like); (c) the sale of any assets of the Company or any subsidiary thereof, or the execution of any agreement in respect thereof (other than the sale of advertising time and excess or obsolete furniture, fixtures or equipment in the ordinary course of business); (d) the issuance or sale of any equity or debt securities of the Company or any subsidiary thereof or any rights to acquire any of such equity or debt securities (including options and warrants) or the issuance or sale of stock appreciation or other "phantom" stock rights, other than permitted issuances pursuant to existing agreements, or the execution of any agreements in respect thereof; -3- 4 (e) the incurrence or assumption of any indebtedness for borrowed money, secured by a lien, or pursuant to guaranties by the Company or any subsidiary thereof, other than indebtedness permitted under the Company's current senior debt facility; (f) any change of control of the Company; (g) any amendment to the Company's 1998 Management Stock Option Plan or the adoption of any other stock option, stock purchase or restricted stock appreciation right plan; (h) any amendment to the Amended and Restated Certificate of Incorporation or By-Laws of the Company; (i) the execution by the Company or any party to the Stockholders' Agreement of any voting, voting trust, registration rights or stockholders agreements with respect to the Company or any of its shares of capital stock (other than the Stockholders' Agreement and a Registration Rights Agreement of even date therewith); or (j) the execution by the Company of any contract or agreement for the construction or management of radio stations. The Stockholders' Agreement also provides for the obligation of the Company to repurchase shares of the Company's convertible preferred stock held by the parties to the Stockholders' Agreement after five years from date of issuance if Waller-Sutton requests that the Company repurchase the Eligible Put Shares (as defined therein) held by Waller-Sutton. In the event the Company should fail to repurchase such shares within the time requirements set forth in the Stockholders' Agreement (from a minimum of six months to as long as one year, depending on the circumstances), Waller-Sutton would have the right under the Stockholders' Agreement to require the election of such additional designees of Waller-Sutton to the Board of Directors of the Company such that, after giving effect thereto, the designees of Waller-Sutton elected to the Board under the terms of the Stockholders' Agreement would constitute a majority of the members of the Board. The exercise of such "put" rights could likely result in a change of control of the Company. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On June 15, 1998, the Company consummated the following acquisitions: 1. The Company acquired all of the outstanding capital stock of Faircom Inc., a Delaware corporation ("Faircom"), which, through its wholly-owned subsidiaries, owns radio stations WFNT(AM) and WCRZ(FM) in Flint, Michigan; WWBN(FM) in Tuscola, Michigan, a community north of Flint; WMAN(AM) and WYHT(FM) in Mansfield, Ohio and WSWR(FM) in Shelby, Ohio, adjoining Mansfield. The acquisition was accomplished by a merger of Faircom with and into Regent Merger Corp., a wholly-owned subsidiary of the Company. The consideration paid to the Faircom stockholders for the Faircom stock was 3,720,796 shares of the Company's Series C Convertible Preferred Stock (stated value $5.00 per share). Options outstanding at the time of the merger for the purchase of shares of Faircom's common stock were -4- 5 converted at the time of the merger into options for the purchase, on equivalent terms, of 274,045 shares of Regent's Series C Convertible Preferred Stock. Upon consummation of the merger, Joel M. Fairman, President of Faircom, became a Vice Chairman and a Director of the Company, and the Company entered into an agreement with Mr. Fairman providing for a two-year employment period and a one-year consulting period, with annual compensation of $190,000, discretionary annual bonuses, discretionary stock option awards, ownership of a term life insurance policy paid for by the Company, an automobile allowance and certain other benefits. John H. Wyant, an affiliate of Faircom's largest stockholder at the time of the merger, became a director of the Company upon consummation of the merger. 2. The Company acquired all of the outstanding capital stock of The Park Lane Group, a California corporation which, through its wholly-owned subsidiaries, owns radio stations KQMS(AM) and KSHA(FM) in Redding, California; KPPL(FM), KFMF(FM) and KALF(FM) in Chico, California; KVOY(AM) and KTPI(FM) in Palmdale, California; KROY(AM) and KATJ(FM) in Victorville, California; KAAA(AM) and KZZZ(FM) in Kingman, Arizona; KOWL(AM) and KRLT(FM) in Lake Tahoe, California; and KVNA(AM), KVNA(FM) and KZGL(FM) in Flagstaff, Arizona. The purchase price for the stock was $17,467,737, paid in cash to the stockholders of The Park Lane Group. In addition, at the time of the acquisition, the Company entered into a one-year Consulting and Non-Competition Agreement with James H. Levy, the President of The Park Lane Group, providing for the payment of a consulting fee of $200,000 to Mr. Levy. 3. The Company acquired all of the outstanding capital stock of Alta California Broadcasting, Inc. ("Alta") by virtue of a merger of Alta with and into Regent Acquisition Corp., a wholly-owned subsidiary of the Company. The purchase price for the stock was $2,000,000, paid in the form of $1,000,000 in cash and 200,000 shares of the Company's Series E Convertible Preferred Stock (stated value $5.00 per share). Of the 200,000 shares of Series E Convertible Preferred Stock, 194,750 shares were issued to the seller, Redwood Broadcasting, Inc.(of which 20,000 shares are currently being held in escrow pursuant to an indemnification agreement between the Company and the seller), and 5,250 shares were issued to Miller Capital Corp. as partial payment of commissions due and payable to it by the seller. Prior to the merger, Alta was the owner, operator and licensee of radio station KDRG(FM) in Shingleton, California and, through its subsidiary, Northern California Broadcasting, Inc., KNNN(FM) in Central Valley, California. Prior to the merger, Alta also acquired from Power Surge, Inc., an affiliate of Alta, all of the assets used in the operation of radio stations KRRX(FM) (formerly KARZ(FM)) in Burney, California and KNRO(AM) in Redding, California. 4. The Company (through Regent Broadcasting of Kingman, Inc., a wholly-owned subsidiary of the Company, and its wholly-owned subsidiary, Regent Licensee of Kingman, Inc.) acquired from Continental Radio Broadcasting, L.L.C. the FCC licenses and related assets used in the operation of radio stations KFLG-AM and KFLG-FM in Bullhead City, Arizona. The purchase price for these assets (other than the accounts receivable) was approximately $3,622,000 in cash. The Company separately acquired the accounts receivable of these stations for an additional cash purchase price of approximately $130,000. -5- 6 5. The Company acquired all of the outstanding capital stock of Topaz Broadcasting, Inc. ("Topaz") by virtue of a merger of Topaz with and into Regent Broadcasting of Victorville, Inc., a wholly-owned subsidiary of the Company ("Regent-Victorville"). Immediately following the merger, Regent-Victorville acquired the assets used in the operation of radio station KIXA(FM) in Lucerne Valley, California pursuant to an Asset Purchase Agreement between Topaz and RASA Communications Corp. The consideration paid for the Topaz stock was 242,592 shares of the Company's Series E Convertible Preferred Stock (stated value $5.00 per share). 6. The Company acquired, through Regent Broadcasting of Victorville, Inc., a wholly-owned subsidiary of the Company, and Regent Licensee of Victorville, Inc., its wholly-owned subsidiary, the FCC licenses and related assets used in the operation of radio stations KIXW(AM) and KZXY(FM) in Apple Valley, California. The purchase price for these stations was $5,995,500 in cash. The terms of each of the foregoing acquisitions were arrived at and agreed upon through arms' length negotiations between the parties. The Company intends to continue to use the assets acquired in the foregoing acquisitions in a manner consistent with their use prior to their acquisition by the Company. The sources for the cash portion of the consideration paid by the Company in the foregoing transactions, aggregating approximately $53,030,000 (including approximately $4,000,000 of transaction costs) were $34,400,000 borrowed under the Company's Credit Agreement with Bank of Montreal, Chicago Branch, General Electric Capital Corporation and Bank One, Indianapolis, NA ("Credit Agreement"), $18,250,000 in additional equity from the sale of the Company's convertible preferred stock, and approximately $380,000 of Company funds. See Item 5 below. ITEM 5. OTHER EVENTS. New Debt In order to finance the foregoing acquisitions and to provide additional working capital, the Company borrowed $34,400,000 under its Credit Agreement on June 15, 1998. Additional Equity Capitalization. On June 15, 1998, the Company issued additional equity as follows, the proceeds of which were used to fund the Company's acquisitions completed on that date: -6- 7 1. The Company issued to the purchasers set forth below a total of 2,050,000 shares of its Series F Convertible Preferred Stock at a purchase price of $5.00 per share, and in conjunction therewith, issued to such purchasers warrants to purchase a total of 860,000 shares of the Company's Common Stock at $5.00 per share.
Number of Shares Number of Warrants Name of Purchaser Purchased Received Waller-Sutton Media Partners, L.P. 1,000,000 650,000 WPG Corporate Development Associates V, L.P. 562,900 112,580 WPG Corporate Development Associates (Overseas) V, L.P. 87,100 17,420 General Electric Capital Corporation 250,000 50,000 River Cities Capital Fund Limited Partnership 100,000 20,000 William H. Ingram 50,000 10,000
These purchasers also have committed to purchase, on a pro rata basis, an additional 2,050,000 shares of the Company's Series F Convertible Preferred Stock at $5.00 per share to fund future acquisitions by the Company. In addition, Waller-Sutton purchased $1,500,000 of certain Class A and Class B Faircom Subordinated Notes from Blue Chip and Miami Valley, which were converted into shares of Faircom's common stock and then exchanged in the merger of Faircom and Regent Merger Corp. for 400,640 shares of the Company's Series C Convertible Preferred Stock. 2. General Electric Capital Corporation ("GE Capital") paid $3,900,000 cash to complete its purchase of shares of the Company's Series B Senior Convertible Preferred Stock, pursuant to the terms of its Stock Purchase Agreement and Promissory Note dated December 8, 1997. In addition, the Company issued to GE Capital a warrant to purchase 50,000 shares of the Company's Common Stock at $5.00 per share. 3. BMO Financial, Inc. paid $3,900,000 cash for 780,000 shares of the Company's Series D Convertible Preferred Stock. 4. William L. Stakelin, a member of the Company's Board of Directors, as well as its President, Chief Operating Officer and Secretary, purchased 20,000 shares of the Company's Series A Convertible Preferred Stock at a purchase price of $5.00 per share. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Pursuant to generally accepted accounting principles, Faircom Inc. was deemed the "accounting acquirer" in the merger that was consummated on June 15, 1998 between Faircom -7- 8 Inc. and the Company and, thus, the historical financial statements of Faircom Inc. have become the historical financial statements of the Company. The Form 10-K of Faircom Inc. for the year ended December 31, 1997 and the Form 10-Q of Faircom Inc. for the quarter ended March 31, 1998, including all exhibits thereto, as filed with the Securities and Exchange Commission on March 30, 1998 and May 14, 1998, respectively, are incorporated herein by this reference. The Company is not filing the financial statements required by this Item 7(a) with this initial report. The Company intends to file such financial statements by amendment not later than 60 days after the date that the initial report on Form 8-K must be filed. (b) PROFORMA FINANCIAL INFORMATION. The Company is not filing the pro forma financial information required by this Item 7(b) with this initial report. The Company intends to file such pro forma financial information by amendment not later than 60 days after the date that the initial report on Form 8-K must be filed. (c) EXHIBITS. The Exhibit Index following the signature page hereof constitutes a list of all Exhibits filed with or incorporated by reference in this Form 8-K. -8- 9 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. REGENT COMMUNICATIONS, INC. Date: June 30, 1998 By: /s/ TERRY S. JACOBS ------------------------------------ Terry S. Jacobs, Chairman of the Board and Chief Executive Officer -9- 10 EXHIBIT INDEX The following exhibits are filed, or incorporated by reference where indicated, as part of this Current Report of Form 8-K: EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(a)* Agreement of Merger among Faircom Inc., Regent Merger Corp., Regent Communications, Inc., Blue Chip Capital Fund II Limited Partnership and Miami Valley Venture Fund L.P. dated as of December 5, 1997, as amended (previously filed as Exhibit 2(a) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following exhibits to the foregoing Agreement of Merger are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request:
Exhibit Description ------- ----------- 1(j) Faircom Licenses 1(k) Faircom Senior Debt 1(x) Form of Amended and Restated Certificate of Incorporation of Regent Communications, Inc. 1(bb) Regent Licenses 1(ff) Regent Subsidiaries 4(a) Certificate of Incorporation of Subsidiary 4(b) By-Laws of Subsidiary 10(a) Form of Regent Option Agreement 12B Rule 145 Letter 13(b)(3) Form of Redemption and Warrant Agreement 21(a) Capital Stock of Faircom Subsidiaries 21(b) Faircom Options 21(f) Faircom Affiliates 21(g) Rights to Acquire Securities (Faircom) 21(i) Title to Faircom Broadcast Assets 21(k-1) Faircom Contracts 21(m-1) Faircom Key Employees 21(m-2) Faircom Accounts and Safe Deposit Boxes 21(o) Faircom Related Transactions 21(p) Faircom Taxes 21(q) Faircom Employee Benefit Plans 21(r) Faircom Compliance with Commission Regulations 21(s) Faircom Tangible Personal Property 21(t) Faircom Real Property 21(u) Faircom Environmental
11
Exhibit Description ------- ----------- 21(v) Faircom Insurance 21(bb) Faircom Litigation 21(ee) Faircom Intellectual Property 21(hh) Certain Changes (Faircom) 21(ii) Faircom Personnel 21(kk) Faircom Outstanding Debt 22(a) Information Regarding Regent Subsidiaries 22(f) Regent Affiliates 22(g) Rights to Acquire Securities (Regent) 22(i) Title to Regent Assets 22(k-1) Regent Contracts 22(m-1) Regent Key Employees 22(o) Regent Related Transactions 22(p) Regent Taxes 22(q) Regent Employee Benefit Plans 22(r) Regent Compliance with Commission Regulations 22(s) Regent Tangible Personal Property 22(t) Regent Real Property 22(u) Regent Environmental 22(v) Regent Insurance 22(bb) Regent Litigation 22(dd) Regent Required Consents 22(ee) Regent Intellectual Property 22(hh) Certain Changes (Regent) 22(ii) Regent Personnel 22(kk) Regent Outstanding Debt 22(ll) Exceptions to Negative Covenants 27c) Form of Opinion of Fulbright & Jaworski L.L.P. 28(b) Form of Opinion of Strauss & Troy 34 Form of Employment Agreement
EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(b)* Agreement of Merger dated as of December 17, 1997 among Regent Communications, Inc., Regent Broadcasting of Victorville, Inc. and Topaz Broadcasting, Inc. (previously filed as Exhibit 2(b) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). E-2 12 The following schedules to the foregoing Agreement of Merger are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: Schedule Description 1(c)(ix) Excluded Assets 1(f) Attributes of Series E Preferred Stock 20(f) Interests in Other Businesses 20(g) Rights to Acquire Securities 20(j) Financials 20(k-1) Contracts 20(k-2) Trade Agreements 20(m-1) Employees with Annual Compensation over $20,000 20(m-2) Topaz Bank Accounts 20(o) Debts and Obligations to Stockholder 20(p) Tax Exceptions 20(q) Employee Benefit Plans and Other Arrangement 20(s) Tangible Personal Property 20(t) Environmental 20(u) Insurance 20(v) Compliance with Law 20(z) Litigation 20(cc) Intellectual Property 20(ff) Employees 20(gg) Debt of Topaz EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(c)* Asset Purchase Agreement dated December 17, 1997 between Regent Broadcasting of Victorville, Inc. and Ruby Broadcasting, Inc. (previously filed as Exhibit 2(c) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following schedules to the foregoing Asset Purchase Agreement are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: Schedule Description 1.2.9 Miscellaneous Excluded Assets 7.4 FCC Licenses and Exceptions 7.7 Personal Property E-3 13 Schedule Description 7.8 Leases and Real Property Exceptions 7.9 Assumed Contracts 7.11 Environmental Matters 7.12 Intellectual Property 7.13 Financial Statements 7.14 Employees 7.15 Litigation 7.16 Compliance with Law 7.17 Employee Benefit Plans and Other Arrangements 7.19 Changes Not in the Ordinary Course A Deposit Escrow Agreement B Time Brokerage Agreement C Assignment and Assumption Agreement EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(d)* Asset Purchase Agreement dated December 9, 1997 between Regent Broadcasting of Kingman, Inc. and Continental Radio Broadcasting, L.L.C. (previously filed as Exhibit 2(d) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following schedules and exhibits to the foregoing Asset Purchase Agreement are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: Schedule Description 1.2.9 Miscellaneous Excluded Assets 7.4 Stations Licenses, Etc. 7.7 Tangible Personal Property 7.8 Real Property 7.9 Contracts (including identification of Material Contracts) 7.11 Environmental Matters 7.12 Intellectual Property 7.13 Financial Statements 7.14 Personnel Information 7.15 Litigation 7.16 Compliance With Laws 7.17 Employee Benefit Plans E-4 14 Exhibit Description A Indemnification Escrow Agreement B Deposit Escrow Agreement C Agreement re Allocation of Purchase Price D Assignment and Assumption Agreement E Opinion of Seller's Corporate Counsel F Opinion of Seller's FCC Counsel G Opinion of Buyer's Counsel EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(e)* Stock Purchase Agreement dated as of June 16, 1997 among Regent Communications, Inc. and the shareholders of The Park Lane Group, as amended (previously filed as Exhibit 2(e) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following exhibits to the foregoing Stock Purchase Agreement are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: Exhibit Description A Deposit Escrow Agreement C Opinion of Counsel for Sellers D Form of FCC Opinion E Opinion of Counsel for Buyer F Consulting and Non-Competition Agreement G Time Brokerage Agreement H Required Consents 2(f)* Agreement of Merger among Alta California Broadcasting, Inc., Regent Acquisition Corp. and Regent Communications, Inc. dated October 10, 1997 (previously filed as Exhibit 2(f) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following exhibits to the foregoing Agreement of Merger are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: E-5 15 Exhibit Description 1(c)(x) Exceptions to Broadcast Assets 1(d) Consolidated 1997 Budget Projections 1(k) Licenses 20(f) Affiliates of Alta 20(g) Exceptions to Rights to Acquire Securities 20(i) Exceptions to Title to Broadcast Assets 20(k-1) List of Contracts Relative to the Stations 20(k-2) List of Balances of Trade Accounts 20(k-3) Percentages 20(m-1) Employees exceeding $20,000 20(m-2) Bank Accounts of Alta 20(o) Related Transactions 20(p) Taxes 20(q) Employee Benefit Plans 20(x) Compliance with FCC Regulations 20(s) Personal Property 20(t) Real Property 20(u) Environmental Matters 20(v) Insurance 20(bb) Litigation 20(ee) Intellectual Property 20(ii) Personnel Information 20(jj) Outstanding Debt 20(kk) Certain Negative Convenants EXHIBIT NUMBER EXHIBIT DESCRIPTION 4(a) Amended and Restated Certificate of Incorporation of Regent Communications, Inc. 4(b)* Amended and Restated By-Laws of Regent Communications, Inc. (previously filed as Exhibit 3(b) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). 4(c) Second Amended and Restated Stockholders' Agreement dated as of June 15, 1998 among Regent Communications, Inc., Terry S. Jacobs, William L. Stakelin, Waller-Sutton Media Partners, L.P., William H. Ingram, WGP Corporate Development Associates V, L.P., WGP Corporate Development Associates (Overseas) V, L.P., River Cities Capital Fund Limited Partnership, BMO Financial, Inc., General Electric Capital Corporation, Joel M. Fairman, Miami Valley Venture Fund II Limited Partnership, and Blue Chip Capital Fund II Limited Partnership (excluding exhibits not deemed material or filed separately in executed form). E-6 16 EXHIBIT NUMBER EXHIBIT DESCRIPTION 4(d) Stock Purchase Agreement dated June 15, 1998 among Regent Communications, Inc., Waller-Sutton Media Partners, L.P., WPG Corporate Development Associates V, L.P., WPG Corporate Development Associates (Overseas) V, L.P., General Electric Capital Corporation, River Cites Capital Fund Limited Partnership and William H. Ingram (excluding exhibits not deemed material or filed separately in executed form). 4(e) Registration Rights Agreement dated June 15, 1998 among Regent Communications, Inc., PNC Bank, N.A., Trustee, Waller-Sutton Media Partners, L.P., WPG Corporate Development Associates V, L.P., WPG Corporate Development Associates (Overseas) V, L.P., BMO Financial, Inc., General Electric Capital Corporation, River Cites Capital Fund Limited Partnership, Terry S. Jacobs, William L. Stakelin, William H. Ingram, Blue Chip Capital Fund II Limited Partnership, Miami Valley Venture Fund L.P. and Thomas Gammon (excluding exhibits not deemed material or filed separately in executed form). 4(f) Warrant for the Purchase of 650,000 Shares of Common Stock issued by Regent Communications, Inc. to Waller-Sutton Media Partners, L.P. dated June 15, 1998 (See Note 1 below). 4(g) Warrant for the Purchase of 50,000 Shares of Common Stock issued by Regent Communications, Inc. to General Electric Capital Corporation dated June 15, 1998. 4(h) Agreement to Issue Warrant dated as of June 15, 1998 between Regent Communications, Inc. and General Electric Capital Corporation (excluding exhibits not deemed material or filed separately in executed form). 20(a) Form 10-K of Faircom Inc. for the year ended December 31, 1997, including all exhibits thereto, as filed with the Securities and Exchange Commission on March 30, 1998. 20(b) Form 10-Q of Faircom Inc. for the quarter ended March 31, 1998, including all exhibits thereto, as filed with the Securities and Exchange Commission on May 14, 1998. 20(c) Executive Employment Agreement dated June 15, 1998 between Regent Communications, Inc. and Joel M. Fairman (excluding exhibits not deemed material or filed separately in executed form). 20(d) Consulting and Non-Competition Agreement between Regent Communications, Inc. and James H. Levy. E-7 17 *Incorporated by reference. Notes: 1. Six substantially identical Warrants for the purchase of shares of Registrant's common stock were issued as follows: Waller-Sutton Media Partners, L.P. 650,000 WPG Corporate Development Associates V, L.P. 112,580 WPG Corporate Development Associates (Overseas) V, L.P. 17,420 General Electric Capital Corporation 50,000 River Cites Capital Fund Limited Partnership 20,000 William H. Ingram 10,000 E-8 EX-4.A 2 EXHIBIT 4(A) 1 EXHIBIT 4(a) AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF REGENT COMMUNICATIONS, INC. Regent Communications, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that the Corporation was originally incorporated under the name "JS Communications, Inc." on November 4, 1996, and that its original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on the same date. The Corporation further certifies that the Corporation changed its named from JS Communications, Inc. to Regent Communications, Inc. upon the filing with the Secretary of State of Delaware of a Certificate of Amendment on May 16, 1997. The Corporation further certifies that this Amended and Restated Certificate of Incorporation amends and restates the provisions previously filed with the Secretary of State of the State of Delaware. FIRST: Name. The name of the Corporation is Regent Communications, Inc. SECOND: Registered Office and Registered Agent. The registered office of the Corporation in the State of Delaware is 1209 Orange Street, New Castle County, Wilmington, Delaware 19801. The Registered Agent at the same address is The Corporation Trust Company. THIRD: Purposes. The purposes of the Corporation are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: Capital Stock. A. Authorized Capital Stock. The total number of shares of all classes of stock which the Corporation shall have authority to issue is Fifty Million (50,000,000) shares, consisting of a class of Thirty Million (30,000,000) shares of Common Stock, par value of $.01 per share, and a class of Twenty Million (20,000,000) shares of Preferred Stock, par value of $.01 per share. B. Common Stock. The Common Stock shall have full voting rights and other characteristics of common stock recognized under the General Corporation Law of the State of Delaware subject to the rights and preferences of Preferred Stock; provided, however, in the event the Corporation holds (directly or indirectly) a license or franchise from the Federal Communications Commission to conduct its business and such license or franchise is conditioned upon some or all of the holders of its capital stock possessing prescribed qualifications, such Common Stock and the Preferred Stock shall be subject to redemption by the Corporation, to the extent necessary to prevent the loss of such license or franchise or to reinstate it, for cash, property or rights, including other securities of the Corporation, at such time or times as the Board of Directors determines upon notice and following the same procedures as are applicable to redemption of Preferred Stock at a redemption price equal to the 2 greater of the amount of its liquidation preference or its fair market value; and provided further, that the Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article FOURTH, to provide for the issuance of a series of Common Stock designated Series B Common Stock consisting of such number of shares constituting said series as the Board of Directors shall determine from time to time, each share to be convertible at any time at the option of the holder in the same manner and subject to the same conditions as were applicable to a voluntary conversion of the Series D Convertible Preferred Stock set forth in Section 7 of Subpart G of this Article FOURTH into one share of Common Stock (subject to equitable adjustment for stock splits, reverse stock splits, common stock dividends and the like), and such Series B Common Stock, having the restricted voting rights applicable to the Series D Convertible Preferred Stock set forth in Section 3 of Subpart G of this Article FOURTH and constituting the series of Common Stock issuable upon a mandatory conversion of the Series D Convertible Preferred Stock pursuant to Section 7[c][i] of Subpart G of this Article FOURTH, and by filing a certificate pursuant to the applicable law of the State of Delaware to fix the number of shares to be included in such Series B Common Stock and to set forth the restricted voting and conversion rights thereof. C. Preferred Stock. The Board of Directors is authorized, subject to the limitations prescribed by law and the provisions of this Article FOURTH, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: [1] The number of shares constituting that series and the distinctive designation of that series; [2] The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; [3] Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; [4] Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; [5] Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; [6] Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; 2 3 [7] The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; [8] Any other relative rights, preferences and limitations of that series. D. Designation of Series A Convertible Preferred Stock. A series of the Preferred Stock of the Corporation is hereby created and authorized, and the designations, amount and stated value of such series of Preferred Stock and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereon, are as follows: SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE. The shares of such series shall be designated as "Series A Convertible Preferred Stock" (the "Series A Preferred") and the number of shares constituting such series shall be 620,000 shares. The stated value of the Series A Preferred shall be $5 per share, the original per share issue price (the "Stated Value"). SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of the Series A Preferred shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available for such purpose, cumulative dividends payable quarterly in cash on the first business day of January, April, July and October (each such date being referred to herein as a "Quarterly Dividend Payment Date"), accruing commencing with the date of issue of such shares, on shares of the Series A Preferred at the rate of $.35 per share per annum. No interest shall be paid on accrued but unpaid dividends. SECTION 3. VOTING RIGHTS. In addition to voting rights required by law or by this Amended Certificate of Incorporation, as amended or restated from time to time (the "Certificate of Incorporation"), subject to restrictions contained in this Certificate of Incorporation the holders of Series A Preferred shall be entitled to vote on all matters submitted to a vote of the Corporation's stockholders. Except as otherwise required by law or provided by this Certificate of Incorporation or by the Board of Directors pursuant to Subpart C of this Article FOURTH, the holders of the Series A Preferred, shall vote together with the holders of all other series of the Corporation's voting preferred stock and the holders of the Corporation's Common Stock as one class with one vote per share (in the case of Preferred Stock, subject to adjustments as provided in Section 7 below and if convertible into Common Stock, one vote per share of Common Stock into which such convertible Preferred Stock is then convertible) on all matters submitted to a vote of the Corporation's stockholders. SECTION 4. CERTAIN RESTRICTIONS. Whenever dividends payable on the Series A Preferred as provided in Section 2 are in arrears, thereafter and until dividends, including all accrued dividends, on shares of the Series A Preferred outstanding shall have been paid in full or declared and set apart for payment, the Corporation shall not (A) pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for 3 4 consideration any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any such junior stock, (B) pay dividends on or make any other distributions on any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred, except dividends paid ratably on the Series A Preferred and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled, (C) redeem or purchase or otherwise acquire for consideration any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior to the Series A Preferred or in satisfaction of contractual obligations to do so entered into with the written consent of the holders of a majority of outstanding shares of Series A Preferred (including, without limitation, in satisfaction of the provisions contained in the Stockholders' Agreement), or (D) purchase or otherwise acquire for consideration any shares of the Series A Preferred, or any shares of stock ranking on a parity with the Series A Preferred except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series of classes, or except pursuant to the provisions of the Stockholders' Agreement. As used in this Amended and Restated Certificate of Incorporation, the term "Stockholders' Agreement" shall mean that certain Second Amended and Restated Stockholders' Agreement, dated in June, 1998, among the Corporation and certain of its stockholders, as the same may be further amended, restated or modified from time to time. All references to the Stockholders' Agreement shall be applicable as long as the Stockholders' Agreement remains in effect. SECTION 5. REACQUIRED SHARES. Any shares of the Series A Preferred which have been converted to Common Stock or have been purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, or otherwise in accordance with Delaware General Corporation Law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (A) to the holders of the Series A Preferred unless, prior thereto, the holders of the Series B Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (B) to the holders of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred unless, prior thereto, the holders of Series A Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (C) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred, except distributions made ratably on the Series A Preferred and all other such parity stock in 4 5 proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 7. CONVERSION. [a] Optional Conversion. Subject to the provisions for adjustment hereinafter set forth, each share of the Series A Preferred shall be convertible at any time at the option of the holder thereof, in the manner hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation. [b] Mandatory Conversion. Subject to the provisions for adjustment set forth in this Section 7, each share of the Series A Preferred shall be convertible at the option of the Board of Directors, under the conditions hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation. The Board of Directors of the Corporation may require conversion of all shares of the Series A Preferred into shares of Common Stock in preparation for or upon any of the following: [i] A public offering of equity securities of the Corporation of at least $10,000,000 in gross proceeds; [ii] A private placement of equity securities of the Corporation of at least $25,000,000 in gross proceeds; [iii] A private placement of equity securities of the Corporation of at least $10,000,000 in gross proceeds under circumstances where the investor(s) reasonably believe the conversion of the Series A Preferred is necessary to achieve its (their) investment objectives; [iv] A merger of the Corporation with another corporation or other entity, whether or not the Corporation is a survivor of such transaction whereby as a result the stockholders of the Corporation hold less than 50% of the outstanding capital stock of the surviving entity; or [v] An acquisition of equity securities of the Corporation in one transaction or in a series of related transactions which results in a transfer of majority voting control of the Corporation. [c] The number of shares of Common Stock into which each share of the Series A Preferred is convertible shall be adjusted from time to time as follows: [i] In case the Corporation shall at any time or from time to time after the issuance of such share of Series A Preferred declare or pay any dividend on its Common Stock payable in its Common Stock or effect a subdivision of the outstanding shares of its Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise), then, and in each such case, the number of shares of Common Stock into which each share of the Series A Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying 5 6 (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the sum of (I) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event plus (II) the number of shares of Common Stock which such holder would have been entitled to receive in connection with the occurrence of such event had such share been converted immediately prior thereto, and the denominator of which is the number of shares of Common Stock determined in accordance with clause (I) above. An adjustment made pursuant to this subparagraph [c][i] shall become effective (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. [ii] In case the Corporation at any time or from time to time after the issuance of such share of Series A Preferred shall combine or consolidate the outstanding shares of its Common Stock into a lesser number of shares of Common Stock, by reclassification or otherwise, then, and in each such case, the number of shares of Common Stock into which each share of the Series A Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the number of shares which the holder would have owned after giving effect to such event had such share been converted immediately prior to the occurrence of such event and the denominator of which is the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event. An adjustment made pursuant to this subparagraph b(ii] shall become effective at the close of business on the date immediately prior to the day upon which such corporate action becomes effective. [iii] In case the Corporation after the issuance of such share of Series A Preferred shall: (A) issue any options, warrants, or other rights (excluding those issued in exchange for options to purchase common stock in Faircom Inc. pursuant to the terms of a merger, and excluding options to purchase Common Stock issued to management of the Corporation exercisable for up to the lesser of 2,000,000 shares of Common Stock (subject to adjustment pursuant to provisions applicable to the options in the case of stock splits, reverse stock splits and the like) or that number of shares of Common Stock equal to fifteen percent (15%) of the aggregate number of outstanding shares of Common Stock and other equity securities of the Corporation exercisable for the purchase of, or convertible into, Common Stock computed on a fully-diluted basis) entitling the holder thereof to subscribe for, or purchase, Common Stock at a price per share which, when added to the amount of consideration received or receivable by the Corporation for such options, warrants, or other rights, is less than the then fair market value per share of the Common Stock at the date of such issuance; (B) issue or sell securities of the Corporation convertible into, or exchangeable for, Common Stock at a price per share which, when added to the amount of consideration received or receivable, from the Corporation for such exchangeable or convertible securities, is less 6 7 than the then fair market value of a share of Common Stock at the date of such issuance; or (C) issue or sell additional shares of Common Stock for consideration representing less than the then fair market value of the Common Stock at the date of such issuance; then the number of shares of Common Stock into which each share of the Series A Preferred is convertible shall be adjusted so that, thereafter, until further adjusted, the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (w) the number of shares of Common Stock into which such shares are convertible immediately prior to the occurrence of such event by (x) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of additional shares of Common Stock issuable upon exercise of such options, warrants, or rights, or exchangeable or convertible securities, or the additional number of shares of Common Stock issued at such time, and the denominator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of shares of Common Stock that either (y) the sum of the aggregate exercise price of the total number of shares of Common Stock issuable upon exercise of such options, warrants, or rights, or upon conversion or exchange of such convertible securities, and the aggregate amount of consideration, if any, received or receivable by the Corporation for such options, warrants, or rights, or convertible or exchangeable securities, or (z) the aggregate consideration received in connection with the sale of shares of its Common Stock for less than the then fair market value, as the case may be, would purchase at the then fair market value. [iv] In the event that, at any time, or from time to time, after the issuance such share of the Series A Preferred, the Common Stock issuable upon conversion of the Series A Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend, or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 7), then, and in any such event, each holder of Series A Preferred shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series A Preferred could have been converted immediately prior to such recapitalization, reclassification, or change, all subject to further adjustment as provided herein. [v] If at any time, or from time to time after the issuance such share of the Series A Preferred there is a capital reorganization of the Common Stock other than a recapitalization, subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Section 7) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all, or substantially all, of the Corporations' properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made so that the holders of the Series A Preferred shall thereafter be entitled to receive upon conversion of the Series A Preferred the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, 7 8 consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the holders of Series A Preferred after the reorganization, merger, consolidation, or sale to the end that the provisions of this Section 7 shall be applicable after that event and be as nearly equivalent as may be practicable. [vi] Upon the expiration of any rights, options, warrants or conversion or exchange privileges which caused an adjustment pursuant to this Section 7 to be made, if any thereof shall not have been exercised, the number of shares of Common Stock into which each share of the Series A Preferred is convertible shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (a) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges and (b) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise plus the aggregate consideration, if any, actually received by the Corporation for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges, whether or not exercised. [d] If any adjustment in the number of shares of Common Stock into which each share of the Series A Preferred may be converted required pursuant to this Section 7 would result in an increase or decrease of less than 1% in the number of shares of Common Stock into which each share of the Series A Preferred is then convertible, the amount of any such adjustment shall be carried forward and adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least 1% of the number of shares of Common Stock into which each share of the Series A Preferred is then convertible; provided that any such adjustments carried forward shall be made immediately following receipt of notice from a holder of the intent to convert all or a portion of the Series A Preferred such that upon conversion the holder shall receive such number of shares of Common Stock as such holder is entitled, taking into account all adjustments required by this Section 7. All calculations under this paragraph [d] shall be made to the nearest one-hundredth of a share. [e] Subject to the limitation in Section 7[h] below, the holder of any shares of the Series A Preferred may convert such shares into shares of Common Stock pursuant to paragraph [a] of this Section 7 by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, a certificate or certificates representing the shares of Series A Preferred to be converted (or if such certificate or certificates cannot be found, an affidavit of lost securities in form and substance acceptable to the Corporation) accompanied by a written notice stating that such holder elects to convert all or a specified number of such shares in accordance with the provisions of this Section 7 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. As promptly as practicable, and in any event within five business days after the surrender of such certificates and the receipt of such notice relating thereto and, if 8 9 applicable, payment of all transfer taxes, the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which the holder of the Series A Preferred so converted shall be entitled and (ii) if less than the full number of shares of the Series A Preferred evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversions shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates representing the shares of the Series A Preferred to be converted so that the rights of the holder thereof shall cease except for the right to receive Common Stock of the corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [g] below,, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [f] The Series A Preferred shall convert to Common Stock of the Corporation pursuant to paragraph [b] of this Section 7 automatically upon notice in writing to the stockholders, including all holders of the Series A Preferred, setting forth the date of such conversion and the material terms of the triggering event. As promptly as practicable after such notice, and in any event within five business days after the surrender of certificates for the Series A Preferred (if required by the Board of Directors), the Corporation shall deliver or cause to be delivered to each holder of Series A Preferred certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which such holder of the Series A Preferred so converted shall be entitled. Such conversion shall be deemed to have been made at the close of business on the date set forth in such notice of mandatory conversion so that the rights of the holder thereof shall cease with or without surrender of certificates for the Series A Preferred, except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [g] below,, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [g] Upon conversion of any shares of the Series A Preferred pursuant to paragraphs [a] or [b] of this Section 7, the holder thereof shall be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted, including any dividends on such shares of the Series A Preferred declared prior to such conversion if such holder held such shares on the record date fixed for the determination of holders of the Series A Preferred entitled to receive payment of such dividend. [h] Shares of the Series A Preferred may not be converted after the close of business on the third business day preceding the Redemption Date pursuant to Section 8. [i] The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock of the Corporation issuable upon the conversion of all outstanding shares of the Series A Preferred. [j] For purposes of this Section, "fair market value" shall be as determined by the Board of Directors in such manner as they shall deem appropriate in their discretion, unless the holder(s) of more than twenty-five percent (25%) of the outstanding shares of Preferred Stock 9 10 of the Corporation demand in good faith and in writing that "fair market value" be determined by an appraiser who shall be mutually acceptable to the Board of Directors and such holders, whose determination shall be binding and whose fees and expenses shall be paid by the Corporation. [k] The provisions in paragraph [c][ii] above shall not apply to, and no adjustment shall be made as a result of, a reverse stock split of Common Stock made by the Corporation on December 1, 1997. SECTION 8. REDEMPTION. [a] The Corporation may, at the election of its Board of Directors, at any time or from time to time, redeem the whole or part of the Series A Preferred, at the Stated Value, plus an amount equal to all unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of redemption. In case the Corporation shall elect to redeem less than all the Series A Preferred, the Corporation shall select pro rata the shares so to be redeemed, except that if the Board of Directors determines in its reasonable business judgment that to do so by lot would be in the best interests of the Corporation, then the shares so to be redeemed shall be selected by lot in such manner as shall be prescribed by the Board of Directors. [b] Notice of every such redemption shall be mailed, first class postage prepaid, not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption ("Redemption Date"), to each holder of record of the shares to be redeemed, at his or her address as the same appears on the record of stockholders; but neither failure to mail any such notice to one or more such holders nor any defect in any such notice shall affect the sufficiency of the proceedings for redemptions as to other holders. Each such notice shall state the Redemption Date; the number of shares of Series A Preferred to be redeemed, and, if less than all the shares of Series A Preferred held by such holder are to be redeemed, the manner of selecting by lot the shares to be redeemed; the place or places where such shares are to be surrendered for payment; that dividends on the shares to be redeemed will cease on such Redemption Date; and the effect of such redemption on the right of conversion. [c] Notice having been mailed as aforesaid, from and after the Redemption Date, all dividends on the shares so called for redemption shall cease to accrue, said shares shall no longer be deemed to be outstanding, all rights of the holders thereof as stockholders of the Corporation (except the right to receive payment for the shares, the right to receive declared dividends pursuant to Section 7[g] above, and the right to convert such shares into shares of Common Stock of the Corporation until the close of business on the third business day preceding the Redemption Date, as provided in Section 7) shall cease, and, upon surrender in accordance with said notice of the certificates for any such shares (properly endorsed or assigned for transfer, if the Board of Directors shall so require), such shares shall be redeemed by the Corporation in accordance with this Section 8. In connection with the determination of the amount of dividends accruing with respect to any conversion in the period between a notice of redemption and the Redemption Date, on a date which is not a Quarterly Dividend Payment Date, the amount of any such dividends shall be prorated based upon the number of days which have elapsed since the immediately preceding Quarterly Dividend Payment Date (excluding such Quarterly Dividend Payment Date itself). 10 11 SECTION 9. REPORTS AS TO ADJUSTMENTS. Whenever the number of shares of Common Stock into which the shares of the Series A Preferred are convertible is adjusted as provided in Section 7, the Corporation will (A) promptly compute such adjustment and furnish to each transfer agent for the Series A Preferred a certificate, signed by a principal financial officer of the Corporation, setting forth the number of shares of Common Stock into which each share of the Series A Preferred is convertible as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof and when such adjustment will become effective and (B) promptly mail to the holders of record of the outstanding shares of the Series A Preferred a notice stating that the number of shares into which the shares of Series A Preferred are convertible has been adjusted and setting forth the new number of shares into which each share of the Series A Preferred is convertible as a result of such adjustment and when such adjustment will become effective. Notwithstanding the foregoing, the Corporation shall incur no liability for its failure to take any action set forth in this Section 9, nor shall such failure affect the validity, rights or preferences of any shares of the Series A Preferred. SECTION 10. RANKING. The Series A Preferred shall rank senior to the Common Stock and any other series of Preferred Stock of the Corporation hereafter created (except for the Series B Preferred, which shall rank senior to the Series A Preferred, and except for the Series C Preferred, the Series D Preferred, the Series E Preferred, the Series F Preferred, and any other series of Preferred Stock which the Board of Directors shall establish and designate to rank equal therewith pursuant to Subpart C of this Article FOURTH, with which it shall rank equal), as to the payment of dividends and the distribution of assets and rights upon liquidation, dissolution or winding up of the Corporation. SECTION 11. DIRECTORSHIP. The holders of the Series A Preferred, as a class, shall be entitled to be represented on the Board of Directors by one Director (the "Series A Director") who, upon nomination by such holders, as a class, will stand for election by voting by the holders of the Preferred Stock (subject to limitations in this Article FOURTH or established by the Board of Directors pursuant to Section C of this Article FOURTH) and holders of Common Stock together, except under circumstances where the number of individuals nominated for election exceeds the number of Directors to be elected. In the event the number of individuals nominated for election exceeds the number of Directors to be elected then the holders of the Series A Preferred shall have the sole right to vote for, elect and remove the individual nominated by them, as a class, to serve as the Series A Director, and in such event the further right to vote for, elect or remove any of the other Directors who are not to be elected solely by the holders of another class or series of Preferred Stock. The Series A Director, upon being elected, will serve for the same term and have the same voting powers as other Directors. In addition, the Series A Director shall serve as a member of the Compensation, Audit, and Nominating Committees of the Board of Directors (or any other committee of the Board performing such functions), which Committees will be composed of at least one Director, in addition to the Series A Director, who is not an employee of the Corporation. E. Designation of Series B Senior Convertible Preferred Stock. A series of the Preferred Stock of the corporation is hereby created and authorized, and the designations, amount and stated value of such series of Preferred Stock and the voting powers, preferences and relative, participating, 11 12 optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereon, are as follows: SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE. The shares of such series shall be designated as Series B Senior Convertible Preferred (the "Series B Preferred") and the number of shares constituting such series shall be 1,000,000 shares. The stated value of the Series B Preferred shall be $5 per share, the original per share issue price (the "Stated Value"). SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of the Series B Preferred shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available for such purpose, cumulative dividends payable quarterly in cash on the first business day of January, April, July and October (each such date being referred to herein as a "Quarterly Dividend Payment Date"), accruing commencing with the date of issue of such shares, on shares of the Series B Preferred at the rate of $.35 per share per annum; provided, however, such rate shall be increased to $.45 per share per annum immediately upon but only for the period during which the ratio of (a) the sum of (i) the Corporation's Consolidated Total Debt plus (ii) the aggregate Stated Value of the then outstanding shares of Series B Preferred to (b) the Corporation's Adjusted Consolidated Operating Cash Flow for any four fiscal quarter period ending as of the last day of any fiscal quarter of the Corporation exceeds, as a result of the incurrence by the Corporation of additional debt, 7.75 to 1.00. No interest shall be paid on accrued but unpaid dividends. For purposes of this Section, the terms "Consolidated Total Debt" and "Adjusted Consolidated Operating Cash Flow" shall have the meanings given those terms in that certain Credit Agreement, dated as of November 14, 1997, as amended through June 11, 1998, among the Corporation, the Lenders listed therein, General Electric Capital Corporation (as Documentation Agent), and Bank of Montreal, Chicago Branch (as Agent) (not taking into account any modification or amendment of such definitions at any time after June 11, 1998 not consented to in writing by holders of the Series B Preferred and irrespective of the termination of such Credit Agreement). SECTION 3. VOTING RIGHTS. Except as provided herein or otherwise required by law, the voting power of the Corporation shall be vested in the holders of shares of Common Stock, Series A Preferred, Series C Preferred, Series E Preferred, Series F Preferred, and such other series of voting preferred stock as are from time to time designated, and the holders of shares of Series B Preferred and the Series D Preferred shall have no voting power except that with respect to the events described below, the holders of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred, Series F. Preferred, and all other series of voting preferred stock as are from time to time designated to have such voting rights, and the holders of the Corporation's Common Stock shall vote together as one class with one vote per share (in the case of Preferred Stock, subject to adjustments as provided in Section 7 below and if convertible into Common Stock, one vote per share of Common Stock into which such convertible Preferred Stock is then convertible), to the extent such of the following events are otherwise subject to the vote of any holders of capital stock of the Corporation pursuant to the requirements of the Delaware General Corporation Law: [a] any amendment of this Amended and Restated Certificate of Incorporation; 12 13 [b] a sale of all or substantially all of the assets of the Corporation; [c] the dissolution, liquidation or termination of the Corporation; [d] any acquisition of, or merger of the Corporation with, another corporation or other entity, whether or not the Corporation is a survivor of such transaction; [e] any change in the fundamental nature of the business of the Corporation; [f] any transaction with affiliates, except upon fair and reasonable terms comparable to an arms-length transaction; and [g] any change in the Corporation's capital structure in a manner that dilutes the ownership interest of the holders of Series B Preferred. SECTION 4. CERTAIN RESTRICTIONS. Whenever dividends payable on the Series B Preferred as provided in Section 2 are in arrears, thereafter and until dividends, including all accrued dividends, on shares of the Series B Preferred outstanding shall have been paid in full or declared and set apart for payment, the Corporation shall not (A) pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any such junior stock, (B) pay dividends on or make any other distributions on any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred, except dividends paid ratably on the Series B Preferred and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled, (C) redeem or purchase or otherwise acquire for consideration any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior to the Series B Preferred or in satisfaction of contractual obligations to do so entered into with the written consent of the holders of a majority of outstanding shares of Series B Preferred, or (D) purchase or otherwise acquire for consideration any shares of the Series B Preferred, or any shares of stock ranking on a parity with the Series B Preferred except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series of classes. SECTION 5. REACQUIRED SHARES. Any shares of the Series B Preferred which have been converted to Common Stock or have been purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series 13 14 of Preferred Stock to be created by resolution or resolutions of the Board of Directors, or otherwise in accordance with Delaware General Corporation Law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (A) to the holders of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred unless, prior thereto, the holders of Series B Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment or (B) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred, except distributions made ratably on the Series B Preferred and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 7. CONVERSION. [a] Optional Conversion. Subject to the provisions for adjustment hereinafter set forth, each share of the Series B Preferred shall be convertible at any time at the option of the holder thereof, in the manner hereinafter set forth, into one-half (1/2) fully paid and nonassessable share of Common Stock of the Corporation. [b] Mandatory Conversion. Subject to the provisions for adjustment set forth in this Section 7, each share of the Series B Preferred shall be convertible at the option of the Board of Directors into one-half (1/2) fully paid and nonassessable share of Common Stock of the Corporation in the event of, and concurrently with the closing of, a public offering of Common Stock of the Corporation at a per share price of at least $12.00 (subject to adjustment for stock splits, stock dividends, reverse stock splits and the like) with gross proceeds to the Corporation of at least $25,000,000 (excluding the effect of any over-allotment option). [c] The number of shares of Common Stock into which each share of the Series B Preferred is convertible shall be adjusted from time to time as follows: [i] In case the Corporation shall at any time or from time to time after the issuance of such share of Series B Preferred declare or pay any dividend on its Common Stock payable in its Common Stock or effect a subdivision of the outstanding shares of its Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise), then, and in each such case, the number of shares of Common Stock into which each share of the Series B Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the sum of (I) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event plus (II) the number of shares of Common Stock which such holder would have been entitled to receive in connection with the occurrence of such event had such share been converted immediately prior thereto, and the denominator of which is the number of shares of 14 15 Common Stock determined in accordance with clause (I) above. An adjustment made pursuant to this subparagraph [c][i] shall become effective (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. [ii] In case the Corporation at any time or from time to time after the issuance of such share of Series B Preferred shall combine or consolidate the outstanding shares of its Common Stock into a lesser number of shares of Common Stock, by reclassification or otherwise, then, and in each such case, the number of shares of Common Stock into which each share of the Series B Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the number of shares which the holder would have owned after giving effect to such event had such share been converted immediately prior to the occurrence of such event and the denominator of which is the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event. An adjustment made pursuant to this subparagraph b[ii] shall become effective at the close of business on the date immediately prior to the day upon which such corporate action becomes effective. [iii] In case the Corporation after the issuance of such share of Series B Preferred shall: (A) issue any options, warrants, or other rights entitling the holder thereof to subscribe for, or purchase, Common Stock at a price per share which, when added to the amount of consideration received or receivable by the Corporation for such options, warrants, or other rights, is less than the then fair market value per share of the Common Stock at the date of such issuance (other than stock options issued in exchange for options to purchase common stock in Faircom Inc. pursuant to the terms of a merger and options to purchase Common Stock issued to management of the Corporation exercisable for up to the lesser of 2,000,000 shares of Common Stock (subject to adjustment pursuant to provisions applicable to the options in the case of stock splits, reverse stock splits and the like) or that number of shares of Common Stock equal to fifteen percent (15%) of the aggregate number of outstanding shares of Common Stock and other equity securities of the Corporation exercisable for the purchase of, or convertible into, Common Stock computed on a fully-diluted basis); (B) issue or sell securities of the Corporation convertible into, or exchangeable for, Common Stock at a price per share which, when added to the amount of consideration received or receivable, from the Corporation for such exchangeable or convertible securities, is less than the then fair market value of a share of Common Stock at the date of such issuance; or (C) issue or sell additional shares of Common Stock for consideration representing less than the then fair market value of the Common Stock at the date of such issuance; then the number of shares of Common Stock into which each share of the Series B Preferred is convertible shall be adjusted so that, thereafter, until further adjusted, the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of 15 16 Common Stock determined by multiplying (w) the number of shares of Common Stock into which such shares are convertible immediately prior to the occurrence of such event by (x) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of additional shares of Common Stock issuable upon exercise of such options, warrants, or rights, or exchangeable or convertible securities, or the additional number of shares of Common Stock issued at such time, and the denominator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of shares of Common Stock that either (y) the sum of the aggregate exercise price of the total number of shares of Common Stock issuable upon exercise of such options, warrants, or rights, or upon conversion or exchange of such convertible securities, and the aggregate amount of consideration, if any, received or receivable by the Corporation for such options, warrants, or rights, or convertible or exchangeable securities, or (z) the aggregate consideration received in connection with the sale of shares of its Common Stock for less than the then fair market value, as the case may be, would purchase at the then fair market value. [iv] In the event that, at any time, or from time to time, after the issuance of such share of the Series B Preferred, the Common Stock issuable upon conversion of the Series B Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend, or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 7), then, and in any such event, each holder of Series B Preferred shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series B Preferred could have been converted immediately prior to such recapitalization, reclassification, or change, all subject to further adjustment as provided herein. [v] If at any time, or from time to time after the issuance of such share of the Series B Preferred there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Section 7) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all, or substantially all, of the Corporation's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made so that the holders of the Series B Preferred shall thereafter be entitled to receive upon conversion of the Series B Preferred the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the holders of Series B Preferred after the reorganization, merger, consolidation, or sale to the end that the provisions of this Section 7 shall be applicable after that event and be as nearly equivalent as may be practicable. 16 17 [vi] Upon the expiration of any rights, options, warrants or conversion or exchange privileges which caused an adjustment pursuant to this Section 7 to be made, if any thereof shall not have been exercised, the number of shares of Common Stock into which each share of the Series B Preferred is convertible shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (a) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges and (b) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise plus the aggregate consideration, if any, actually received by the Corporation for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges, whether or not exercised. [d] If any adjustment in the number of shares of Common Stock into which each share of the Series B Preferred may be converted required pursuant to this Section 7 would result in an increase or decrease of less than 1% in the number of shares of Common Stock into which each share of the Series B Preferred is then convertible, the amount of any such adjustment shall be carried forward and adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least 1% of the number of shares of Common Stock into which each share of the Series B Preferred is then convertible; provided that any such adjustments carried forward shall be made immediately following receipt of notice from a holder of the intent to convert all or a portion of the Series B Preferred such that upon conversion the holder shall receive such number of shares of Common Stock as such holder is entitled, taking into account all adjustments required by this Section 7. All calculations under this paragraph [d] shall be made to the nearest one-hundredth of a share. [e] Subject to the limitation in Section 7[h] below, the holder of any shares of the Series B Preferred may convert such shares into shares of Common Stock pursuant to paragraph [a] of this Section 7 by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, a certificate or certificates representing the shares of Series B Preferred to be converted (or if such certificate or certificates cannot be found, an affidavit of lost securities in form and substance acceptable to the Corporation) accompanied by a written notice stating that such holder elects to convert all or a specified number of such shares in accordance with the provisions of this Section 7 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. As promptly as practicable, and in any event within five business days after the surrender of such certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes, the Corporation shall deliver or cause to be delivered (I) certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which the holder of the Series B Preferred so converted shall be entitled and (ii) if less than the full number of shares of the Series B Preferred evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or 17 18 certificates less the number of shares converted. Such conversions shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates representing the shares of the Series B Preferred to be converted so that the rights of the holder thereof shall cease except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [g] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [f] The Series B Preferred shall convert to Common Stock of the Corporation pursuant to paragraph [b] of this Section 7 automatically upon notice in writing to the stockholders, including all holders of the Series B Preferred, setting forth the date of such conversion and the material terms of the triggering public offering. As promptly as practicable after such notice, and in any event within five business days after the surrender of certificates for the Series B Preferred (if required by the Board of Directors), the Corporation shall deliver or cause to be delivered to each holder of Series B Preferred certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which such holder of the Series B Preferred so converted shall be entitled. Such conversion shall be deemed to have been made at the close of business on the date set forth in such notice of mandatory conversion so that the rights of the holder thereof shall cease with or without surrender of certificates for the Series B Preferred, except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [g] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [g] Upon conversion of any shares of the Series B Preferred pursuant to paragraphs [a] or [b] of this Section 7, the holder thereof shall be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted, including any dividends on such shares of the Series B Preferred declared prior to such conversion if such holder held such shares on the record date fixed for the determination of holders of the Series B Preferred entitled to receive payment of such dividend. [h] Shares of the Series B Preferred may not be converted after the close of business on the third business day preceding the Redemption Date pursuant to Section 8. [i] The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock of the Corporation issuable upon the conversion of all outstanding shares of the Series B Preferred. [j] For purposes of this Section, "fair market value" shall be as determined by the Board of Directors in such manner as they shall deem appropriate in their discretion, unless the holder(s) of more than twenty-five percent (25%) of the outstanding shares of Preferred Stock of the Corporation demand in good faith and in writing that "fair market value" be determined by an appraiser, who shall be mutually acceptable to the Board of Directors and such holders, whose determination shall be binding and whose fees and expenses shall be paid by the Corporation. 18 19 SECTION 8. REDEMPTION. [a] The Corporation may, at the election of its Board of Directors, at any time or from time to time, redeem the whole or part of the Series B Preferred, at the Stated Value, plus an amount equal to all unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of redemption. In case the Corporation shall elect to redeem less than all the Series B Preferred, the Corporation shall select pro rata the shares so to be redeemed, except that if the Board of Directors determines in its reasonable business judgment that to do so by lot would be in the best interests of the Corporation, then the shares so to be redeemed shall be selected by lot in such manner as shall be prescribed by the Board of Directors. [b] Notice of every such redemption shall be mailed, first class postage prepaid, not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption ("Redemption Date"), to each holder of record of the shares to be redeemed, at his or her address as the same appears on the record of stockholders; but neither failure to mail any such notice to one or more such holders nor any defect in any such notice shall affect the sufficiency of the proceedings for redemptions as to other holders. Each such notice shall state the Redemption Date; the number of shares of Series B Preferred to be redeemed, and, if less than all the shares of Series B Preferred held by such holder are to be redeemed, the manner of selecting by lot the shares to be redeemed; the place or places where such shares are to be surrendered for payment; that dividends on the shares to be redeemed will cease on such Redemption Date; and the effect of such redemption on the right of conversion. [c] Notice having been mailed as aforesaid, from and after the Redemption Date, all dividends on the shares so called for redemption shall cease to accrue, said shares shall no longer be deemed to be outstanding, all rights of the holders thereof as stockholders of the Corporation (except the right to receive payment for the shares, and the right to convert such shares into shares of Common Stock of the Corporation until the close of business on the third business day preceding the Redemption Date, as provided in Section 7) shall cease, and, upon surrender in accordance with said notice of the certificates for any such shares (properly endorsed or assigned for transfer, if the Board of Directors shall so require), such shares shall be redeemed by the Corporation in accordance with this Section 8. In connection with the determination of the amount of dividends accruing with respect to any conversion in the period between a notice of redemption and the Redemption Date, on a date which is not a Quarterly Dividend Payment Date, the amount of any such dividends shall be prorated based upon the number of days which have elapsed since the immediately preceding Quarterly Dividend Payment Date (excluding such Quarterly Dividend Payment Date itself) SECTION 9. REPORTS AS TO ADJUSTMENTS. Whenever the number of shares of Common Stock into which the shares of the Series B Preferred are convertible is adjusted as provided in Section 7, the Corporation will (A) promptly compute such adjustment and furnish to each transfer agent for the Series B Preferred a certificate, signed by a principal financial officer of the Corporation, setting forth the number of shares of Common Stock into which each share of the Series B Preferred is convertible as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof and when such adjustment will become effective and (B) promptly mail to the holders of record of the outstanding shares of the Series B Preferred a notice stating that the number of shares into which the 19 20 shares of Series B Preferred are convertible has been adjusted and setting forth the new number of shares into which each share of the Series B Preferred is convertible as a result of such adjustment and when such adjustment will become effective. Notwithstanding the foregoing, the Corporation shall incur no liability for its failure to take any action set forth in this Section 9, nor shall such failure affect the validity, rights or preferences of any shares of the Series B Preferred. SECTION 10. RANKING. The Series B Preferred shall rank senior to the Common Stock, the Series A Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred, the Series F Preferred, and any other series of Preferred Stock of the Corporation hereafter created, as to the payment of dividends and the distribution of assets and rights upon liquidation, dissolution or winding up of the Corporation. F. Designation of Series C Convertible Preferred Stock. A series of the Preferred Stock of the corporation is hereby created and authorized, and the designations, amount and stated value of such series of Preferred Stock and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereon, are as follows: SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE. The shares of such series shall be designated as Series C Convertible Preferred (the "Series C Preferred") and the number of shares constituting such series shall be 4,000,000 shares. The stated value of the Series C Preferred shall be $5 per share, the original per share issue price (the "Stated Value"). SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of the Series C Preferred shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available for such purpose, cumulative dividends payable quarterly in cash on the first business day of January, April, July and October (each such date being referred to herein as a "Quarterly Dividend Payment Date"), accruing commencing with the date of issue of such shares, on shares of the Series C Preferred at the rate of $.35 per share per annum. No interest shall be paid on accrued but unpaid dividends. SECTION 3. VOTING RIGHTS. In addition to voting rights required by law or by the Certificate of Incorporation, subject to restrictions contained in this Certificate of Incorporation the holders of Series C Preferred shall be entitled to vote on all matters submitted to a vote of the Corporation's stockholders. Except as otherwise required by law or provided by this Certificate of Incorporation or by the Board of Directors pursuant to Subpart C of this Article FOURTH, the holders of the Series C Preferred shall vote together with the holders of all other series of the Corporation's voting preferred stock and the holders of the Corporation's Common Stock as one class with one vote per share (in the case of Preferred Stock, subject to adjustments as provided in Section 7 below and if convertible into Common Stock, one vote per share of Common Stock into which such convertible Preferred Stock is then convertible) on all matters submitted to a vote of the Corporation's stockholders. 20 21 SECTION 4. CERTAIN RESTRICTIONS. Whenever dividends payable on the Series C Preferred as provided in section 2 are in arrears, thereafter and until dividends, including all accrued dividends, on shares of the Series C Preferred outstanding shall have been paid in full or declared and set apart for payment, the Corporation shall not (A) pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any such junior stock, (B) pay dividends on or make any other distributions on any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred, except dividends paid ratably on the Series C Preferred and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled, (C) redeem or purchase or otherwise acquire for consideration any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior to the Series C Preferred or in satisfaction of contractual obligations to do so entered into with the written consent of the holders of a majority of outstanding shares of Series C Preferred (including, without limitation, in satisfaction of the provisions contained in the Stockholders' Agreement), or (D) purchase or otherwise acquire for consideration any shares of the Series C Preferred, or any shares of stock ranking on a parity with the Series C Preferred except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series of classes, or except pursuant to the provisions of the Stockholders' Agreement. SECTION 5. REACQUIRED SHARES. Any shares of the Series C Preferred which have been converted to Common Stock or have been purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, or otherwise in accordance with Delaware General Corporation Law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (A) to the holders of the Series C Preferred unless, prior thereto, the holders of the Series B Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (B) to the holders of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred unless, prior thereto, the holders of Series C Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (C) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C 21 22 Preferred, except distributions made ratably on the Series C Preferred and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 7. OPTIONAL CONVERSION. Each share of the Series C Preferred may be converted at any time, at the option of the holder thereof, into shares of Common Stock of the Corporation, on the terms and conditions set forth below in this Section 7: [a] Subject to the provisions for adjustment hereinafter set forth, each share of the Series C Preferred shall be convertible at the option of the holder thereof, in the manner hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation. [b] The number of shares of Common Stock into which each share of the Series C Preferred is convertible shall be adjusted from time to time as follows: [i] In case the Corporation shall at any time or from time to time after the issuance of such share of Series C Preferred declare or pay any dividend on its Common Stock payable in its Common Stock or effect a subdivision of the outstanding shares of its Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise), then, and in each such case, the number of shares of Common Stock into which each share of the Series C Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the sum of (I) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event plus (II) the number of shares of Common Stock which such holder would have been entitled to receive in connection with the occurrence of such event had such share been converted immediately prior thereto, and the denominator of which is the number of shares of Common Stock determined in accordance with clause (I) above. An adjustment made pursuant to this subparagraph b[i] shall become effective (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. [ii] In case the Corporation at any time or from time to time after the issuance of such share of Series C Preferred shall combine or consolidate the outstanding shares of its Common Stock into a lesser number of shares of Common Stock, by reclassification or otherwise, then, and in each such case, the number of shares of Common Stock into which each share of the Series C Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was 22 23 convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the number of shares which the holder would have owned after giving effect to such event had such share been converted immediately prior to the occurrence of such event and the denominator of which is the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event. An adjustment made pursuant to this subparagraph b[ii] shall become effective at the close of business on the date immediately prior to the day upon which such corporate action becomes effective. [iii] In case the Corporation after the issuance of such share of Series C Preferred shall: (A) issue any options, warrants, or other rights (excluding options to purchase Common Stock issued to management of the Corporation exercisable for up to the lesser of 2,000,000 shares of Common Stock (subject to adjustment pursuant to provisions applicable to the options in the case of stock splits, reverse stock splits and the like) or that number of shares of Common Stock equal to fifteen percent (15%) of the aggregate number of outstanding shares of Common Stock and other equity securities of the Corporation exercisable for the purchase of, or convertible into, Common Stock computed on a fully-diluted basis) entitling the holder thereof to subscribe for, or purchase, Common Stock at a price per share which, when added to the amount of consideration received or receivable by the Corporation for such options, warrants, or other rights, is less than the then fair market value per share of the Common Stock at the date of such issuance: (B) issue or sell securities of the Corporation convertible into, or exchangeable for, Common Stock at a price per share which, when added to the amount of consideration received or receivable, from the Corporation for such exchangeable or convertible securities, is less than the then fair market value of a share of Common Stock at the date of such issuance; or (C) issue or sell additional shares of Common Stock for consideration representing less than the then fair market value of the Common Stock at the date of such issuance; then the number of shares of Common Stock into which each share of the Series C Preferred is convertible shall be adjusted so that, thereafter, until further adjusted, the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (w) the number of shares of Common Stock into which such shares are convertible immediately prior to the occurrence of such event by (x) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of additional shares of Common Stock issuable upon exercise of such options, warrants, or rights, or exchangeable or convertible securities, or the additional number of shares of Common Stock issued at such time, and the denominator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of shares of Common Stock that either (y) the sum of the aggregate exercise price of the total number of shares of Common Stock issuable upon exercise of such options, warrants, or rights, or upon conversion or exchange of such convertible securities, and the aggregate amount of consideration, if any, received or receivable by the Corporation for such options, warrants, or rights, or convertible or exchangeable securities, or (z) the aggregate consideration received in connection with the sale of shares of its Common Stock for less than the then fair market value, as the case may be, would purchase at the then fair market value. 23 24 [iv] In the event that, at any time, or from time to time, after the issuance of such share of the Series C Preferred, the Common Stock issuable upon conversion of the Series C Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend, or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 7), then, and in any such event, each holder of Series C Preferred shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series C Preferred could have been converted immediately prior to such recapitalization, reclassification, or change, all subject to further adjustment as provided herein. [v] If at any time, or from time to time after the issuance of such share of the Series C Preferred there is a capital reorganization of the Common Stock other than a recapitalization, subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Section 7) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all, or substantially all, of the Corporations' properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made so that the holders of the Series C Preferred shall thereafter be entitled to receive upon conversion of the Series C Preferred the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the holders of Series C Preferred after the reorganization, merger, consolidation, or sale to the end that the provisions of this Section 7 shall be applicable after that event and be as nearly equivalent as may be practicable. [vi] Upon the expiration of any rights, options, warrants or conversion or exchange privileges which caused an adjustment pursuant to this Section 7 to be made, if any thereof shall not have been exercised, the number of shares of Common Stock into which each share of the Series C Preferred is convertible shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (a) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges and (b) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise plus the aggregate consideration, if any, actually received by the Corporation for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges, whether or not exercised. [c] If any adjustment in the number of shares of Common Stock into which each share of the Series C Preferred may be converted required pursuant to this Section 7 would result in an increase or decrease of less than 1% in the number of shares of Common Stock into 24 25 which each share of the Series C Preferred is then convertible, the amount of any such adjustment shall be carried forward and adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least 1% of the number of shares of Common Stock into which each share of the Series C Preferred is then convertible; provided that any such adjustments carried forward shall be made immediately following receipt of notice from a holder of the intent to convert all or a portion of the Series C Preferred such that upon conversion the holder shall receive such number of shares of Common Stock as such holder is entitled, taking into account all adjustments required by this Section 7. All calculations under this paragraph [c] shall be made to the nearest one-hundredth of a share. [d] The holder of any shares of the Series C Preferred may convert such shares into shares of Common Stock by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, a certificate or certificates representing the shares of Series C Preferred to be converted (or if such certificate or certificates cannot be found, an affidavit of lost securities in form and substance acceptable to the Corporation) accompanied by a written notice stating that such holder elects to convert all or a specified number of such shares in accordance with the provisions of this Section 7 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. As promptly as practicable, and in any event within five business days after the surrender of such certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes, the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which the holder of the Series C Preferred so converted shall be entitled and (ii) if less than the full number of shares of the Series C Preferred evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversions shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates representing the shares of the Series C Preferred to be converted so that the rights of the holder thereof shall cease except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [e] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [e] Upon conversion of any shares of the Series C Preferred, the holder thereof shall be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted, including any dividends on such shares of the Series C Preferred declared prior to such conversion if such holder held such shares on the record date fixed for the determination of holders of the Series C Preferred entitled to receive payment of such dividend. [f] The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock of the Corporation issuable upon the conversion of all outstanding shares of the Series C Preferred. 25 26 [g] For purposes of this Section, "fair market value" shall be as determined by the Board of Directors in such manner as they shall deem appropriate in their discretion, unless the holder(s) of more than twenty-five percent (25%) of the outstanding shares of Preferred Stock of the Corporation demand in good faith and in writing that "fair market value" be determined by an appraiser who shall be mutually acceptable to the Board of Directors and such holders, whose determination shall be binding and whose fees and expenses shall be paid by the Corporation. SECTION 8. MANDATORY CONVERSION. Each share of the Series C Preferred shall be converted, at the option of the Board of Directors, into shares of Common Stock of the Corporation, on the terms and conditions set forth below in this Section 8: [a] Subject to the provisions for adjustment set forth in Section 7, which shall also apply to conversions pursuant to this Section 8, each share of the Series C Preferred shall be convertible at the option of the Board of Directors, under the conditions hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation. [b] The Board of Directors of the Corporation may require conversion of all shares of the Series C Preferred into shares of Common Stock upon any of the following events if, and only if, all other outstanding shares of Preferred Stock of the Corporation, other than those which rank senior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred, are concurrently either redeemed or converted: [i] A public offering of equity securities of the Corporation of at least $10,000,000 in gross proceeds; [ii] A private placement of equity securities of the Corporation of at least $25,000,000 in gross proceeds; [iii] A private placement of equity securities of the Corporation of at least $10,000,000 in gross proceeds under circumstances where the investor(s) reasonably believe the conversion of the Series C Preferred is necessary to achieve its (their) investment objectives; [iv] A merger of the Corporation with another corporation or other entity, whether or not the Corporation is a survivor of such transaction whereby as a result the stockholders of the Corporation hold less than 50% of the outstanding capital stock of the surviving entity; or [v] An acquisition of equity securities of the Corporation in one transaction or in a series of related transactions which results in a transfer of majority voting control of the Corporation. [c] The Series C Preferred shall convert to Common Stock of the Corporation automatically upon notice in writing to the stockholders, including all holders of the Series C Preferred, setting forth the date of such conversion and the material terms of the triggering 26 27 event. As promptly as practicable after such notice, and in any event within five business days after the surrender of certificates for the Series C Preferred (if required by the Board of Directors), the Corporation shall deliver or cause to be delivered to each holder of Series C Preferred certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which such holder of the Series C Preferred so converted shall be entitled. Such conversion shall be deemed to have been made at the close of business on the date set forth in such notice of mandatory conversion so that the rights of the holder thereof shall cease with or without surrender of certificates for the Series C Preferred, except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [d] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [d] Upon conversion of the Series C Preferred, the holder thereof shall be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted, including any dividends on such shares of the Series C Preferred declared prior to such conversion if such holder held such shares on the record date fixed for the determination of holders of the Series C Preferred entitled to receive payment of such dividend. [e] The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock of the Corporation issuable upon the conversion of all outstanding shares of the Series C Preferred. SECTION 9. REPORTS AS TO ADJUSTMENTS. Whenever the number of shares of Common Stock into which the shares of the Series C Preferred are convertible is adjusted as provided in Section 7, the Corporation will (A) promptly compute such adjustment and furnish to each transfer agent for the Series C Preferred a certificate, signed by a principal financial officer of the Corporation, setting forth the number of shares of Common Stock into which each share of the Series C Preferred is convertible as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof and when such adjustment will become effective and (B) promptly mail to the holders of record of the outstanding shares of the Series C Preferred a notice stating that the number of shares into which the shares of Series C Preferred are convertible has been adjusted and setting forth the new number of shares into which each share of the Series C Preferred is convertible as a result of such adjustment and when such adjustment will become effective. Notwithstanding the foregoing, the Corporation shall incur no liability for its failure to take any action set forth in this Section 9, nor shall such failure affect the validity, rights or preferences of any shares of the Series C Preferred. SECTION 10. RANKING. The Series C Preferred shall rank senior to the Common Stock and any other series of Preferred Stock of the Corporation hereafter created (except for the Series B Preferred, which shall rank senior to the Series C Preferred, and except for the Series A Preferred, the Series D Preferred, the Series E Preferred, the Series F Preferred, and any other series of Preferred Stock which the Board of Directors shall establish and designate to rank equal therewith pursuant to Subpart C of this Article FOURTH, with which it shall rank equal), as to the payment of dividends and the distribution of assets and rights upon liquidation, dissolution or winding up of the Corporation. 27 28 SECTION 11. DIRECTORSHIP. The holders of the Series C Preferred, as a class, shall be entitled to be represented on the Board of Directors by one Director (the "Series C Director") who, upon nomination by such holders, as a class, will stand for election by voting by the holders of the Preferred Stock entitled to vote for the election of directors (subject to limitations in this Article FOURTH or established by the Board of Directors pursuant to Section C of this Article FOURTH) and holders of Common Stock together, except under circumstances where the number of individuals nominated for election exceeds the number of Directors to be elected. In the event the number of individuals nominated for election exceeds the number of Directors to be elected, then the holders of the Series C Preferred shall have the sole right to vote for, elect and remove the individual nominated by them, as a class, to serve as the Series C Director, and in such event the further right to vote for, elect or remove any of the other Directors who are not to be elected solely by the holders of another class or series of Preferred Stock.. The Series C Director, upon being elected, will serve for the same term and have the same voting powers as other Directors. The right to elect the Series C Director pursuant to the terms hereof shall be exercisable by the holders of a majority of the Series C Preferred at their option upon at least 60 days notice to the Corporation; provided, however, if the Corporation is subject to the reporting requirements of the Securities Exchange Act of 1934, such notice must be provided on or before the date established by the Corporation for the submission of proposals pursuant to the proxy rules promulgated under the Securities Exchange Act of 1934. The Series C Director, if not an employee of the Corporation, shall serve as a member of the Compensation, Audit, and Nominating Committees of the Board of Directors (or any other Committee of the Board performing such functions), which Committees will be composed of at least one Director, in addition to the Series C Director, who is not an employee of the Corporation. G. Designation of Series D Convertible Preferred Stock. A series of the Preferred Stock of the corporation is hereby created and authorized, and the designations, amount and stated value of such series of Preferred Stock and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereon, are as follows: SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE. The shares of such series shall be designated as Series D Convertible Preferred (the "Series D Preferred") and the number of shares constituting such series shall be 1,000,000 shares. The stated value of the Series D Preferred shall be $5 per share, the original per share issue price (the "Stated Value"). SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of the Series D Preferred shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available for such purpose, cumulative dividends payable quarterly in cash on the first business day of January, April, July and October (each such date being referred to herein as a "Quarterly Dividend Payment Date"), accruing commencing with the date of issue of such shares, on shares of the Series D Preferred at the rate of $.35 per share per annum. No interest shall be paid on accrued but unpaid dividends. 28 29 SECTION 3. VOTING RIGHTS. Except as provided herein or otherwise required by law, the voting power of the Corporation shall be vested in the holders of shares of Common Stock, Series A Preferred, Series C Preferred, Series E Preferred, Series F Preferred, and such other series of voting preferred stock as are from time to time designated, and the holders of shares of Series B Preferred and the Series D Preferred shall have no voting power, except that with respect to the events described below, the holders of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred, the Series F Preferred, and all other series of voting preferred stock as are from time to time designated to have such voting rights, and the holders of the Corporation's Common Stock shall vote together as one class with one vote per share (in the case of Preferred Stock, subject to adjustments as provided in Section 7 below and if convertible into Common Stock, one vote per share of Common Stock into which such convertible Preferred Stock is then convertible), to the extent such of the following events are otherwise subject to the vote of any holders of capital stock of the Corporation: [a] any amendment of this Amended and Restated Certificate of Incorporation, including the same as it may hereafter be amended or restated, which (i) authorizes, or modifies the rights, preferences or terms of, any security that is or would be senior in any respect to the Series D Preferred, (ii) modifies any of the rights, preferences or terms of the Series D Preferred, or (iii) would otherwise significantly and adversely affect the Series D Preferred. [b] a sale of all or substantially all of the assets of the Corporation; [c] the dissolution, liquidation or termination of the Corporation; [d] any merger of the Corporation with another corporation or entity, whether or not the Corporation is the survivor; [e] any material change in the fundamental nature of the business of the Corporation; [f] any transaction with affiliates, except upon fair and reasonable terms comparable to an arms-length transaction; and [g] any change in the Corporation's capital structure in a manner that dilutes the economic interest of the holders of Series D Preferred. At such time as the holders of the Series D Preferred shall have obtained the consent (which does not need to have become final) of the Federal Communications Commission to the exercise by the holders of the Series D Preferred of the voting rights set forth below or at such time as the consent of the Federal Communications Commission is not necessary under applicable law, rule or regulation (in the opinion of counsel acceptable to the Board of Directors), then on the election of a majority of the holders of the Series D Preferred, in addition to voting rights required by law, the holders of Series D Preferred shall be entitled to vote on all matters submitted to a vote of the Corporation's stockholders in accordance with the next sentence. Except as otherwise required by 29 30 law or this Certificate of Incorporation, the holders of the Series D Preferred and the holders of the Corporation's Common Stock shall vote together as part of the same class and each of the outstanding shares of the Series D Preferred shall have a number of votes per share on a matter equal to the quotient of (a) the lesser of (1) the number of shares of Common Stock into which the outstanding shares of Series D Preferred are then convertible, and (2) the difference between (A) the product of (i) the fraction equal to 0.049 divided by 0.951, multiplied by (ii) the sum of the number of votes entitled to be a cast by the Corporation's Common Stock and any Series of Preferred (other than the Series D Preferred) which votes as a class with the Corporation's Common Stock on such matter minus (B) the number of shares of the Corporation's Common Stock issued pursuant to Section 7[a][i] of this Subarticle G of Article 4 (fully adjusted to reflect the events described in Section 7[c][i] and [ii], divided by (b) the number of outstanding shares of Series D Preferred. It is the intention of this provision that it should be construed consistently with the limitations to which bank holding companies and foreign banks treated as bank holding companies are subject with respect to the ownership or control of voting securities under the Bank Holding Company Act of 1956, as amended. SECTION 4. CERTAIN RESTRICTIONS. Whenever dividends payable on the Series D Preferred as provided in section 2 are in arrears,, thereafter and until dividends, including all accrued dividends, on shares of the Series D Preferred outstanding shall have been paid in full or declared and set apart for payment, the Corporation shall not (A) pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series D Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any such junior stock, (B) pay dividends on or make any other distributions on any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series D Preferred, except dividends paid ratably on the Series D Preferred and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled, (C) redeem or purchase or otherwise acquire for consideration any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series D Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior to the Series D Preferred or in satisfaction of contractual obligations to do so entered into with the written consent of the holders of a majority of outstanding shares of Series D Preferred (including, without limitation, in satisfaction of the provisions contained in the Stockholders' Agreement), or (D) purchase or otherwise acquire for consideration any shares of the Series D Preferred, or any shares of stock ranking on a parity with the Series D Preferred except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series of classes or except pursuant to the provisions of the Stockholders' Agreement. 30 31 SECTION 5. REACQUIRED SHARES. Any shares of the Series D Preferred which have been converted to Common Stock or have been purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, or otherwise in accordance with Delaware General Corporation Law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (A) to the holders of the Series D Preferred unless, prior thereto, the holders of the Series B Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (B) to the holders of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series D Preferred unless, prior thereto, the holders of Series D Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (C) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series D Preferred, except distributions made ratably on the Series D Preferred and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 7. CONVERSION. [a] Optional Conversion. Subject to Section 7[c] and to the provisions for adjustment hereinafter set forth, each share of the Series D Preferred shall be convertible at the option of the holder thereof, in the manner hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation. [b] Mandatory Conversion. Subject to the provisions for adjustment set forth in this Section 7, each share of the Series D Preferred shall be convertible at the option of the Board of Directors, under the conditions hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation in the event of, and concurrently with the closing of, a public offering of Common Stock (or Series B Common Stock if required pursuant to clause [c][i] below) of the Corporation at a per share price of at least $12.00 (subject to adjustment for stock splits, stock dividends, reverse stock splits and the like) with gross proceeds to the Corporation of at least $25,000,000 (excluding the effect of any over-allotment option). [c] Shares of Series D Preferred may be converted by a holder pursuant to Section 7[a] or at the option of the Board of Directors pursuant to Section 7[b]only: [i] To acquire shares of Common Stock; provided, however, that to the extent necessary to prevent the holders of Series D Preferred Stock from being in violation of any applicable law or regulation, all shares issuable to such holder on conversion of Series D Preferred, together with all of the shares of Common Stock 31 32 previously acquired on conversion of Series D Preferred under this provision (fully adjusted to reflect the events described in Section 7[c]), shall, at the time and as a condition of such conversion, be designated Series B Common Stock, which will have all of the characteristics of the Common Stock with the sole exception that the voting rights of such Series B Common Stock shall be subject to the same voting rights limitations as are applicable to the Series D Preferred pursuant to Section 3 above and will be convertible at any time into Common Stock at the option of the holder in the same manner and subject to the same conditions as were applicable to a voluntary conversion of the Series D Preferred set forth in this Section 7; or [ii] In a widely dispersed public distribution of the resulting Common Stock; or [iii] In connection with a private placement in which no one party directly or indirectly acquires the right to purchase in excess of 2% of the Common Stock; or [iv] In an assignment to one or more financial intermediaries (e.g., broker-dealer or investment banker) for the purpose of conducting a widely dispersed distribution of the resulting Common Stock on behalf of the holder; or [v] On effectiveness of an amendment to or repeal of the Bank Holding Company Act of 1956, as amended (including any replacement law, "BHCA"), or the International Banking Act of 1978, as amended ("IBA"), as a result of which a bank holding company (as defined in the BHCA) and a foreign bank with a U.S. branch or agency may acquire the resulting shares of Common Stock without limitation; or [vi] On receipt and finality of an order approving the transaction from the Board of Governors of the Federal Reserve System (including any successor agency responsible for supervision and enforcement under the BHCA or IBA, "FRB") under the BHCA or the IBA. [d] The number of shares of Common Stock into which each share of the Series D Preferred is convertible shall be adjusted from time to time as follows: [i] In case the Corporation shall at any time or from time to time after the issuance of such share of Series D Preferred declare or pay any dividend on its Common Stock payable in its Common Stock or effect a subdivision of the outstanding shares of its Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise), then, and in each such case, the number of shares of Common Stock into which each share of the Series D Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the sum of (I) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event plus (II) the number of shares of Common Stock which such holder would have been entitled to receive in connection with the occurrence of such event had such share been converted 32 33 immediately prior thereto, and the denominator of which is the number of shares of Common Stock determined in accordance with clause (I) above. An adjustment made pursuant to this subparagraph [d][i] shall become effective (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. [ii] In case the Corporation at any time or from time to time after the issuance of such share of Series D Preferred shall combine or consolidate the outstanding shares of its Common Stock into a lesser number of shares of Common Stock, by reclassification or otherwise, then, and in each such case, the number of shares of Common Stock into which each share of the Series D Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the number of shares which the holder would have owned after giving effect to such event had such share been converted immediately prior to the occurrence of such event and the denominator of which is the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event. An adjustment made pursuant to this subparagraph d[ii] shall become effective at the close of business on the date immediately prior to the day upon which such corporate action becomes effective. [iii] In case the Corporation after the issuance of such share of Series D Preferred shall: (A) issue any options, warrants, or other rights (excluding those issued in exchange for options to purchase common stock in Faircom Inc. pursuant to the terms of a merger, and excluding options to purchase Common Stock issued to management of the Corporation exercisable for up to the lesser of 2,000,000 shares of Common Stock (subject to adjustment pursuant to provisions applicable to the options in the case of stock splits, reverse stock splits and the like) or that number of shares of Common Stock equal to fifteen percent (15%) of the aggregate number of outstanding shares of Common Stock and other equity securities of the Corporation exercisable for the purchase of, or convertible into, Common Stock computed on a fully-diluted basis) entitling the holder thereof to subscribe for, or purchase, Common Stock at a price per share which, when added to the amount of consideration received or receivable by the Corporation for such options, warrants, or other rights, is less than the then fair market value per share of the Common Stock at the date of such issuance; (B) issue or sell securities of the Corporation convertible into, or exchangeable for, Common Stock at a price per share which, when added to the amount of consideration received or receivable, from the Corporation for such exchangeable or convertible securities, is less than the then fair market value of a share of Common Stock at the date of such issuance; or (C) issue or sell additional shares of Common Stock for consideration representing less than the then fair market value of the Common Stock at the date of such issuance; then the number of shares of Common Stock into which each share of the Series D Preferred is convertible shall be adjusted so that, thereafter, until further adjusted, the holder of each share thereof shall be 33 34 entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (w) the number of shares of Common Stock into which such shares are convertible immediately prior to the occurrence of such event by (x) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of additional shares of Common Stock issuable upon exercise of such options, warrants, or rights, or exchangeable or convertible securities, or the additional number of shares of Common Stock issued at such time, and the denominator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of shares of Common Stock that either (y) the sum of the aggregate exercise price of the total number of shares of Common Stock issuable upon exercise of such options, warrants, or rights, or upon conversion or exchange of such convertible securities, and the aggregate amount of consideration, if any, received or receivable by the Corporation for such options, warrants, or rights, or convertible or exchangeable securities, or (z) the aggregate consideration received in connection with the sale of shares of its Common Stock for less than the then fair market value, as the case may be, would purchase at the then fair market value. [iv] In the event that, at any time, or from time to time, after the issuance of such share of the Series D Preferred, the Common Stock issuable upon conversion of the Series D Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend, or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 7), then, and in any such event, each holder of Series D Preferred shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series D Preferred could have been converted immediately prior to such recapitalization, reclassification, or change, all subject to further adjustment as provided herein. [v] If at any time, or from time to time after the issuance of such share of the Series D Preferred, there is a capital reorganization of the Common Stock other than a recapitalization, subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Section 7) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all, or substantially all, of the Corporations' properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made so that the holders of the Series D Preferred shall thereafter be entitled to receive upon conversion of the Series D Preferred the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the holders of Series D Preferred after the reorganization, merger, consolidation, or sale to the end that the provisions of this Section 7 shall be applicable after that event and be as nearly equivalent as may be practicable. 34 35 [vi] Upon the expiration of any rights, options, warrants or conversion or exchange privileges which caused an adjustment pursuant to this Section 7 to be made, if any thereof shall not have been exercised, the number of shares of Common Stock into which each share of the Series D Preferred is convertible shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (a) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges and (b) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges, whether or not exercised. [e] If any adjustment in the number of shares of Common Stock into which each share of the Series D Preferred may be converted required pursuant to this Section 7 would result in an increase or decrease of less than 1% in the number of shares of Common Stock into which each share of the Series D Preferred is then convertible, the amount of any such adjustment shall be carried forward and adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least 1% of the number of shares of Common Stock into which each share of the Series D Preferred is then convertible; provided that any such adjustments carried forward shall be made immediately following receipt of notice from a holder of the intent to convert all or a portion of the Series D Preferred such that upon conversion the holder shall receive such number of shares of Common Stock as such holder is entitled, taking into account all adjustments required by this Section 7. All calculations under this paragraph [e] shall be made to the nearest one-hundredth of a share. [f] Subject to the limitation in Section 7[i] below, the holder of any shares of the Series D Preferred may convert such shares into shares of Common Stock pursuant to paragraph [a] of this Section 7 by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, a certificate or certificates representing the shares of Series D Preferred to be converted (or if such certificate or certificates cannot be found, an affidavit of lost securities in form and substance acceptable to the Corporation) accompanied by a written notice stating that such holder elects to convert all or a specified number of such shares in accordance with the provisions of this Section 7 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. As promptly as practicable, and in any event within five business days after the surrender of such certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes, the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which the holder of the Series D Preferred so converted shall be entitled and (ii) if less than the full number of shares of the Series D Preferred evidenced by the surrendered certificate or certificates are being converted, a new certificate or 35 36 certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversions shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates representing the shares of the Series D Preferred to be converted so that the rights of the holder thereof shall cease except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [h] below,, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [g] The Series D Preferred shall convert to Common Stock of the Corporation pursuant to paragraph [b] of this Section 7 automatically upon notice in writing to the stockholders, including all holders of the Series D Preferred, setting forth the date of such conversion and the material terms of the triggering public offering. As promptly as practicable after such notice, and in any event within five business days after the surrender of certificates for the Series D Preferred (if required by the Board of Directors), the Corporation shall deliver or cause to be delivered to each holder of Series D Preferred certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which such holder of the Series D Preferred so converted shall be entitled. Such conversion shall be deemed to have been made at the close of business on the date set forth in such notice of mandatory conversion so that the rights of the holder thereof shall cease with or without surrender of certificates for the Series D Preferred, except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [h] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [h] Upon conversion of any shares of the Series D Preferred pursuant to paragraph [a] or [b] of this Section 7, the holder thereof shall be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted, including any dividends on such shares of the Series D Preferred declared prior to such conversion if such holder held such shares on the record date fixed for the determination of holders of the Series D Preferred entitled to receive payment of such dividend. [i] Shares of the Series D Preferred may not be converted after the close of business on the third business day preceding the Redemption Date pursuant to Section 8. [j] The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock of the Corporation issuable upon the conversion of all outstanding shares of the Series D Preferred. [k] For purposes of this Section, "fair market value" shall be as determined by the Board of Directors in such manner as they shall deem appropriate in their discretion, unless the holder(s) of more than twenty-five percent (25%) of the outstanding shares of Preferred Stock of the Corporation demand in good faith and in writing that "fair market value" be determined by an appraiser, who shall be mutually acceptable to the Board of Directors and such holders, whose determination shall be binding and whose fees and expenses shall be paid by the Corporation. 36 37 SECTION 8. REDEMPTION. [a] The Corporation may, at the election of its Board of Directors, at any time or from time to time, redeem the whole or part of the Series D Preferred, at the Stated Value, plus an amount equal to all unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of redemption. In case the Corporation shall elect to redeem less than all the Series D Preferred, the Corporation shall select pro rata the shares so to be redeemed, except that if the Board of Directors determines in its reasonable business judgment that to do so by lot would be in the best interests of the Corporation, then the shares so to be redeemed shall be selected by lot in such manner as shall be prescribed by the Board of Directors. [b] Notice of every such redemption shall be mailed, first class postage prepaid, not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption ("Redemption Date"), to each holder of record of the shares to be redeemed, at his or her address as the same appears on the record of stockholders; but neither failure to mail any such notice to one or more such holders nor any defect in any such notice shall affect the sufficiency of the proceedings for redemptions as to other holders. Each such notice shall state the Redemption Date; the number of shares of Series D Preferred to be redeemed, and, if less than all the shares of Series D Preferred held by such holder are to be redeemed, the manner of selecting by lot the shares to be redeemed; the place or places where such shares are to be surrendered for payment; that dividends on the shares to be redeemed will cease on such Redemption Date; and the effect of such redemption on the right of conversion. [c] Notice having been mailed as aforesaid, from and after the Redemption Date, all dividends on the shares so called for redemption shall cease to accrue, said shares shall no longer be deemed to be outstanding, all rights of the holders thereof as stockholders of the Corporation (except the right to receive payment for the shares, the right to receive declared dividends pursuant to Section 7[g] above, and the right to convert such shares into shares of Common Stock of the Corporation until the close of business on the third business day preceding the Redemption Date, as provided in Section 7) shall cease, and, upon surrender in accordance with said notice of the certificates for any such shares (properly endorsed or assigned for transfer, if the Board of Directors shall so require), such shares shall be redeemed by the Corporation in accordance with this Section 8. In connection with the determination of the amount of dividends accruing with respect to any conversion in the period between a notice of redemption and the Redemption Date, on a date which is not a Quarterly Dividend Payment Date, the amount of any such dividends shall be prorated based upon the number of days which have elapsed since the immediately preceding Quarterly Dividend Payment Date (excluding such Quarterly Dividend Payment Date itself). SECTION 9. REPORTS AS TO ADJUSTMENTS. Whenever the number of shares of Common Stock into which the shares of the Series D Preferred are convertible is adjusted as provided in Section 7, the Corporation will (A) promptly compute such adjustment and furnish to each transfer agent for the Series D Preferred a certificate, signed by a principal financial officer of the Corporation, setting forth the number of shares of Common Stock into which each share of the Series D Preferred is convertible as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof and 37 38 when such adjustment will become effective and (B) promptly mail to the holders of record of the outstanding shares of the Series D Preferred a notice stating that the number of shares into which the shares of Series D Preferred are convertible has been adjusted and setting forth the new number of shares into which each share of the Series D Preferred is convertible as a result of such adjustment and when such adjustment will become effective. Notwithstanding the foregoing, the Corporation shall incur no liability for its failure to take any action set forth in this Section 9, nor shall such failure affect the validity, rights or preferences of any shares of the Series D Preferred. SECTION 10. RANKING. The Series D Preferred shall rank senior to the Common Stock and any other series of Preferred Stock of the Corporation hereafter created (except for the Series B Preferred, which shall rank senior to the Series D Preferred, and except for the Series A Preferred, the Series C Preferred, the Series E Preferred, the Series F Preferred, and any other series of Preferred Stock which the Board of Directors shall establish and designate to rank equal therewith pursuant to Subpart C of this Article FOURTH, with which it shall rank equal), as to the payment of dividends and the distribution of assets and rights upon liquidation, dissolution or winding up of the Corporation. H. Designation of Series E Convertible Preferred Stock. A series of the Preferred Stock of the Corporation is hereby created and authorized, and the designations, amount and stated value of such series of Preferred Stock and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereon, are as follows: SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE. The shares of such series shall be designated as "Series E Convertible Preferred Stock" (the "Series E Preferred") and the number of shares constituting such series shall be 5,000,000 shares. The stated value of the Series E Preferred shall be $5 per share, the original per share issue price (the "Stated Value") . SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of the Series E Preferred shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available for such purpose, cumulative dividends payable quarterly in cash on the first business day of January, April, July and October (each such date being referred to herein as a "Quarterly Dividend Payment Date"), accruing commencing with the date of issue of such shares, on shares of the Series E Preferred at the rate of $.35 per share per annum. No interest shall be paid on accrued but unpaid dividends. SECTION 3. VOTING RIGHTS. In addition to voting rights required by law or by this Amended Certificate of Incorporation, as amended or restated from time to time (the "Certificate of Incorporation"), subject to restrictions contained in this Certificate of Incorporation the holders of Series E Preferred shall be entitled to vote on all matters submitted to a vote of the Corporation's stockholders. Except as otherwise required by law or provided by this Certificate of Incorporation or by the Board of Directors pursuant to Subpart C 38 39 of this Article FOURTH, the holders of the Series E Preferred shall vote together with the holders of all other series of the Corporation's voting preferred stock and the holders of the Corporation's Common Stock as one class with one vote per share (in the case of Preferred Stock, subject to adjustments as provided in Section 7 below and if convertible into Common Stock, one vote per share of Common Stock into which such convertible Preferred Stock is then convertible) on all matters submitted to a vote of the Corporation's stockholders. SECTION 4. CERTAIN RESTRICTIONS. Whenever dividends payable on the Series E Preferred as provided in Section 2 are in arrears, thereafter and until dividends, including all accrued dividends, on shares of the Series E Preferred outstanding shall have been paid in full or declared and set apart for payment, the Corporation shall not (A) pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series E Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any such junior stock, (B) pay dividends on or make any other distributions on any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series E Preferred, except dividends paid ratably on the Series E Preferred and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled, (C) redeem or purchase or otherwise acquire for consideration any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series E Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior to the Series E Preferred or in satisfaction of contractual obligations to do so entered into with the written consent of the holders of a majority of aggregate outstanding shares of Series A Preferred and Series E Preferred outstanding as of the date of the creation of such contractual obligations (including, without limitation, in satisfaction of the provisions contained in the Stockholders' Agreement), or (D) purchase or otherwise acquire for consideration any shares of the Series E Preferred or any shares of stock ranking on a parity with the Series E Preferred except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series of classes or except pursuant to the provisions of the Stockholders' Agreement. SECTION 5. REACQUIRED SHARES. Any shares of the Series E Preferred which have been converted to Common Stock or have been purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, or otherwise in accordance with Delaware General Corporation Law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. 39 40 Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (A) to the holders of the Series E Preferred unless, prior thereto, the holders of the Series B Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (B) to the holders of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series E Preferred unless, prior thereto, the holders of Series E Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (C) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series E Preferred, except distributions made ratably on the Series E Preferred and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 7. OPTIONAL CONVERSION. Each share of the Series E Preferred may be converted at any time, at the option of the holder thereof, into shares of Common Stock of the Corporation, on the terms and conditions set forth below in this Section 7: [a] Subject to the provisions for adjustment hereinafter set forth, each share of the Series E Preferred shall be convertible at the option of the holder thereof, in the manner hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation. [b] The number of shares of Common Stock into which each share of the Series E Preferred is convertible shall be adjusted from time to time as follows: [i] In case the Corporation shall at any time or from time to time after the issuance of such share of Series E Preferred declare or pay any dividend on its Common Stock payable in its Common Stock or effect a subdivision of the outstanding shares of its Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise), then, and in each such case, the number of shares of Common Stock into which each share of the Series E Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the sum of (I) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event plus (II) the number of shares of Common Stock which such holder would have been entitled to receive in connection with the occurrence of such event had such share been converted immediately prior thereto, and the denominator of which is the number of shares of Common Stock determined in accordance with clause (I) above. An adjustment made pursuant to this subparagraph [b][i] shall become effective (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. 40 41 [ii] In case the Corporation at any time or from time to time after the issuance of such share of Series E Preferred shall combine or consolidate the outstanding shares of its Common Stock into a lesser number of shares of Common Stock, by reclassification or otherwise, then, and in each such case, the number of shares of Common Stock into which each share of the Series E Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the number of shares which the holder would have owned after giving effect to such event had such share been converted immediately prior to the occurrence of such event and the denominator of which is the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event. An adjustment made pursuant to this subparagraph b(ii] shall become effective at the close of business on the date immediately prior to the day upon which such corporate action becomes effective. [iii] In case the Corporation after the issuance of such share of Series E Preferred shall: (A) issue any options, warrants, or other rights (excluding those issued in exchange for options to purchase common stock in Faircom Inc. pursuant to the terms of a merger, and excluding options to purchase Common Stock issued to management of the Corporation exercisable for up to the lesser of 2,000,000 shares of Common Stock (subject to adjustment pursuant to provisions applicable to the options in the case of stock splits, reverse stock splits and the like) or that number of shares of Common Stock equal to fifteen percent (15%) of the equity aggregate number of outstanding shares of Common Stock and other securities of the Corporation exercisable for the purchase of, or convertible into, Common Stock, computed on a fully-diluted basis) entitling the holder thereof to subscribe for, or purchase, Common Stock at a price per share which, when added to the amount of consideration received or receivable by the Corporation for such options, warrants, or other rights, is less than the then fair market value per share of the Common Stock at the date of such issuance; (B) issue or sell securities of the Corporation convertible into, or exchangeable for, Common Stock at a price per share which, when added to the amount of consideration received or receivable, from the Corporation for such exchangeable or convertible securities, is less than the then fair market value of a share of Common Stock at the date of such issuance; or (C) issue or sell additional shares of Common Stock for consideration representing less than the then fair market value of the Common Stock at the date of such issuance; then the number of shares of Common Stock into which each share of the Series E Preferred is convertible shall be adjusted so that, thereafter, until further adjusted, the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (w) the number of shares of Common Stock into which such shares are convertible immediately prior to the occurrence of such event by (x) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of additional shares of Common Stock issuable upon exercise of such options, warrants, or rights, or exchangeable or convertible securities, or the additional number of shares of Common Stock issued at such time, and the 41 42 denominator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of shares of Common Stock that either (y) the sum of the aggregate exercise price of the total number of shares of Common Stock issuable upon exercise of such options, warrants, or rights, or upon conversion or exchange of such convertible securities, and the aggregate amount of consideration, if any, received or receivable by the Corporation for such options, warrants, or rights, or convertible or exchangeable securities, or (z) the aggregate consideration received in connection with the sale of shares of its Common Stock for less than the then fair market value, as the case may be, would purchase at the then fair market value. [iv] In the event that, at any time, or from time to time, after the issuance of such share of the Series E Preferred, the Common Stock issuable upon conversion of the Series E Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend, or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 7), then, and in any such event, each holder of Series E Preferred shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series E Preferred could have been converted immediately prior to such recapitalization, reclassification, or change, all subject to further adjustment as provided herein. [v] If at any time, or from time to time after the issuance of such share of the Series E Preferred there is a capital reorganization of the Common Stock other than a recapitalization, subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Section 7) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all, or substantially all, of the Corporations' properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made so that the holders of the Series E Preferred shall thereafter be entitled to receive upon conversion of the Series E Preferred the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the holders of Series E Preferred after the reorganization, merger, consolidation, or sale to the end that the provisions of this Section 7 shall be applicable after that event and be as nearly equivalent as may be practicable. [vi] Upon the expiration of any rights, options, warrants or conversion or exchange privileges which caused an adjustment pursuant to this Section 7 to be made, if any thereof shall not have been exercised, the number of shares of Common Stock into which each share of the Series E Preferred is convertible shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (a) the only shares of Common Stock so issued were the shares of 42 43 Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges and (b) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges, whether or not exercised. [c] If any adjustment in the number of shares of Common Stock into which each share of the Series E Preferred may be converted required pursuant to this Section 7 would result in an increase or decrease of less than 1% in the number of shares of Common Stock into which each share of the Series E Preferred is then convertible, the amount of any such adjustment shall be carried forward and adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least 1% of the number of shares of Common Stock into which each share of the Series E Preferred is then convertible; provided that any such adjustments carried forward shall be made immediately following receipt of notice from a holder of the intent to convert all or a portion of the Series B Preferred such that upon conversion the holder shall receive such number of shares of Common Stock as such holder is entitled, taking into account all adjustments required by this Section 7. All calculations under this paragraph [c] shall be made to the nearest one-hundredth of a share. [d] The holder of any shares of the Series E Preferred may convert such shares into shares of Common Stock by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, a certificate or certificates representing the shares of Series E Preferred to be converted (or if such certificate or certificates cannot be found, an affidavit of lost securities in form and substance acceptable to the Corporation) accompanied by a written notice stating that such holder elects to convert all or a specified number of such shares in accordance with the provisions of this Section 7 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. As promptly as practicable, and in any event within five business days after the surrender of such certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes, the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which the holder of the Series E Preferred so converted shall be entitled and (ii) if less than the full number of shares of the Series E Preferred evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversions shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates representing the shares of the Series E Preferred to be converted so that the rights of the holder thereof shall cease except for the right to receive Common Stock of the corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [e] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. 43 44 [e] Upon conversion of any shares of the Series E Preferred, the holder thereof shall be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted, including any dividends on such shares of the Series E Preferred declared prior to such conversion if such holder held such shares on the record date fixed for the determination of holders of the Series E Preferred entitled to receive payment of such dividend. [f] The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock of the Corporation issuable upon the conversion of all outstanding shares of the Series E Preferred. [g] For purposes of this Section, "fair market value" shall be as determined by the Board of Directors in such manner as they shall deem appropriate in their discretion, unless the holder(s) of more than twenty-five percent (25%) of the outstanding shares of Preferred Stock of the Corporation demand in good faith and in writing that "fair market value" be determined by an appraiser, who shall be mutually acceptable to the Board of Directors and such holders, whose determination shall be binding and whose fees and expenses shall be paid by the Corporation. SECTION 8. MANDATORY CONVERSION. Each share of the Series E Preferred shall be converted, at the option of the Board of Directors, into shares of Common Stock of the Corporation, on the terms and conditions set forth below in this Section 8: [a] Subject to the provisions for adjustment set forth in Section 7, which shall also apply to conversions pursuant to this Section 8, each share of the Series E Preferred shall be convertible at the option of the Board of Directors, under the conditions hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation. [b] The Board of Directors of the Corporation may require conversion of all shares of the Series E Preferred into shares of Common Stock in preparation for or upon any of the following: [i] A public offering of equity securities of the Corporation of at least $10,000,000 in gross proceeds; [ii] A private placement of equity securities of the Corporation of at least $25,000,000 in gross proceeds; [iii] A private placement of equity securities of the Corporation of at least $10,000,000 in gross proceeds under circumstances where the investor(s) reasonably believe the conversion of the Series E Preferred is necessary to achieve its (their) investment objectives; [iv] A merger of the Corporation with another corporation or other entity, whether or not the Corporation is a survivor of such transaction whereby as a result the stockholders of the Corporation hold less than 50% of the outstanding capital stock of the surviving entity; or 44 45 [v] An acquisition of equity securities of the Corporation in one transaction or in a series of related transactions which results in a transfer of majority voting control of the Corporation. [c] The Series E Preferred shall convert to Common Stock of the Corporation automatically upon notice in writing to the stockholders, including all holders of the Series E Preferred, setting forth the date of such conversion and the material terms of the triggering event. As promptly as practicable after such notice, and in any event within five business days after the surrender of certificates for the Series E Preferred (if required by the Board of Directors), the Corporation shall deliver or cause to be delivered to each holder of Series E Preferred certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which such holder of the Series E Preferred so converted shall be entitled. Such conversion shall be deemed to have been made at the close of business on the date set forth in such notice of mandatory conversion so that the rights of the holder thereof shall cease with or without surrender of certificates for the Series E Preferred, except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [d] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [d] Upon conversion of the Series E Preferred, the holder thereof shall be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted, including any dividends on such shares of the Series E Preferred declared prior to such conversion if such holder held such shares on the record date fixed for the determination of holders of the Series E Preferred entitled to receive payment of such dividend. [e] The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock of the Corporation issuable upon the conversion of all outstanding shares of the Series E Preferred. SECTION 9. REPORTS AS TO ADJUSTMENTS. Whenever the number of shares of Common Stock into which the shares of the Series E Preferred are convertible is adjusted as provided in Section 7, the Corporation will (A) promptly compute such adjustment and furnish to each transfer agent for the Series E Preferred a certificate, signed by a principal financial officer of the Corporation, setting forth the number of shares of Common Stock into which each share of the Series E Preferred is convertible as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof and when such adjustment will become effective and (B) promptly mail to the holders of record of the outstanding shares of the Series E Preferred a notice stating that the number of shares into which the shares of Series E Preferred are convertible has been adjusted and setting forth the new number of shares into which each share of the Series E Preferred is convertible as a result of such adjustment and when such adjustment will become effective. Notwithstanding the foregoing, the Corporation shall incur no liability for its failure to take any action set forth in this Section 9, nor shall such failure affect the validity, rights or preferences of any shares of the Series E Preferred. 45 46 SECTION 10. RANKING. The Series E Preferred shall rank senior to the Common Stock and any other series of Preferred Stock of the Corporation hereafter created (except for the Series B Preferred, which shall rank senior to the Series E Preferred, and except for the Series A Preferred, the Series C Preferred, the Series D Preferred, the Series F Preferred, and any other series of Preferred Stock which the Board of Directors shall establish and designate to rank equal therewith pursuant to Subpart C of this Article FOURTH, with which it shall rank equal), as to the payment of dividends and the distribution of assets and rights upon liquidation, dissolution or winding up of the Corporation. I. Designation of Series F Convertible Preferred Stock. A series of the Preferred Stock of the Corporation is hereby created and authorized, and the designations, amount and stated value of such series of Preferred Stock and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereon, are as follows: SECTION 1. DESIGNATION, AMOUNT AND STATED VALUE. The shares of such series shall be designated as Series F Convertible Preferred (the "Series F Preferred") and the number of shares constituting such series shall be 4,100,000 shares. The stated value of the Series F Preferred shall be $5 per share, the original per share issue price (the "Stated Value"). SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of the Series F Preferred shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available for such purpose, cumulative dividends payable quarterly in cash on the first business day of January, April, July and October (each such date being referred to herein as a "Quarterly Dividend Payment Date"), accruing commencing with the date of issue of such shares, on shares of the Series F Preferred at the rate of $.50 per share per annum; provided, however, that if and to the extent that the holder of a share of the Series F Preferred does not receive a cash dividend on any given Quarterly Dividend Payment Date in full payment of the accrued and unpaid dividend on such share of the Series F Preferred or any previously cumulated dividend on such share for the period ending on such Quarterly Dividend Payment Date and beginning on the immediately preceding Quarterly Dividend Payment Date (or, if such share was first issued during such period, beginning on the date of such issuance), such unpaid portion of such dividend shall be cumulative and shall itself accrue, whether or not declared and whether or not the Corporation has at the time funds legally available for such purpose, from and after such date, until the date so paid in full, dividends on a daily basis at a rate of 10% per annum, compounded quarterly. No interest shall be paid on accrued but unpaid dividends. SECTION 3. VOTING RIGHTS. In addition to voting rights required by law or by this Amended Certificate of Incorporation, as amended or restated from time to time (the "Certificate of Incorporation"), subject to restrictions contained in this Certificate of Incorporation the holders of Series F Preferred shall be entitled to vote on all matters submitted to a vote of the Corporation's stockholders. Except as otherwise required by law or provided by this Certificate of Incorporation or by the Board of Directors pursuant to Subpart C 46 47 of this Article FOURTH, the holders of the Series F Preferred, shall vote together with the holders of all other series of the Corporation's voting preferred stock and the holders of the Corporation's Common Stock as one class with one vote per share (in the case of Preferred Stock, subject to adjustments as provided in Section 7 below and if convertible into Common Stock, one vote per share of Common Stock into which such convertible Preferred Stock is then convertible) on all matters submitted to a vote of the Corporation's stockholders. Further, this Certificate of Incorporation may not be amended to change the liquidation preference, conversion rate, dividend rate or voting, put or redemption rights of any series of the Corporation's Preferred Stock without the approval of the holders of a majority of the outstanding shares of the Series F Preferred, voting as a separate class. SECTION 4. CERTAIN RESTRICTIONS. Whenever dividends payable on the Series F Preferred as provided in Section 2 are in arrears, thereafter and until dividends, including all accrued dividends, on shares of the Series F Preferred outstanding shall have been paid in full or declared and set apart for payment, the Corporation shall not (A) pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series F Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any such junior stock, (B) pay dividends on or make any other distributions on any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series F Preferred, except dividends paid ratably on the Series F Preferred and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled, (C) redeem or purchase or otherwise acquire for consideration any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series F Preferred, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior to the Series F Preferred or in satisfaction of contractual obligations to do so entered into with the written consent of the holders of a majority of outstanding shares of Series F Preferred (including, without limitation, in satisfaction of the provisions contained in the Stockholders' Agreement), or (D) purchase or otherwise acquire for consideration any shares of the Series F Preferred, or any shares of stock ranking on a parity with the Series F Preferred except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors (including the Series F Directors voting as part of the majority), after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall unanimously determine in good faith will result in fair and equitable treatment among the respective series of classes or except pursuant to the provisions of the Stockholders' Agreement. SECTION 5. REACQUIRED SHARES. Any shares of the Series F Preferred which have been converted to Common Stock or have been purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, or otherwise in accordance with Delaware General Corporation Law. 47 48 SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (A) to the holders of the Series F Preferred unless, prior thereto, the holders of the Series B Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (B) to the holders of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series F Preferred unless, prior thereto, the holders of Series F Preferred shall have received the Stated Value per share, plus an amount equal to unpaid dividends thereon, including accrued dividends, whether or not declared, to the date of such payment, or (C) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series F Preferred, except distributions made ratably on the Series F Preferred and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 7. CONVERSION. [a] Optional Conversion. Subject to the provisions for adjustment hereinafter set forth, each share of the Series F Preferred shall be convertible at any time at the option of the holder thereof, in the manner hereinafter set forth, into one (1) fully paid and nonassessable share of Common Stock of the Corporation. [b] Mandatory Conversion. Subject to the provisions for adjustment set forth in this Section 7, each share of the Series F Preferred shall be convertible at the option of the Board of Directors into one (1) fully paid and nonassessable share of Common Stock of the Corporation in the event of, and concurrently with the closing of, a public offering of Common Stock of the Corporation at a per share price of at least $12.00 (subject to adjustment for stock splits, stock dividends, reverse stock splits and the like) with gross proceeds to the Corporation of at least $25,000,000 (excluding the effect of any over-allotment option). [c] The number of shares of Common Stock into which each share of the Series F Preferred is convertible shall be adjusted from time to time as follows: [i] In case the Corporation shall at any time or from time to time after the issuance of such share of Series F Preferred declare or pay any dividend on its Common Stock payable in its Common Stock or effect a subdivision of the outstanding shares of its Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise), then, and in each such case, the number of shares of Common Stock into which each share of the Series F Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the sum of (I) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event plus (II) the number of shares of Common Stock which such holder would have been entitled to receive in connection with the occurrence of such event had such share been converted immediately prior thereto, and the denominator of which is the number of shares of 48 49 Common Stock determined in accordance with clause (I) above. An adjustment made pursuant to this subparagraph [c][i] shall become effective (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. [ii] In case the Corporation at any time or from time to time after the issuance of such share of Series F Preferred shall combine or consolidate the outstanding shares of its Common Stock into a lesser number of shares of Common Stock, by reclassification or otherwise, then, and in each such case, the number of shares of Common Stock into which each share of the Series F Preferred is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (a) the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event by (b) a fraction, the numerator of which is the number of shares which the holder would have owned after giving effect to such event had such share been converted immediately prior to the occurrence of such event and the denominator of which is the number of shares of Common Stock into which such share was convertible immediately prior to the occurrence of such event. An adjustment made pursuant to this subparagraph b[ii] shall become effective at the close of business on the date immediately prior to the day upon which such corporate action becomes effective. [iii] In case the Corporation after the issuance of such share of Series F Preferred shall: (A) issue any options, warrants, or other rights (excluding those issued in exchange for options to purchase common stock in Faircom Inc. pursuant to the terms of a merger, and excluding options to purchase Common Stock issued to management of the Corporation exercisable for up to the lesser of 2,000,000 shares of Common Stock (subject to adjustment pursuant to provisions applicable to the options in the case of stock splits, reverse stock splits and the like) or that number of shares of Common Stock equal to fifteen percent (15%) of the aggregate number of outstanding shares of Common Stock and other equity securities of the Corporation exercisable for the purchase of, or convertible into, Common Stock, computed on a fully-diluted basis) entitling the holder thereof to subscribe for, or purchase, Common Stock at a price per share which, when added to the amount of consideration received or receivable by the Corporation for such options, warrants, or other rights, is less than the then fair market value per share of the Common Stock at the date of such issuance; (B) issue or sell securities of the Corporation convertible into, or exchangeable for, Common Stock at a price per share which, when added to the amount of consideration received or receivable, from the Corporation for such exchangeable or convertible securities, is less than the then fair market value of a share of Common Stock at the date of such issuance; or (C) issue or sell additional shares of Common Stock for consideration representing less than the then fair market value of the Common Stock at the date of such issuance; then the number of shares of Common Stock into which each share of the Series F Preferred is convertible shall be adjusted so that, thereafter, until further adjusted, the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common 49 50 Stock determined by multiplying (w) the number of shares of Common Stock into which such shares are convertible immediately prior to the occurrence of such event by (x) a fraction, the numerator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of additional shares of Common Stock issuable upon exercise of such options, warrants, or rights, or exchangeable or convertible securities, or the additional number of shares of Common Stock issued at such time, and the denominator of which shall be the number of shares of Common Stock outstanding prior to such issuance plus the number of shares of Common Stock that either (y) the sum of the aggregate exercise price of the total number of shares of Common Stock issuable upon exercise of such options, warrants, or rights, or upon conversion or exchange of such convertible securities, and the aggregate amount of consideration, if any, received or receivable by the Corporation for such options, warrants, or rights, or convertible or exchangeable securities, or (z) the aggregate consideration received in connection with the sale of shares of its Common Stock for less than the then fair market value, as the case may be, would purchase at the then fair market value. [iv] In the event that, at any time, or from time to time, after the issuance of such share of the Series F Preferred, the Common Stock issuable upon conversion of the Series F Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend, or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 7), then, and in any such event, each holder of Series F Preferred shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series F Preferred could have been converted immediately prior to such recapitalization, reclassification, or change, all subject to further adjustment as provided herein. [v] If at any time, or from time to time after the issuance of such share of the Series F Preferred, there is a capital reorganization of the Common Stock other than a recapitalization, subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Section 7) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all, or substantially all, of the Corporations' properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made so that the holders of the Series F Preferred shall thereafter be entitled to receive upon conversion of the Series F Preferred the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the holders of Series F Preferred after the reorganization, merger, consolidation, or sale to the end that the provisions of this Section 7 shall be applicable after that event and be as nearly equivalent as may be practicable. 50 51 [vi] Upon the expiration of any rights, options, warrants or conversion or exchange privileges which caused an adjustment pursuant to this Section 7 to be made, if any thereof shall not have been exercised, the number of shares of Common Stock into which each share of the Series F Preferred is convertible shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (a) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges and (b) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges, whether or not exercised. [d] If any adjustment in the number of shares of Common Stock into which each share of the Series F Preferred may be converted required pursuant to this Section 7 would result in an increase or decrease of less than 1% in the number of shares of Common Stock into which each share of the Series F Preferred is then convertible, the amount of any such adjustment shall be carried forward and adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least 1% of the number of shares of Common Stock into which each share of the Series F Preferred is then convertible; provided that any such adjustments carried forward shall be made immediately following receipt of notice from a holder of the intent to convert all or a portion of the Series F Preferred such that upon conversion the holder shall receive such number of shares of Common Stock as such holder is entitled, taking into account all adjustments required by this Section 7. All calculations under this paragraph [d] shall be made to the nearest one-hundredth of a share. [e] Subject to the limitation in Section 7[h] below, the holder of any shares of the Series F Preferred may convert such shares into shares of Common Stock pursuant to paragraph [a] of this Section 7 by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, a certificate or certificates representing the shares of Series F Preferred to be converted (or if such certificate or certificates cannot be found, an affidavit of lost securities in form and substance acceptable to the Corporation) accompanied by a written notice stating that such holder elects to convert all or a specified number of such shares in accordance with the provisions of this Section 7 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. As promptly as practicable, and in any event within five business days after the surrender of such certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes, the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which the holder of the Series F Preferred so converted shall be entitled and (ii) if less than the full number of shares of the Series F Preferred evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares 51 52 converted. Such conversions shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates representing the shares of the Series F Preferred to be converted so that the rights of the holder thereof shall cease except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [g] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [f] The Series F Preferred shall convert to Common Stock of the Corporation pursuant to paragraph [b] of this Section 7 automatically upon notice in writing to the stockholders, including all holders of the Series F Preferred, setting forth the date of such conversion and the material terms of the triggering public offering. As promptly as practicable after such notice, and in any event within five business days after the surrender of certificates for the Series F Preferred (if required by the Board of Directors), the Corporation shall deliver or cause to be delivered to each holder of Series F Preferred certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock of the Corporation to which such holder of the Series F Preferred so converted shall be entitled. Such conversion shall be deemed to have been made at the close of business on the date set forth in such notice of mandatory conversion so that the rights of the holder thereof shall cease with or without surrender of certificates for the Series F Preferred, except for the right to receive Common Stock of the Corporation in accordance herewith and any accumulated, accrued or unpaid dividends pursuant to paragraph [g] below, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock of the Corporation at such time. [g] Upon conversion of any shares of the Series F Preferred pursuant to paragraph [a] or [b] of this Section 7, the holder thereof shall be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted (whether or not declared or otherwise payable as of such date of conversion), including any dividends on such shares of the Series F Preferred declared prior to such conversion if such holder held such shares on the record date fixed for the determination of holders of the Series F Preferred entitled to receive payment of such dividend. [h] Shares of the Series F Preferred may not be converted after the close of business on the third business day preceding the Redemption Date pursuant to Section 8. [i] The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock of the Corporation issuable upon the conversion of all outstanding shares of the Series F Preferred. [j] For purposes of this Section, "fair market value" shall be as determined by the Board of Directors in such manner as they shall deem appropriate in their discretion, unless the holder(s) of more than twenty-five percent (25%) of the outstanding shares of Preferred Stock of the Corporation demand in good faith and in writing that "fair market value" be determined by an appraiser, who shall be mutually acceptable to the Board of Directors and such holders, whose determination shall be binding and whose fees and expenses shall be paid by the Corporation. 52 53 SECTION 8. REPORTS AS TO ADJUSTMENTS. Whenever the number of shares of Common Stock into which the shares of the Series F Preferred are convertible is adjusted as provided in Section 7, the Corporation will (A) promptly compute such adjustment and furnish to each transfer agent for the Series F Preferred a certificate, signed by a principal financial officer of the Corporation, setting forth the number of shares of Common Stock into which each share of the Series F Preferred is convertible as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof and when such adjustment will become effective and (B) promptly mail to the holders of record of the outstanding shares of the Series F Preferred a notice stating that the number of shares into which the shares of Series F Preferred are convertible has been adjusted and setting forth the new number of shares into which each share of the Series F Preferred is convertible as a result of such adjustment and when such adjustment will become effective. Notwithstanding the foregoing, the Corporation shall incur no liability for its failure to take any action set forth in this Section 8, nor shall such failure affect the validity, rights or preferences of any shares of the Series F Preferred. SECTION 9. RANKING. The Series F Preferred shall rank senior to the Common Stock and any other series of Preferred Stock of the Corporation hereafter created (except for the Series B Preferred, which shall rank senior to the Series F Preferred, and except for the Series A Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred, and any other series of Preferred Stock which the Board of Directors shall establish and designate to rank equal therewith pursuant to Subpart C of this Article FOURTH, with which it shall rank equal), as to the payment of dividends and the distribution of assets and rights upon liquidation, dissolution or winding up of the Corporation. SECTION 10. DIRECTORSHIPS. The holders of the Series F Preferred, as a class, shall be entitled to be represented on the Board of Directors by two Directors (the "Series F Directors") who, upon nomination by such holders, as a class, will stand for election by voting by the holders of the Preferred Stock (subject to limitations in this Article FOURTH or established by the Board of Directors pursuant to Section C of this Article FOURTH) and holders of Common Stock together, except under circumstances where the number of individuals nominated for election exceeds the number of Directors to be elected. In the event the number of individuals nominated for election exceeds the number of Directors to be elected, then the holders of the Series F Preferred shall have the sole right to vote for, elect and remove the individuals nominated by them, as a class, to serve as the Series F Directors, and in such event the further right to vote for, elect or remove any of the other Directors who are not to be elected solely by the holders of another class or series of Preferred Stock. The Series F Directors, upon being elected, will serve for the same term and have the same voting powers as other Directors. The right to elect the Series F Directors pursuant to the terms hereof shall be exercisable by the holders of a majority of the Series F Preferred at their option upon at least 60 days notice to the Corporation; provided, however, if the Corporation is subject to the reporting requirements of the Securities Exchange Act of 1934, such notice must be provided on or before the date established by the Corporation for the submission of proposals pursuant to the proxy rules promulgated under the Securities Act of 1934. One of the Series F Directors shall serve as a 53 54 member of the Compensation Committee and the other shall serve as a member of the Audit and Nominating Committees of the Board of Directors (or such other Committees of the Board performing such functions), which Committees will be composed of at least one Director, in addition to the Series F Director, who is not an employee of the Corporation. FIFTH: Incorporator. The name and mailing address of the incorporator is Terry Jacobs, 50 East RiverCenter Boulevard, Covington, Kentucky 41011, whose powers as incorporator have ceased by virtue of the election of the Board of Directors. SIXTH: Elimination of Director Liability. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after the filing of the Certificate of Incorporation of which this Article is a part to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. SEVENTH: Right to Indemnification. A. Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party, or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall be required to indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. B. Prepayment of Expenses. The Corporation shall pay the expenses of directors and executive officers of the Corporation, and may pay the expenses of all other officers, employees or agents of the Corporation, incurred in defending any proceeding, in advance of its final disposition, provided, however, that the payment of expenses incurred by a director, officer, employee or agent in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director, officer, employee or agent to repay all amounts advanced if it should be ultimately determined that the director, officer, employee or agent is not entitled to be indemnified under this Article SEVENTH or otherwise. C. Claims. If a claim for indemnification or payment of expenses under this Article is not paid in full within sixty days after a written claim therefor has been received by the Corporation, the 54 55 claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. D. Non-Exclusivity of Rights. The rights conferred on any person by this Article SEVENTH shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, bylaws, agreement, vote of stockholders or disinterested directors or otherwise. E. Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust, enterprise or nonprofit entity, shall be reduced by any amount such person may collect as indemnification from such other Corporation, partnership, joint venture, trust, enterprise or non-profit enterprise. F. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article SEVENTH shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. EIGHTH: Bylaws. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter or repeal bylaws of the Corporation. ******* The Corporation further certifies: II. That at a meeting of the Board of Directors of Regent Communications, Inc. resolutions were duly adopted setting forth the foregoing Amended and Restated Certificate of Incorporation, declaring adoption of the same to be advisable and submitting it to the shareholders of said corporation for approval. III. That thereafter, pursuant to resolution of its Board of Directors, consents of the stockholders of the corporation were executed, in accordance with Section 228 of the General Corporation Law of the State of Delaware, by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Pursuant to Section 228 of the General Corporation Law of the State of Delaware, written notice has been given to stockholders who have not consented in writing. IV. That said amendment was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. 55 56 IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by Terry S. Jacobs, its Chairman, and William L. Stakelin, its Secretary, this 11th day of, June 1998. By: ------------------------------ Terry S. Jacobs, Chairman ATTEST: ----------------------------------- William L. Stakelin, Secretary 56 EX-4.C 3 EXHIBIT 4(C) 1 Exhibit 4(c) REGENT COMMUNICATIONS, INC. --------------------------- SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT THIS SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement"), is made and entered into as of June 15, 1998 by and among REGENT COMMUNICATIONS, INC., a Delaware corporation (the "Company"), TERRY S. JACOBS ("Jacobs"), WILLIAM L. STAKELIN ("Stakelin"), PNC BANK, N.A., a national banking association, as trustee ("PNC"), WALLER-SUTTON MEDIA PARTNERS, L.P., a Delaware limited partnership ("Waller-Sutton"), WILLIAM H. INGRAM ("Ingram"), WPG CORPORATE DEVELOPMENT ASSOCIATES V, L.P., a Delaware limited partnership, and WPG CORPORATE DEVELOPMENT ASSOCIATES V (OVERSEAS), L.P., a Delaware limited partnership (collectively, "WP&G"), RIVER CITIES CAPITAL FUND LIMITED PARTNERSHIP, a Delaware limited partnership ("River Cities"), BMO FINANCIAL, INC., a Delaware corporation ('"BMO"), GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), JOEL M. FAIRMAN ("Fairman"), MIAMI VALLEY VENTURE FUND L.P., an Ohio limited partnership ("Miami Valley"), and BLUE CHIP CAPITAL FUND II LIMITED PARTNERSHIP, an Ohio limited partnership ("Blue Chip"). W I T N E S S E T H: WHEREAS, Jacobs, Stakelin, River Cities, BMO and GE Capital, the holders of all of the Company's capital stock which is issued and outstanding immediately prior to the consummation of the transactions described below, are parties to a First Amended and Restated Stockholders' Agreement among them, dated as of December 8, 1997 (the "Existing Stockholders' Agreement"); WHEREAS, pursuant to the consummation, on the date hereof (the "Closing Date"), of the merger (the "Merger") of Faircom Inc. ("Faircom") and Regent Merger Corp. ("RMC") pursuant to that certain Agreement of Merger, dated as of December 5, 1997, among Faircom, RMC and the Company, as amended, the outstanding shares of common stock of Faircom have been converted into the right to receive shares of Series C Preferred Stock; WHEREAS, as holders of record of Faircom common stock on the Closing Date, Fairman, Miami Valley, Blue Chip and Waller-Sutton are to receive shares of Series C Preferred Stock as a result of the Merger; WHEREAS, on the Closing Date, Waller-Sutton, Ingram, WP&G, GE Capital and River Cities (collectively, the "Series F Purchasers") are to purchase certain shares of Series F Preferred Stock pursuant to the terms of a Stock Purchase Agreement, dated as of June 15, 1998, by and among the Company and the Series F Purchasers (the "Series F Preferred Stock Purchase Agreement"); 2 WHEREAS, pursuant to the terms of the Series F Preferred Stock Purchase Agreement, the Series F Purchasers are obligated to purchase, from time to time after the Closing Date, certain additional shares of Series F Preferred Stock, subject to the terms and provisions thereof; WHEREAS, pursuant to a Stock Purchase Agreement, dated as of December 8, 1997, BMO has heretofore purchased 220,000 shares of Series D Preferred Stock and on the Closing Date, BMO shall purchase an additional 780,000 shares of Series D Preferred Stock; WHEREAS, on or prior to the Closing Date, GE Capital shall pay all amounts due to the Company in connection with the purchase by it of 1,000,000 shares of Series B Preferred Stock pursuant to a Stock Purchase Agreement dated as of December 8, 1997 (the "Series B Preferred Stock Purchase Agreement"); WHEREAS, in connection with the foregoing transactions and certain matters related thereto on the Closing Date, the Company is to issue certain warrants to the Series F Purchasers and is to issue certain stock options to Jacobs and Stakelin; and WHEREAS, the Company and the Stockholders deem it desirable to enter into this Agreement in order to amend and restate in its entirety the Existing Stockholders' Agreement, to add certain additional parties thereto and to set forth certain agreements among themselves granting certain rights and imposing certain restrictions on themselves, the Company and the shares of capital stock in the Company now or at any time held by the Stockholders or issuable to the Stockholders upon the exercise of any options or warrants now or at any time held by the Stockholders (collectively, the "Shares"). NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree that the Existing Stockholders' Agreement is hereby amended and restated in its entirety as follows: 1. DEFINITIONS. As used in this Agreement: "Additional Put Notice" as defined in Section 7(b). "Additional Put Stockholder" as defined in Section 7(b). "Affiliate" as applied to any Person means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. The term "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote 10% or more of the Voting Stock (or in the case of a Person which is not a corporation, 10% or more of the ownership interest, beneficial or otherwise) of such Person or otherwise to direct or cause the -2- 3 direction of the management and policies of that Person, whether through the ownership of Voting Stock or other ownership interest, by contract or otherwise. "Agreed Value" means such amount as shall be agreed to by the Required Stockholders and the Company as the total fair market value of the Company, valued as a going-concern; provided, however, that such agreement by the Company to the amount determined as Agreed Value must be approved by a majority of the directors of the Company who are not nominated by Waller-Sutton or any Additional Put Stockholder. "Amended and Restated Charter" shall mean the amended and restated certificate of incorporation of the Company, as in effect on the date hereof or as hereinafter further amended in accordance with the provisions hereof and thereof. "Beneficially Own" or "Beneficial Ownership" shall, as to any Person, be determined or computed in the manner provided under Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, but on a fully-diluted and as converted basis. "Change of Control" means the appointment of any person other than Jacobs or Stakelin as President, Chief Executive Officer or Chief Operating Officer of the Company or the acquisition by any Person or related group of Persons of direct or indirect beneficial ownership of more than 35% of the outstanding Voting Stock. "Closing Date" means the date hereof. "Common Stock" means the common stock of the Company, $.01 par value. "Common Stock Value" as defined in Section 7(d)(i)(3) below. "Eligible Put Shares" means any Shares other than (i) Series C Preferred Stock, (ii) Common Stock (other than (1) Common Stock issued to Waller-Sutton upon conversion of Series C Preferred Stock, (2) Common Stock issued on exercise of the GE Warrant or (3) Common Stock issued on exercise of the Series F Warrants, which exercise occurs after the date the Triggering Put Notice is given and provided that the Warrants so exercised were included among the Put Shares), (iii) warrants or options other than the Series F Warrants, (iv) the Company's 7% Series E Convertible Preferred Stock, $.01 par value, and (v) any series of preferred stock first created by the Board of Directors after the date hereof. "Exempt Transfer" as defined in Section 8 below. "Existing Loan Agreement" shall mean the Credit Agreement, dated as of November 14, 1997, among the Company, the lenders listed therein, GE Capital as Documentation Agent, and Bank of Montreal, Chicago Branch, as Agent, as amended by a First Amendment thereto dated February 16, 1998 and a Second Amendment dated June 11, 1998, as in effect on the date hereof. -3- 4 "Fairman Employment Period" means the "Employment Period," as defined in that certain employment agreement, dated as of the Closing Date, between the Company and Joel M. Fairman, as originally executed or thereafter amended with the consent of Waller-Sutton (the "Fairman Agreement"). "Indebtedness" of any Person shall mean the principal of, premium, if any, and unpaid interest on: (a) indebtedness for money borrowed from others; (b) indebtedness guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed, directly or indirectly, in any manner by such Person through an agreement, contingent or otherwise, to supply funds to, or in any other manner invest in, the debtor, or to purchase indebtedness, or to purchase and pay for property if not delivered or pay for services if not performed, primarily for the purpose of enabling the debtor to make payment of the indebtedness or to assure the owners of the indebtedness against loss; (c) all indebtedness secured by any mortgage, lien, pledge, charge or other encumbrance upon property owned by such Person, even though such Person has not in any manner become liable for the payment of such indebtedness; (d) all indebtedness of such Person created or arising under any conditional sale, lease (intended primarily as a financing device) or other title retention or security agreement with respect to property acquired by such Person even though the rights and remedies of the seller, lessor or lender under such agreement or lease in the event of default may be limited to repossession or sale of such property; and (e) renewals, extensions and refundings of any such indebtedness. "Immediate Family" means, as to any individual, (i) such individual's spouse, children, parents or siblings, and (ii) the respective executors, administrators, conservators, guardians or custodians during the minority of such persons. "Jacobs Employment Period" means the "Employment Period," as defined in that certain Executive Employment Agreement, effective as of March 1, 1998, between the Company and Jacobs as in effect on the Closing Date or thereafter amended with the consent of Waller-Sutton. "Management Stockholder" means either or both of Jacobs and Stakelin and any Transferee of either of them, other than pursuant to an Exempt Transfer of the type referred to in clauses (iii) and (iv) of the definition thereof. "Maximum Number" means, in the case of each of Jacobs and Stakelin, the lesser of (i) 733,333 (subject to adjustment in the case of stock splits, stock dividends, reverse stock splits and the like occurring from and after the Closing Date) and (ii) a number of shares of Common Stock equal to 5.5% of the sum of (x) the number of shares of Common Stock then outstanding and (y) the number of shares of Common Stock issuable upon the conversion of all outstanding shares of capital stock of the Company convertible into Common Stock or issuable upon the exercise of all outstanding options or warrants to acquire Common Stock or preferred stock convertible into Common Stock. "Permitted Indebtedness" means (i) Indebtedness incurred by the Company under the Existing Loan Agreement in accordance with (and without giving effect to any material waiver or modification -4- 5 of), the terms thereof, and (ii) Indebtedness to the extent permitted under the Existing Loan Agreement (without giving effect to any material waiver or modification thereof). "Permitted Issuances" means any of the following: (i) the issuance of additional shares of Series F Preferred Stock pursuant to the Series F Preferred Stock Purchase Agreement; (ii) the issuance of shares of Common Stock on the conversion of any shares of Preferred Stock or any other shares of convertible securities of the Company which are outstanding as of the date hereof or the issuance of which is approved by Waller-Sutton; (iii) the issuance of shares of Common Stock or Preferred Stock upon the exercise of currently outstanding options or warrants to purchase Common Stock or Preferred Stock, or upon the exercise of options or warrants which are issued after the date hereof with the approval of Waller-Sutton; and (iv) the grant and/or exercise of options under the Company's 1998 Management Stock Option Plan (provided that the number of shares of Common Stock issued or issuable to either Stakelin or Jacobs in respect of all options granted under the Company's 1998 Management Stock Option Plan shall not exceed the Maximum Number). "Person" means a natural person, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Preferred Stock" means any or all of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series F Preferred Stock. "Put Closing" as defined in Section 7(a). "Put Shares" as defined in Section 7(c). "Qualified Financing" as defined in Section 7(g)(ii) below. "Qualified Public Offering" means an underwritten public offering of Common Stock of the Company (i) at not less than $12 per share of Common Stock (equitably adjusted for any stock splits, reverse stock splits or stock dividends occurring after the date hereof), and (ii) generating not less than $25,000,000 of gross proceeds payable to the Company (excluding the effect of any over-allotment option). "Redemption and Warrant Agreement" means that certain Amended and Restated Redemption and Warrant Agreement, dated as of March 31, 1998, among the Company, Blue Chip, Miami Valley and Faircom. "Required Stockholders" means Waller-Sutton and such other Stockholders as shall (together with Waller-Sutton) Beneficially Own more than 50% of the Put Shares (other than Put Shares Beneficially Owned by the Management Stockholders). "Securities Act" means the Securities Act of 1933, as amended from time to time. -5- 6 "Series A Director" means the one director entitled to be nominated to serve by the holders of Series A Preferred Stock, voting separately as a class, pursuant to the provisions of Article FOURTH, Paragraph D, Section 11, of the Amended and Restated Charter. "Series A Preferred Stock" means the Company's 7% Series A Convertible Preferred Stock, $.01 par value, together with all shares of Common Stock issued upon conversion of such shares. "Series B Preferred Stock" means the Company's 7% Series B Senior Convertible Preferred Stock, $.01 par value, together with all shares of Common Stock issued upon conversion of such shares. "Series B Preferred Stock Purchase Agreement" as defined in the recitals hereto. "Series C Director" means the one director entitled to be nominated to serve by the holders of Series C Preferred Stock, voting separately as a class, pursuant to the provisions of Article FOURTH, Paragraph F, Section 11, of the Amended and Restated Charter. "Series C Preferred Stock" means the Company's 7% Series C Convertible Preferred Stock, $.01 par value, together with all shares of Common Stock issued upon conversion of such shares. "Series D Preferred Stock" means the Company's 7% Series D Convertible Preferred Stock, $.01 par value, together with all shares of Common Stock issued upon conversion of such shares. "Series F Directors" means the two directors entitled to be nominated to serve by the holders of Series F Preferred Stock, voting separately as a class, pursuant to the provisions of Article FOURTH, Paragraph I, Section 11, of the Amended and Restated Charter. "Series F Preferred Stock" means the Company's 10% Series F Convertible Preferred Stock, $.01 par value, together with all shares of Common Stock issued upon conversion of such shares. "Series F Preferred Stock Purchase Agreement" as defined in the recitals hereto. "Shares" as defined in the recitals hereto; provided, however, that as to any particular securities of the Company, such shall cease to be "Shares" hereunder, when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act, and such securities shall have been disposed of under such registration statement, (ii) they shall have been distributed to the public pursuant to Rule 144 under the Securities Act in accordance with the terms hereof or (iii) they shall have ceased to be outstanding. "Stakelin Employment Period" means the "Employment Period," as defined in that certain Executive Employment Agreement, effective as of March 1, 1998, between the Company and Stakelin, as in effect on the Closing Date or thereafter amended with the consent of Waller-Sutton. -6- 7 "Stockholder" means any Person who is a party to this Agreement or is a successor or assign thereof contemplated by Section 13 below. "Triggering Put Notice" as defined in Section 7(a). "Voting Stock" of any Person means securities of any class or classes of such Person the holders of which are ordinarily, in the absence of contingencies, entitled to elect or vote for the election of the directors of such Person. "Warrants" means (i) the warrants to purchase 860,000 shares of Common Stock (subject to adjustment as provided therein) issued to the Series F Purchasers pursuant to the terms of the Series F Stock Purchase Agreement (the "Series F Warrants"), and (ii) the warrant to purchase 50,000 shares of Common Stock (subject to adjustment as provided therein) issued to GE Capital pursuant an Agreement to Issue Warrant, dated the date hereof, between the Company and GE Capital (the "GE Warrant"). 2. BOARD OF DIRECTORS. (a) From and after the date of this Agreement and until the provisions of this Section 2 cease to be effective, each Stockholder shall vote or cause to be voted all Voting Stock and any other voting securities of the Company over which such Stockholder has Beneficial Ownership or voting control and shall take all other necessary or desirable actions within its control (whether in its capacity as a stockholder, director, member of a committee of the Board of Directors or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary and desirable actions within its control (including, without limitation, calling special board and stockholder meetings), so that: (i) the number of directors constituting the entire Board of Directors of the Company (the "Board") shall be the number of persons entitled to be designated to serve on the Board in accordance with the provisions of Section 2(a)(ii) below (subject to increase as provided in Section 7(j) below); (ii) the following persons shall at all times constitute the members of the Board and shall be elected to the Board at each annual meeting of the Stockholders of the Company: (1) Jacobs, during the Jacobs Employment Period; (2) Stakelin, during the Stakelin Employment Period; (3) Fairman, during the Fairman Employment Period and for up to two years thereafter if his nomination as a director shall be approved by the Board of Directors; -7- 8 (4) two persons designated by Waller-Sutton, who initially shall be William H. Ingram and Richard Patterson (and who shall constitute the Series F Directors); (5) one person designated by River Cities, who shall initially be R. Glen Mayfield (and who shall constitute the Series A Director); and (6) one person designated by Blue Chip, who shall initially be John H. Wyant (and who shall constitute the Series C Director); and (7) such additional persons who Waller-Sutton shall have the right to designate pursuant to Section 7(j) below; (iii) the removal from the Board (with or without cause) of any representative designated hereunder by any person or group of persons at any time while such person or group shall be entitled to serve on, or designate a representative to serve on, the Board under clause (ii) above, shall only be at such person's or group's written request (and at times when the person or representative is not entitled to so serve on the Board, such person or representative may be removed, with or without cause, by vote of the Board or the Stockholders, or if requested by Waller-Sutton, shall resign immediately); and (iv) if any representative designated hereunder by any person or group for any reason ceases to serve as a member of the Board during his term of office at any time while such person or group shall be entitled to serve on, or designate a representative to serve on, the Board under clause (ii) above, the resulting vacancy on the Board shall be filled by a representative designated by such person or group, as provided hereunder. (b) The Company shall pay the reasonable out-of-pocket expenses incurred by each director in connection with his duties as a director, including, without limitation, attending the meetings of the Board and any committee thereof. (c) Each of GE Capital, BMO and WP&G shall have the right, so long as it Beneficially Owns at least 50% of the Shares owned by it as of the date hereof (computed on an "as converted basis" and including, in the case of each of WP&G and GE Capital, Shares which it may be obligated to purchase under the Series F Preferred Stock Purchase Agreement and Shares issuable upon the exercise of outstanding warrants) to have a non-voting observer present at each meeting of the Board. The Company shall pay the reasonable out-of-pocket expenses incurred by each non-voting observer in connection with his or her attendance at Board meetings. (d) If any party fails to designate a representative to fill a directorship or if any directorship remains unfilled following the designation of persons pursuant to the terms of this Section 2, or if a party is no longer entitled or available to serve as a director as provided in this Section 2, the number of directors constituting the entire Board shall be reduced accordingly. -8- 9 3. CONFLICTING AGREEMENTS. Each Stockholder represents that he has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with or conflicts with the provisions of this Agreement, and no Stockholder shall grant any proxy or become party to any voting trust or other agreement which is inconsistent with or conflicts with the provisions of this Agreement. No Stockholder shall act, for any reason, as a member of a group or in concert or enter into any agreement or arrangement with any other person in connection with the acquisition, disposition or voting of Shares in any manner which is inconsistent with the provisions of this Agreement. Without limitation, GE Capital hereby agrees that, so long as the Merger shall have occurred, the provisions of Section 11(f) of the Series B Preferred Stock Purchase Agreement relating to certain redemption obligations of the Company are null and void and of no further force or effect and Blue Chip and Miami Valley agree that the provisions of paragraphs 3 through 6 of the Redemption and Warrant Agreement are null and void and of no further force or effect, and no warrants have been issued or are issuable by the Company thereunder. In addition, the Company and each Stockholder shall, from time to time, grant such waivers and execute such consents, proxies or other instruments, and make such filings with and seek such consents and approvals from governmental authorities or other Persons, as may be necessary to give effect to or carry out the provisions of this Agreement. 4. CERTIFICATE OF INCORPORATION AND BYLAWS. The certificate of incorporation and bylaws of the Company may be amended in any manner permitted thereunder, except that neither the certificate nor the bylaws shall be amended in any manner that would conflict with, or be inconsistent with, the provisions of this Agreement. 5. ACTIONS CONSISTENT WITH AGREEMENT. The Company shall not circumvent this Agreement by taking any action through a subsidiary or affiliate that would be prohibited under this Agreement. 6. WALLER-SUTTON APPROVAL RIGHTS. The Company and each Stockholder hereby covenants and agrees that, for so long as the Series F Purchasers, together with: (i) any Person that is a direct or indirect partner of any Series F Purchaser that is a partnership, (ii) any Person that is a direct or indirect member of any Series F Purchaser that is a limited liability company, and (iii) any Affiliate of any thereof (the Persons referred to in clauses (i), (ii) and (iii) above shall hereinafter be called "Waller-Sutton Permitted Transferees"), collectively Beneficially Own, 10% or more of the Voting Stock, the Company shall not take or permit to occur, and the Stockholders shall not consent to, authorize or vote for, any of the following events or actions, unless such has been approved in advance, in writing, by Waller-Sutton: (a) any merger or consolidation of the Company with any other entity, and any merger or consolidation of any subsidiary of the Company with any other entity other than the Company or another wholly-owned subsidiary of the Company; (b) the purchase or lease by the Company or any subsidiary thereof of any business or assets, other than the purchase or lease of assets in the ordinary course of business (it being -9- 10 understood, however, that the purchase or lease of any radio broadcasting station or Federal Communications Commission ("FCC") license is not a purchase or lease in the ordinary course), or the execution of any agreement providing for the purchase, lease, construction or management of or in respect of radio broadcasting stations (including time brokerage agreements and local marketing agreements and the like); (c) the sale of any assets of the Company or any subsidiary thereof, or the execution of any agreement in respect thereof (other than the sale of advertising time and excess or obsolete furniture, fixtures or equipment in the ordinary course of business); (d) the issuance or sale of any equity or debt securities of the Company or any subsidiary thereof or any rights to acquire any of such equity or debt securities (including options and warrants) or the issuance or sale of stock appreciation or other "phantom" stock rights, other than Permitted Issuances, or the execution of any agreements in respect thereof; (e) the incurrence or assumption of any Indebtedness by the Company or any Subsidiary thereof, other than Permitted Indebtedness; (f) any Change of Control; (g) any amendment to the Company's 1998 Management Stock Option Plan or the adoption of any other stock option, stock purchase or restricted stock or stock appreciation right plan; (h) any amendment to the Amended and Restated Charter or to the by-laws of the Company; (i) the execution by the Company or any Stockholder of any voting, voting trust, registration rights or stockholders agreements with respect to the Company or any of its shares of capital stock (other than this Agreement and the Registration Rights Agreement); and (j) the execution by the Company of any contract or agreement for the construction or management of radio stations. Subject to compliance by the Company and the other Stockholders with the provisions of the final two sentences of this paragraph, Waller-Sutton agrees that, upon receipt by the Company of an opinion of counsel reasonably acceptable to Waller-Sutton, that the exercise of one or more of its rights under this Section 6 is reasonably likely to constitute a transfer of control by the Company within the meaning of the Communications Act of 1934, as amended (the "Communications Act") or the rules and regulations of the FCC thereunder (a "Transfer Opinion"), Waller-Sutton shall forbear from exercising such rights until such time as the FCC has (a) agreed that such exercise would not constitute a transfer of control or (b) given its consent to such transfer of control (either event hereinafter referred to as "FCC Approval"). In the event that the Company receives a Transfer -10- 11 Opinion, the Company and the other Stockholders shall promptly take such actions, or cause such actions to be taken, that may be necessary or desirable to obtain FCC Approval, including, without limitation, the execution and delivery of all applications, certificates, instruments and other documents that may be requested by the FCC or Waller-Sutton in connection with obtaining FCC Approval, and the filing of petitions for rehearing, reconsideration and/or judicial review, all at the cost and expense of the Company. The Company and the other Stockholders each hereby further agrees that, at all times during the period in which Waller-Sutton is required to forbear from exercising its rights under this Section 6, each will take all actions necessary to prevent the occurrence of any of the events set forth in subsections 6(a) through 6(j) above. 7. PUT RIGHTS. (a) At any time after the fifth anniversary of the date hereof, Waller-Sutton shall have the right to send a written notice to the Company (the "Triggering Put Notice"), advising the Company that Waller-Sutton and the Affiliates of Waller-Sutton named in such Triggering Put Notice require the Company to purchase all of the Eligible Put Shares Beneficially Owned by such parties pursuant to the provisions of this Section 7. The Triggering Put Notice shall specify the place and date for the closing (the "Put Closing") of the purchase of Shares by the Company, which shall be no less than 90 days after the date of the Triggering Put Notice. (b) The Company shall send a copy of the Triggering Put Notice to each of the other Stockholders within 5 days of the receipt thereof by the Company, and each such Stockholder shall have a period of twenty (20) days from the date of the Triggering Put Notice to send a written notice to the Company (each, an "Additional Put Notice") advising the Company that such Stockholder (each Stockholder delivering an Additional Put Notice, an "Additional Put Stockholder") desires the Company to purchase all of the Eligible Put Shares Beneficially Owned by such Stockholder, such purchases to occur at the Put Closing. (c) The Triggering Put Notice and each Additional Put Notice shall specify the exact number and class of Eligible Put Shares which the Stockholder transmitting the same shall desire the Company to purchase, (which shall constitute all of the Eligible Put Shares Beneficially Owned by such Stockholders), including all Warrants held by the Stockholder (the Eligible Put Shares to be so purchased by the Company are hereinafter referred to as the "Put Shares"). (d) (i) If an Agreed Value has been determined and the Put Closing does not occur in connection with or following the sale of all or substantially all of the assets of the Company, the purchase price to be paid by the Company for each Put Share shall be as follows: (1) the purchase price for each Put Share which constitutes a share of Preferred Stock shall equal the sum of the accrued and unpaid dividends in respect of such share of Preferred Stock through the date of the Put Closing and the greater of (x) the liquidation preference in respect of such share of Preferred Stock (excluding accrued and unpaid dividends) and -11- 12 (y) the Common Stock Value of the number of shares of Common Stock into which a share of Preferred Stock may be converted as of the date of the Triggering Put Notice; (2) the purchase price for a Warrant shall equal the Common Stock Value minus the exercise price per share of Common Stock payable upon exercise of such Warrant, times the number of whole shares of Common Stock issuable upon the exercise of such Warrant; and (3) the purchase price for each Put Share which constitutes a share of Common Stock shall equal the Common Stock Value thereof computed under (A), (B) or (C) below, as applicable. (A) The "Common Stock Value" of a share of Common Stock will equal the amount that would be distributed to a holder of a share of Common Stock if the Company were liquidated following the sale by the Company of all of its assets for an amount equal to the Agreed Value of the Company, assuming that no preferred stock is converted and no options or warrants have been exercised, and following (i) the payment by the Company of all accrued and unpaid dividends in respect of all outstanding preferred stock of the Company as of the date the Agreed Value is determined, and (ii) the amount of all other liquidating distributions that would be payable in respect of outstanding preferred stock upon liquidation thereof. (B) In the event the Common Stock Value computed pursuant to clause (A) above is greater than the Stated Value (as defined in the Certificate of Incorporation of the Company) of any class of preferred stock, or is twice the Stated Value of the Series B Preferred Stock, then the Common Stock Value shall be recomputed assuming that all preferred stock with a Stated Value which is lower than the Common Stock Value (or one-half the Common Stock Value, in the case of the Class B Preferred Stock) has been converted (such preferred stock shall be referred to as being "in-the-money"). Such recomputed value shall be equal to the amount that would be distributed to a holder of a share of Common Stock if the Company were liquidated following the sale by the Company of all of its assets for an amount equal to the Agreed Value of the Company, and following (i) the payment by the Company of all accrued and unpaid dividends in respect of all outstanding preferred stock of the Company (including "in-the-money" Preferred Stock) as of the date the Agreed Value is determined, and (ii) the amount of all other liquidating distributions that would be payable in respect of such outstanding preferred stock that is not "in-the-money" upon liquidation thereof. (C) In the event the Common Stock Value determined pursuant to clause (A) above, or, if applicable, clause (B) above, is greater than the exercise price of any outstanding options or warrants, then the Common Stock Value shall be recomputed assuming that all outstanding options or warrants with an exercise price which is lower than the Common Stock Value have been exercised immediately prior to such liquidating distribution and that the purchase price paid upon any such exercise was available to the Company for distribution in liquidation. -12- 13 (ii) If an Agreed Value has not been determined or if the Put Closing is to occur in connection with or following the sale of all or substantially all of the assets of the Company, the purchase price for the Put Shares shall equal the amount distributable in respect thereof under the Amended and Restated Charter in connection with the liquidation and dissolution of the Company following the sale of all or substantially all of its assets. (iii) The Company will notify each Stockholder in writing of the determination of Agreed Value promptly after the determination thereof. (e) The purchase price for the Put Shares shall be payable in full at the Put Closing, by wire transfer of immediately available funds to such accounts as shall be designated by the respective Stockholders, or in such other form of consideration as shall be acceptable to Waller-Sutton. Subject to the provisions of section 7(f) below, the Put Closing shall occur on the date designated by Waller-Sutton in the Triggering Put Notice. Subject to the provisions of Section 7(f) below, the Company shall be obligated to purchase all of the Put Shares on such closing date, and simultaneously with such purchase the Company shall (to the extent such are not among the Put Shares) pay all accrued and unpaid dividends on the outstanding Series B Preferred Stock. (f) The date of the Put Closing shall be postponed in the following circumstances: (i) if the Company and Waller-Sutton are unable to agree upon the Agreed Value of the Company within 90 days of the date of the Triggering Put Notice (in which case the Board of Directors shall promptly proceed to sell the Company, and the Put Closing shall be held on such date or dates as shall be selected by Waller- Sutton, no later than the day following the date that the Company shall have been sold (whether pursuant to a merger, a sale of all or substantially all of its capital stock, assets or otherwise), or (ii) if, within 10 days after an Agreed Value has been determined, the Company shall send a written notice to Waller-Sutton and the Additional Put Stockholders advising such parties that (x) the Company believes that it will be necessary for the Company to be sold (whether pursuant to a merger, a sale of all or substantially all of its capital stock, assets or otherwise) to pay the purchase price for the Put Shares, or (y) the Company will seek to pay the purchase price for the Put Shares out of the proceeds of a Qualified Financing. Any notice sent pursuant to this Section 7(f) shall be approved by the Board of Directors (excluding Waller-Sutton's and the Additional Put Stockholders' nominees to the Board of Directors). (g) (i) If the date of the Put Closing shall have been postponed pursuant to notice from the Company pursuant to Section 7(f)(ii)(y) above, then the Company shall be obligated to take such steps as are necessary to cause a Qualified Financing to be consummated within 3 months of the date of the notice given under Section 7(f)(ii)(y), and within one business day after the consummation of a Qualified Financing, the Company shall have used the net available proceeds therefrom to pay the full purchase price for the Put Shares and to pay all accrued and unpaid dividends on the outstanding Series B Preferred Stock as required pursuant to the last sentence of Section 7(e). -13- 14 (ii) As used herein, a Qualified Financing shall mean a debt or equity financing, the net proceeds of which are sufficient (after repayment of any Indebtedness required to be repaid in connection therewith) to pay the purchase price of the Put Shares in full. (h) In all other circumstances where the date of the Put Closing shall have been postponed pursuant to Section 7(f) above, the Company shall be obligated to take the following steps within the time periods specified below: (i) within 4 months after the date of the Triggering Put Notice, the Company shall have engaged a broker to market, solicit bids and the form of bids to be solicited for and otherwise facilitate the sale of the Company, whether by way of merger of the Company with any other Person, by way of a single sale of all or substantially all of the capital stock or assets of the Company, or as separate sales of one or more of the Company's radio stations (every such transaction, a "sale transaction"), such broker to be experienced in the marketing and sale of radio stations, and such broker, the terms of its engagement and the form of bids to be solicited and the structure of the transaction to be reasonably acceptable to Waller-Sutton, and the broker and the Company shall have prepared an offering memorandum for the sale of the Company (which offering memorandum shall specify the date that bids must be received) and shall have distributed such offering memorandum to all Persons who are reasonably likely to have a bona fide interest in engaging (and the financial capacity to engage) in such sale transaction or transactions (as reasonably determined by the broker and Waller-Sutton); (ii) within 6 months after the date of the Triggering Put Notice, the Company shall have received any and all bids from potential buyers, shall have sent copies of all such bids to Waller- Sutton, and, unless otherwise consented to by Waller-Sutton, shall have closed the solicitation for bids, and, if such solicitation for bids is closed, the Company shall have received at least one (or one set, in the case of bids for less than all of its radio stations) covering all or substantially all of its assets or capital stock; (iii) within 8 months after the date of the Triggering Put Notice, the Company shall have entered into one or more Qualified Purchase and Sale Agreements for the sale of the Company or all or substantially all of its assets. A "Qualified Purchase and Sale Agreement" shall mean one or more purchase and sale agreements, duly executed by one or more financially responsible purchasers, reasonably acceptable to Waller-Sutton, providing for the purchase of the Company or one or more radio stations in a sale transaction for an aggregate purchase price, payable in full in cash or in such other form of consideration as shall be acceptable to Waller-Sutton at closing, and which provides for a final "drop dead" date for closing, including all extensions for transfer approvals, of no later than four months after the date of execution thereof, and which provides no financing contingency therein for the benefit of the purchaser and is otherwise in form and substance acceptable to Waller-Sutton; and -14- 15 (iv) within one business day after the closing of Qualified Purchase and Sale Agreements for the Company or all or substantially all of the Company's radio stations, the Company shall have used the net available proceeds therefrom to purchase all of the Put Shares. (i) Waller-Sutton shall have the right, by written notice to the Company and each other Additional Put Stockholder (the "Rescission Notice"), to rescind the Triggering Put Notice and all Additional Put Notices (and upon the giving of such Rescission Notice in accordance with the terms hereof, the Triggering Put Notice and each Additional Put Notice shall automatically be null and void and of no further force or effect), provided, however, that the Rescission Notice may not be given at any time (x) while the Company is a party to a binding agreement in respect of or after the Company has consummated a Qualified Financing, or (y) while the Company is a party to a binding Qualified Purchase and Sale Agreement(s) or has consummated transactions pursuant thereto providing for aggregate consideration to the Company equal to more than $25 million. If a Rescission Notice is given, Waller-Sutton shall have the right at any time after the expiration of 12 months from the date of the Rescission Notice to again invoke the provisions of this Section 7, and the Stockholders shall have the right to give Additional Put Notices in respect thereof. (j) If the Company shall fail to take any of the actions set forth above within the time frames required or shall otherwise default in any of its obligations under this Section 7, and such action shall not be taken or such default shall not be cured to the satisfaction of Waller-Sutton, within 15 days of the date of any written notice from Waller-Sutton to the Company with respect thereto, such shall be deemed a "Put Default." During the continuation of a Put Default, Waller-Sutton may require the Company and the other Stockholders to elect such additional designees of Waller-Sutton to the Board such that, after giving effect thereto, the designees of Waller-Sutton elected to the Board pursuant to the provisions of Section 2(a)(ii)(4) above and this Section 7(j) shall constitute a majority of the members of the Board. Without limitation, to the extent then required under applicable law, the Company shall, if so requested by Waller- Sutton, make such filings with the Federal Communications Commission and/or the Securities and Exchange Commission and mail such materials to its Stockholders as shall be necessary to enable Waller- Sutton to designate a majority of the members of the Board, and the Stockholders shall vote their shares of Voting Stock in such manner as shall be necessary to give effect to the foregoing. It is expressly agreed that the designees of Waller-Sutton on the Board shall be empowered to take such action as shall be necessary or appropriate to cause the Put Closing to occur as soon as possible, including causing a sale of all or substantially all of the assets of the Company, or alternatively to effect a sale of the Company or a merger by the Company with another entity. (k) In no event shall the Company be required to consummate any sale pursuant to this Section 7 which would require repayment of any outstanding indebtedness of the Company unless (i) such indebtedness of the Company is repaid on the date of consummation of such sale, (ii) the holders of the indebtedness required to be repaid out of the proceeds of any such sale consent to such sale, or (iii) the purchaser agrees to assume all such indebtedness not being repaid, in accordance with the terms of the agreements governing such indebtedness, and no default or event of default under such agreements results from such assumption. -15- 16 8. DISPOSITION OF SHARES. No Management Stockholder shall transfer, sell, convey, exchange, pledge or otherwise dispose of ("Transfer") any Shares of the Company except in connection with a sale of all or substantially all of the outstanding stock of the Company or a merger of the Company with another Person. Notwithstanding the foregoing, a Management Stockholder shall be entitled to effect any of the following transfers (each an "Exempt Transfer"): (i) Transfers by a Management Stockholder to an entity wholly owned by him at all times following such Transfer; (ii) Transfers pursuant to applicable laws of descent and distribution to members of such Management Stockholder's Immediate Family, or Transfers during the lifetime of such Management Stockholder to such Management Stockholder's spouse, adult children or to a trust whose beneficiaries are members of such Management Stockholder's Immediate Family, (iii) Transfers approved by a majority of the Board of Directors of the Company (which, for as long as Waller-Sutton shall have approval rights pursuant to Section 6 above, shall include the Series F Directors), (iv) prior to a Qualified Public Offering, Transfers of a number of Shares up to the "Maximum Amount" (as defined below), computed cumulatively for all Transfers made under this clause (iv) from and after the date hereof, and (v) following a Qualified Public Offering, the greater of the Maximum Amount or 25% of the sum of (1) the number of shares of Common Stock that such Management Stockholder would have owned as of such date had he not effected any Transfers prior to such date and (2) the number of shares of Common Stock issuable on conversion of Series A Preferred Stock that such Management Stockholder would have owned as of such date had he not effected any Transfers prior to such date, but excluding any shares of Common Stock issuable on exercise of any options or warrants held by such Management Stockholder on such date (the sum of (1) and (2) being such Management Stockholder's "Holdings"), computed cumulatively for all Transfers made under this clause (v) from and after the date hereof; provided that, in the case of Exempt Transfers of the types referenced in clauses (i) and (ii) above, the restrictions contained in this Section 8 will continue to be applicable to Shares and the transferee of such Shares must have agreed in writing to be bound by the terms and conditions of this Agreement applicable to the Stockholder. For purposes hereof, the "Maximum Amount" shall be equal to such Management Stockholder's Holdings, multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock (computed on an as-converted and fully-diluted basis) sold or otherwise disposed of by Waller-Sutton (other than to Waller-Sutton Permitted Transferees) since the date hereof, and the denominator of which shall be the number of shares of Common Stock (computed on an as-converted and fully-diluted basis but excluding any shares of Common Stock that may become issuable on exercise of a Series F Warrant) that would have been held by Waller-Sutton on the date of such Transfer, if Waller- Sutton had not previously sold or otherwise disposed of any Shares. The foregoing shall not apply to or prevent the exercise by a Management Stockholder of the options granted to him under the 1998 Management Stock Option Plan on a "cashless" or net basis. 9. SALE OF THE COMPANY. (a) If a majority of the Board (including in such majority the directors appointed by Waller-Sutton), and Waller-Sutton and other Stockholders Beneficially Owning, together with Waller- Sutton, a majority of the Voting Stock, approve a sale of all or substantially all of the assets or capital stock of the Company (the "Approved Sale"), then each Stockholder shall vote for, consent -16- 17 to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each Stockholder shall waive any dissenters rights, appraisal rights or similar rights such holder may have in connection with such merger or consolidation or (ii) a sale of stock, each shall agree to sell all of his Shares and rights to acquire Shares on the terms and conditions so approved. Each Stockholder shall take all necessary or desirable actions in connection with the consummation of the Approved Sale as reasonably requested by the Company and Waller-Sutton. (b) The obligations of the Stockholders with respect to an Approved Sale are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each Stockholder holding the same class of Shares shall receive the same form of consideration and the same amount of consideration (based on the number of Shares held) and (ii) each holder of then currently exercisable rights to acquire shares of Common Stock shall be given an opportunity to do one of the following: (A) to exercise such rights prior to the consummation of the Approved Sale, (B) to receive in exchange for such rights consideration equal to the amount determined by multiplying (1) the same amount of consideration per share of Common Stock received by holders of Common Stock in connection with the Approved Sale less the exercise price per share of Common Stock of such rights to acquire such Common Stock by (2) the number of shares of Common Stock represented by such rights or (C) to receive in exchange for such rights, rights to acquire shares of common stock of the surviving corporation under equivalent terms through a tax-free exchange with the surviving corporation if the Approved Sale is structured as a merger or consolidation which otherwise constitutes a tax-free reorganization as to such Stockholder and such exchange does not adversely affect the tax-free treatment of the Approved Sale. (c) In no event shall the Company be required to consummate any sale pursuant to this Section 9 which would require repayment of any outstanding indebtedness of the Company unless (i) the net proceeds of such sale would be sufficient to repay all of such indebtedness of the Company, (ii) the holders of the indebtedness required to be repaid out of the proceeds of any such sale consent to such sale, or (iii) the purchaser agrees to assume all such indebtedness not being repaid, in accordance with the terms of the agreements governing such indebtedness, and no default or event of default under such agreements results from such assumption. 10. TAG-ALONG RIGHT. In addition to the rights granted under Section 7 above, in the event that Waller-Sutton and other Stockholders (including Waller-Sutton) Beneficially Owning more than fifty percent (50%) of the Common Stock subject to this Agreement (each a "Selling Stockholder"), desire to transfer, sell, convey, exchange or otherwise dispose of ("Transfer") any Shares pursuant to a bona fide offer from a third party (the "Buyer"), then such Selling Stockholders shall notify the Stockholders who are not Selling Stockholders ("Tag-Along Stockholders"), in writing, of such offer and its terms and conditions (the "Transfer Notice"). Upon receipt of such Transfer Notice, each Tag-Along Stockholder shall have the right to sell to the Buyer, on the same terms and conditions as the Selling Stockholders, that number of Shares of the Company's capital stock subject to this Agreement equal to the product attained by multiplying (a) the number of Shares held by the Tag-Along Stockholder times (b) the quotient derived by dividing (i) the number of Shares which otherwise would have been sold by the Selling Stockholders to the Buyer by (ii) the total number of -17- 18 Shares held by such Selling Stockholders and the number of Shares held by the Tag-Along Stockholders who have elected to participate in such Transfer (assuming, in the case of sales of Common Stock of the Company, full conversion of all shares of preferred stock of the Company held by the Selling Stockholders and each Tag-Along Stockholder exercising its rights under this Section 10). If more than one Tag-Along Stockholder elects to sell Shares pursuant to this Section 10, they may do so pro rata based on the number of Shares held by each of them or in such other proportions as they may agree. The Tag-Along Stockholders' right to sell pursuant to this Section 10 can be exercised by delivery of written notice to the Selling Stockholders within 10 business days following delivery of the Transfer Notice. Any Tag-Along Stockholder who fails to notify the Selling Stockholders within such 10 business days shall be deemed to have waived its rights under this Section 10. 11. DRAG-ALONG RIGHT. In the event that Waller-Sutton and other Stockholders (including Waller-Sutton) Beneficially Owning more than fifty percent (50%) of the Common Stock subject to this Agreement (each a "Transferring Stockholder") wish to Transfer in a bona fide arms' length sale all of the Shares held by the Transferring Stockholders to any person or persons who are not Affiliates of the Transferring Stockholders (the "Proposed Transferee"), the Transferring Stockholders shall have the right, subject to applicable law, to require all the remaining Stockholders to sell to the Proposed Transferee all of the Shares then owned by such remaining Stockholders (including any warrants or options to acquire capital stock of the Company). The amount and type of consideration to be paid by the Proposed Transferee to the Transferring Stockholders and the remaining Stockholders shall be the same (less, in the case of options or warrants, the exercise price for such options or warrants, and in the case of convertible preferred stock shall be based on the greater of the liquidation preference thereof or on the amount that would be received if such preferred stock were converted into Common Stock immediately prior to the closing of such Transfer). In addition, the terms and conditions upon which the remaining Stockholders shall Transfer their Shares shall be the same as those received by Transferring Stockholders holding the same class of capital stock. 12. SUBSCRIPTION RIGHT. If at any time the Company proposes to issue equity securities of any kind (the term "equity securities" shall include for these purposes any warrants, options or other rights to acquire equity securities and debt securities convertible into equity securities) of the Company and any Series F Purchaser is to be a purchaser thereof (other than the issuance of equity securities (i) upon conversion of any preferred stock pursuant to the Company's Certificate of Incorporation, (ii) to the public in a firm commitment underwriting pursuant to a registration statement filed under the Securities Act, (iii) pursuant to the acquisition of another Person by the Company by merger, purchase of substantially all of the assets or outstanding capital stock or other form of transaction or (iv) pursuant to an employee stock option plan, stock bonus plan, stock purchase plan or other management equity program), then, as to each Stockholder, the Company shall: (i) give written notice setting forth in reasonable detail (1) the designation and all of the terms and provisions of the securities proposed to be issued (the "Proposed Securities"), (2) the price and other terms of the proposed sale of such securities, (3) the amount of such securities proposed to be issued and (4) such other information as the Stockholder may reasonably request in order to evaluate -18- 19 the proposed issuance; and (ii) offer to issue to each such Stockholder a portion of the Proposed Securities equal to a percentage determined by dividing (x) the number of shares of Common Stock Beneficially Owned by such Stockholder, assuming conversion in full of any convertible securities held by such Stockholder and exercise of any options or warrants held by such Stockholder, by (y) the total number of shares of Common Stock then outstanding, including for purposes of this calculation all shares of Common Stock issuable upon conversion in full of any then outstanding convertible securities or upon exercise in full of any outstanding options or warrants. Each such Stockholder must exercise its purchase right hereunder within 10 days after receipt of such notice from the Company. If all of the Proposed Securities offered to such Stockholder are not fully subscribed by such Stockholder, the remaining Proposed Securities will not be reoffered to the Stockholders purchasing their full allotment. To the extent that the Company offers two or more securities in units, Stockholders must purchase such units as a whole and will not be given the opportunity to purchase only one of the securities making up such unit. Upon expiration of the offering period described above, the Company will be free to sell such Proposed Securities that the Stockholders have not elected to purchase during the 90 days following such expiration on terms and conditions not more favorable to the purchasers thereof than offered to such holders. Any Proposed Securities offered or sold by the Company to Persons including a Series F Purchaser after such 90 day period must be reoffered to the Stockholders pursuant to these terms. 13. REPRESENTATIONS AND WARRANTIES. (a) Each Stockholder represents and warrants the following with respect to himself, herself or itself, as the case may be: (i) AUTHORIZATION. All corporate action on the part of each Stockholder which is not an individual necessary for the authorization, execution, delivery and performance by such Stockholder of this Agreement has been taken. This Agreement is a legal, valid and binding Obligation of each Stockholder, enforceable against such Stockholder in accordance with its terms. (ii) NO VIOLATION. The execution and delivery of this Agreement will not (with or without notice or passage of time or both) (a) conflict with or result in a breach of any provision of the certificate of incorporation or bylaws of a Stockholder which is not an individual, (b) result in a default, give rise to any right of termination, cancellation or acceleration, or require any consent or approval, under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, loan, factoring arrangement, license, agreement, lease or other instrument or obligation to which a Stockholder is a party or by which it or any of its assets may be bound, or (c) violate any law, judgment, order, writ, injunction, decree, statute, rule or regulation of any court, administrative agency, bureau, board, commission, office, authority, department or other governmental entity applicable to such Stockholder or any of its, his or her assets. -19- 20 14. TERMINATION OF CERTAIN PROVISIONS. The provisions of Sections 2, 7, 10, 11 and 12 of this Agreement will terminate upon the closing of a Qualified Public Offering. In addition, this Agreement, or any portion thereof, may be terminated with the written agreement of the Company, Waller-Sutton and Stockholders (including Waller-Sutton) Beneficially Owning more than 50% of the Common Stock Beneficially Owned by all Stockholders. 15. VOTING. The Stockholders agree that GE Capital shall not vote its shares of Series F Preferred Stock (or any shares of Common Stock issued on conversion thereof) and that such shares will not be counted as shares of Series F Preferred (or Common Stock, as the case may be) that are entitled to vote on any matters except in respect of the following extraordinary events which are submitted to the holders of the Preferred Stock of the Company for vote or approval under the Amended and Restated Charter upon which GE Capital shall be entitled to vote: (a) any amendment to the Amended and Restated Charter; (b) a sale of all or substantially all of the assets of the Company; (c) the dissolution, liquidation or termination of the Company; (d) any acquisition of, or merger of the Company with, another corporation or other entity, whether or not the Company is a survivor of such transaction; (e) any change in the fundamental nature of the business of the Company; (f) any transaction with affiliates, except upon fair and reasonable terms comparable to an arms-length transaction; and (g) any change in the Company's capital structure in a manner that dilutes the ownership interest of the holders of the Series F Preferred Stock. The provisions of this Section 15 shall remain in effect with respect to GE Capital's shares of Series F Preferred Stock (and the shares of Common Stock issued on conversion thereof) until the occurrence of either of the following: (1) transfer of such Series F Preferred Stock (or the shares of Common Stock issued on conversion thereof) to a third party unaffiliated with GE Capital or (2) delivery to the Company of an opinion of counsel, in form reasonably satisfactory to the Stockholders, to the effect that, as a result of (a) changes in the ownership or attribution rules ("Rules") of the FCC or (b) changes in GE Capital's circumstances, there is no longer a need or desire on the part of GE Capital to insulate its ownership interest in the Series F Preferred Stock (or the shares of Common Stock issued on conversion thereof) from attribution under the FCC Rules. 16. CONSENT TO AMENDMENTS; WAIVERS. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of the Company, Waller-Sutton and Stockholders (including Waller-Sutton) holding not less than fifty -20- 21 percent (50%) of the Common Stock Beneficially Owned by all Stockholders. Any waiver, permit, consent or approval of any kind or character on the part of any such holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. 17. WALLER-SUTTON. The term Waller-Sutton, as used herein, shall mean Waller-Sutton or any Permitted Waller-Sutton Transferee to whom Waller-Sutton has transferred any Shares; provided, however, that in the event Waller-Sutton sells all or substantially all of its Shares to Persons other than Permitted Waller-Sutton Transferees, then (i) the term "Waller-Sutton," as used in Section 7 hereof (and in respect of defined terms used in said Section 7), shall refer to any Stockholder or Stockholders Beneficially Owning more than 30% of the Series F Preferred Stock then outstanding, and (ii) the term "Waller-Sutton," as used in any other Section of this Agreement (and in respect of defined terms used therein), shall refer to any Stockholder or Stockholders Beneficially Owning more than 50% of the Series F Preferred Stock then outstanding. 18. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not, provided, that in the case of an assignment, such assignment shall be made in conjunction with a Transfer of Shares, such assignment shall specifically provide that the assignee shall assume all obligations of the assigning Stockholder, and such assignee shall execute and deliver to the Company and the other Stockholders a counterpart of this Agreement. Notwithstanding the foregoing, no purchaser of Shares sold pursuant to an effective registration statement filed by the Company or in an unsolicited open market transaction effected pursuant to Rule 144 shall be subject to the provisions hereof or deemed a Stockholder hereunder. 19. LEGEND ON CERTIFICATES. All Series A Preferred Stock, Series B Preferred Stock, Series D Preferred Stock and Series F Preferred Stock of the Company, and all Series C Preferred Stock and all Common Stock of the Company now or hereafter owned by the parties to this Agreement, shall be subject to the provisions of this Agreement and the certificates representing said shares shall bear substantially the following legends (except that the certificate representing the Series C Preferred Stock shall not bear the first legend set forth below): "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any State (the "Securities Laws"). These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration under applicable Securities Laws, or the availability of an exemption therefrom. This certificate will not be transferred on the books of the Corporation or any transfer agent acting on behalf of the Corporation except upon the receipt of an opinion of counsel, satisfactory to the Corporation, that the proposed transfer is exempt from the registration requirements of all applicable Securities Laws, -21- 22 or the receipt of evidence, satisfactory to the Corporation, that the proposed transfer is the subject of an effective registration statement under all applicable Securities Laws." "The Corporation is subject to restrictions contained in the Federal Communications Act, as amended. The securities evidenced by this certificate may not be sold, transferred, assigned or hypothecated if, as a result thereof, the issuer would be in violation of that act." "The securities represented by this certificate are subject to the terms of that certain Second Amended and Restated Stockholders' Agreement dated as of June 15, 1998, among Regent Communications, Inc. and certain of its stockholders, as the same may be amended from time to time." 20. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 21. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 22. NOTICES. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the addresses shown on the signature pages hereof, or such other address as any party hereto designates by written notice to the Company, and shall be deemed to have been given upon delivery, if delivered personally, three days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service. 23. GOVERNING LAW. All questions concerning the construction, validity, and interpretation of this Agreement, and the performance of the obligations imposed by this Agreement, shall be governed by the laws of the State of Delaware. 24. FINAL AGREEMENT. This Agreement constitutes the complete agreement of the parties concerning the matters referred to herein. 25. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of Counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. -22- 23 26. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be used against any party. 27. REMEDIES. The parties hereto shall have all rights and remedies set forth in this Agreement and all rights and remedies available under any applicable law. The parties hereto agree and acknowledge that money may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may, in its sole discretion, apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief (without posting bond or other security) in order to enforce, or prevent any violations of, the provisions of this Agreement. 28. CERTAIN EXPENSES. The Company agrees to pay all reasonable expenses of Waller-Sutton (including reasonable fees, charges and disbursements of its counsel) incurred in connection with (i) any amendment, supplement, modification or waiver of or to any provisions of this Agreement (including, without limitation, a response to a request by the Company or any Stockholder for a consent to any action otherwise prohibited hereunder), or consent to any departure by the Company or any Stockholder from, the terms of any provision of this Agreement; and (ii) any matters arising hereunder, including without limitation the reasonable expenses of Waller-Sutton incurred to monitor or confirm the performance by the Company or any Stockholder of or compliance by the Company or any Stockholder with all agreements and covenants on its part to be performed or complied with or incurred in connection with or in respect of any of the rights granted to Waller-Sutton hereunder. The Company shall also pay all costs and expenses incurred in connection with or arising out of the purchase by it of the Put Shares. 29. WALLER-SUTTON CONSENT. Whenever this Agreement shall require or contemplate the consent or approval of Waller-Sutton to or in respect of any matter, such consent or approval may be given or withheld in the sole discretion of Waller-Sutton and, if given, must be evidenced by a written instrument duly executed by or on behalf of Waller-Sutton expressly setting forth the specific matter approved or consented to. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -23- 24 The parties hereto have executed this Agreement on the date first set forth above. THE COMPANY: REGENT COMMUNICATIONS, INC. By: --------------------------------------- Title: CHAIRMAN & CEO ------------------------------------ Address: 50 E. RIVER CENTER BLVD. ---------------------------------- SUITE #180 ------------------------------------------ COVINGTON, KY 41011 ------------------------------------------ TELECOPIER NO: (606) 292-0352 ------------------------------------------ ------------------------------------------ TERRY S. JACOBS Address: 6561 MADEIRA HILLS DR. --------------------------------- CINCINNATI, OH 45243 ------------------------------------------ TELECOPIER NO: ( ) - ------------------------------------------ ------------------------------------------ WILLIAM L. STAKELIN Address: 1870 MADISON ROAD --------------------------------- CINCINNATI, OHIO 45231 ------------------------------------------ TELECOPIER NO: ( ) - ------------------------------------------ -24- 25 RIVER CITIES CAPITAL FUND LIMITED PARTNERSHIP By: River Cities Management Limited Partnership, General Partner By: Mayson, Inc., General Partner By: ------------------------------------ R. Glen Mayfield, Vice President Address: 221 East Fourth Street ------------------------------------ Suite 2250 ------------------------------------ Cincinnati, Ohio 45202 ------------------------------------ BMO FINANCIAL, INC. By: --------------------------------------------- Title: --------------------------------------- Address: 430 Park Avenue ------------------------------------------------ New York, New York 10028 ------------------------------------------------ GENERAL ELECTRIC CAPITAL CORPORATION By: --------------------------------------------- Senior Vice President Address: 3379 Peachtree Road, N.E. --------------------------------------- Suite 600 ------------------------------------------------ Atlanta, GA 30326 ------------------------------------------------ PNC BANK, N.A., as Trustee By: --------------------------------------------- Address: 201 East Fifth Street --------------------------------------- Fifth Floor ------------------------------------------------ Cincinnati, OH 45202 ------------------------------------------------ Attn: Patricia S. Grelle ------------------------------------------------
-25- 26 WALLER-SUTTON MEDIA PARTNERS, L.P. By: Waller-Sutton Media, L.L.C., its General Partner By: ---------------------------------------- Address: c/o Waller-Sutton Management --------------------------------------- Group, Inc. ------------------------------------------------ 1 Rockefeller Plaza, Suite 3300 ------------------------------------------------ New York, NY 10020 ------------------------------------------------ Attention: Cathy M. Brienza ------------------------------------------------ Telecopier No: (212) 218-4355 ------------------------------------------------ with a copy (which shall not constitute notice) to: Rubin Baum Levin Constant & Friedman 30 Rockefeller Plaza New York, NY 10112 Attention: Ronald Greenberg, Esq. Telecopier No: (212) 698-7825 ------------------------------------------------ WILLIAM H. INGRAM Address: c/o Waller-Sutton Management --------------------------------------- Group, Inc. ------------------------------------------------ 1 Rockefeller Plaza, Suite 3300 ------------------------------------------------ New York, NY 10020 ------------------------------------------------ Telecopier No: (212) 218-4355 ------------------------------------------------ with a copy (which shall not constitute notice) to: Rubin Baum Levin Constant & Friedman 30 Rockefeller Plaza New York, NY 10112 Attention: Ronald Greenberg, Esq. Telecopier No: (212) 698-7825
-26- 27 WPG CORPORATE DEVELOPMENT ASSOCIATES V, L.P., By: --------------------------------------------- Address: One New York Plaza --------------------------------------- New York, New York 10004-1950 ------------------------------------------------ WPG CORPORATE DEVELOPMENT ASSOCIATES V (OVERSEAS), L.P. By: --------------------------------------------- Address: c/o BankAmerica Trust & Banking Corp. --------------------------------------- (Cayman) Ltd. ------------------------------------------------ BankAmerica House ------------------------------------------------ Fort Street ------------------------------------------------ George Town, Grand Cayman ------------------------------------------------ Cayman Islands ------------------------------------------------ BLUE CHIP CAPITAL FUND II LIMITED PARTNERSHIP By: Blue Chip Venture Company, Ltd., its general partner By: ---------------------------------------- Address: 2000 PNC Center ---------------------------------- 201 East Fifth Street ------------------------------------------- Cincinnati, Ohio 45202 ------------------------------------------- Attn: John H. Wyant ------------------------------------------- Telecopier No: (513) 723-2306 -------------------------------------------
-27- 28 MIAMI VALLEY VENTURE FUND L.P. By: Blue Chip Venture Company of Dayton, Ltd., its special limited partner By: ---------------------------------------- John H. Wyant Manager Address: 2000 PNC Center ---------------------------------- 201 East Fifth Street ------------------------------------------- Cincinnati, Ohio 45202 ------------------------------------------- Attn: John H. Wyant ------------------------------------------- Telecopier No: (513) 723-2306 ------------------------------------------- ------------------------------------------------ JOEL M. FAIRMAN Address: 333 Glen Head Road ---------------------------------------- Suite 220 ------------------------------------------------ Old Brookville, NY 11545 ------------------------------------------------ Telecopier no: (516) 676-2631 ------------------------------------------------
-28- EX-4.D 4 EXHIBIT 4(D) 1 Exhibit 4(d) - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT BY AND AMONG REGENT COMMUNICATIONS, INC., WALLER-SUTTON MEDIA PARTNERS, L.P., AND THE PURCHASERS NAMED HEREIN - -------------------------------------------------------------------------------- DATED AS OF JUNE 15, 1998 - -------------------------------------------------------------------------------- 2
TABLE OF CONTENTS PAGE ---- ARTICLE 1 DEFINITIONS.......................................................................................................1 1.1 DEFINITIONS..............................................................................................1 1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS..................................................................11 1.3 KNOWLEDGE OF THE COMPANY................................................................................11 ARTICLE 2 PURCHASE AND SALE OF THE PREFERRED STOCK.........................................................................11 2.1 PURCHASE AND SALE OF THE SHARES.........................................................................11 2.2 CLOSINGS................................................................................................12 2.3 DEFAULT SHARES..........................................................................................13 2.4 FINANCIAL ACCOUNTING POSITIONS; TAX REPORTING...........................................................15 2.5 FEES AND EXPENSES.......................................................................................16 2.6 TAG-ALONG RIGHT.........................................................................................16 ARTICLE 3 CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE THE SHARES...........................................................................................17 3.1 REPRESENTATIONS AND WARRANTIES..........................................................................18 3.2 COMPLIANCE WITH THIS AGREEMENT..........................................................................18 3.3 COMPLIANCE WITH THE ACQUISITION DOCUMENTS; CLOSING THEREUNDER; NO DEFAULTS ........................................................................................................18 3.4 SECRETARY'S CERTIFICATE.................................................................................18 3.5 DOCUMENTS...............................................................................................18 3.6 PURCHASE OF SHARES PERMITTED BY APPLICABLE LAWS.........................................................19 3.7 OPINION OF COUNSEL......................................................................................19 3.8 APPROVAL OF COUNSEL TO THE PURCHASERS...................................................................19 3.9 CONSENTS AND APPROVALS..................................................................................19 3.10 REGISTRATION RIGHTS AGREEMENT...........................................................................19 3.11 STOCKHOLDERS' AGREEMENT.................................................................................19 3.12 CERTIFICATE OF INCORPORATION AND BY-LAWS................................................................20 3.13 NO MATERIAL JUDGMENT OR ORDER...........................................................................20 3.14 GOOD STANDING CERTIFICATE...............................................................................20 3.15 PRO FORMA BALANCE SHEET.................................................................................20 3.16 STOCK OPTION PLAN.......................................................................................20 3.17 D & O INSURANCE.........................................................................................20 3.18 FUTURE ACQUISITION AGREEMENTS...........................................................................20 3.19 SALE OF SERIES A, SERIES B AND SERIES D PREFERRED STOCK.................................................21
3 3.20 KEY-MAN INSURANCE.......................................................................................21 3.21 FAIRCOM CONVERTIBLE NOTE PURCHASE AGREEMENT.............................................................21 3.22 EXECUTIVE EMPLOYMENT AGREEMENTS.........................................................................21 3.23 COMPLIANCE WITH STATE SECURITIES LAWS...................................................................21 3.24 CONVERSION OF FAIRCOM CONVERTIBLE NOTES.................................................................21 3.25 SBA COMPLIANCE..........................................................................................21 ARTICLE 4 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO ISSUE AND SELL THE SHARES.....................................................................................22 4.1 REPRESENTATIONS AND WARRANTIES..........................................................................22 4.2 COMPLIANCE WITH THIS AGREEMENT..........................................................................22 4.3 STOCKHOLDERS' AGREEMENT.................................................................................22 4.4 CONVERSION OF FAIRCOM CONVERTIBLE NOTES.................................................................22 4.5 COMPLIANCE WITH STATE SECURITIES LAWS...................................................................22 ARTICLE 5 REPRESENTATIONS AND WARRANTIES...................................................................................23 5.1 EXISTENCE AND POWER.....................................................................................23 5.2 AUTHORIZATION: NO CONTRAVENTION.........................................................................23 5.3 GOVERNMENTAL AUTHORIZATION: THIRD PARTY CONSENTS........................................................23 5.4 BINDING EFFECT..........................................................................................24 5.5 NO LEGAL BAR............................................................................................24 5.6 LITIGATION .............................................................................................24 5.7 COMPLIANCE WITH LAWS....................................................................................24 5.8 NO DEFAULT OR BREACH....................................................................................24 5.9 TITLE TO PROPERTIES.....................................................................................24 5.10 USE OF REAL PROPERTY....................................................................................24 5.11 TAXES...................................................................................................25 5.12 FINANCIAL CONDITION.....................................................................................25 5.13 ERISA ..................................................................................................26 5.14 DISCLOSURE..............................................................................................26 5.15 ABSENCE OF CERTAIN CHANGES OR EVENTS....................................................................27 5.16 ENVIRONMENTAL MATTERS...................................................................................27 5.17 INVESTMENT COMPANY/GOVERNMENT REGULATIONS...............................................................28 5.18 SUBSIDIARIES............................................................................................28 5.19 CAPITALIZATION..........................................................................................29 5.20 PRIVATE OFFERING........................................................................................29 5.21 BROKER'S, FINDER'S OR SIMILAR FEES......................................................................30 5.22 LABOR RELATIONS.........................................................................................30 5.23 EMPLOYEE BENEFIT PLANS..................................................................................30 5.24 PATENTS, TRADEMARKS. ETC................................................................................30 5.25 POTENTIAL CONFLICTS OF INTEREST.........................................................................31
4 5.26 TRADE RELATIONS.........................................................................................31 5.27 OUTSTANDING BORROWINGS..................................................................................32 5.28 MATERIAL CONTRACTS......................................................................................32 5.29 INSURANCE...............................................................................................32 5.30 SOLVENCY................................................................................................33 5.31 COMPLIANCE WITH EACH ACQUISITION DOCUMENT; CLOSINGS THEREUNDER; NO DEFAULTS ........................................................................................................33 5.32 COMMISSION DOCUMENTS....................................................................................33 5.33 INCORPORATION OF REPRESENTATIONS AND WARRANTIES OF PARTIES TO THE ACQUISITION DOCUMENTS...............................................................................................33 5.34 SMALL BUSINESS CONCERN..................................................................................33 5.35 COMPLIANCE WITH LOAN AGREEMENT..........................................................................34 5.36 YEAR 2000 COMPLIANCE....................................................................................34 5.37 RADIO STATIONS KCBQ (AM) AND WSSP (FM)..................................................................34 5.38 FAIRCOM DEBT............................................................................................35 ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.....................................................................................35 6.1 AUTHORIZATION; NO CONTRAVENTION.........................................................................35 6.2 BINDING EFFECT..........................................................................................35 6.3 NO LEGAL BAR............................................................................................36 6.4 EXPERIENCE..............................................................................................36 6.5 PURCHASE FOR OWN ACCOUNT................................................................................36 6.6 EXEMPTION...............................................................................................37 6.7 ACCREDITED INVESTOR.....................................................................................37 6.8 NO PUBLIC MARKET........................................................................................37 6.9 ERISA...................................................................................................37 6.10 BROKER'S, FINDER'S OR SIMILAR FEES......................................................................37 ARTICLE 7 INDEMNIFICATION..................................................................................................38 7.1 INDEMNIFICATION.........................................................................................38 7.2 LIMITATIONS ON INDEMNIFICATION..........................................................................39 7.3 NOTIFICATION............................................................................................39 7.4 REGISTRATION RIGHTS AGREEMENT...........................................................................40 ARTICLE 8 AFFIRMATIVE COVENANTS............................................................................................40 8.1 FINANCIAL STATEMENTS AND OTHER INFORMATION..............................................................40 8.2 PRESERVATION OF CORPORATE EXISTENCE.....................................................................44 8.3 PAYMENT OF OBLIGATIONS..................................................................................44 8.4 COMPLIANCE WITH LAWS....................................................................................45
5 8.5 INSPECTION; COMPLIANCE WITH SMALL BUSINESS INVESTMENT ACT...............................................45 8.6 MAINTENANCE OF INSURANCE................................................................................45 8.7 BOOKS AND RECORDS.......................................................................................46 8.8 USE OF PROCEEDS.........................................................................................46 8.9 BOARD NOMINEES..........................................................................................46 8.10 GRANTING OF OPTIONS.....................................................................................46 8.11 BUSINESS ACTIVITIES.....................................................................................47 8.12 BOARD CONSENT...........................................................................................47 8.13 RESERVATION OF SHARES...................................................................................47 ARTICLE 9 MISCELLANEOUS....................................................................................................48 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES..............................................................48 9.2 NOTICES.................................................................................................48 9.3 SUCCESSORS AND ASSIGNS..................................................................................49 9.4 AMENDMENT AND WAIVER....................................................................................49 9.5 SIGNATURES AND COUNTERPARTS.............................................................................50 9.6 HEADINGS................................................................................................50 9.7 GOVERNING LAW...........................................................................................50 9.8 JURISDICTION............................................................................................50 9.9 SEVERABILITY............................................................................................51 9.10 RULES OF CONSTRUCTION...................................................................................51 9.11 ENTIRE AGREEMENT........................................................................................51 9.12 CERTAIN EXPENSES........................................................................................51 9.13 PUBLICITY...............................................................................................51 9.14 FURTHER ASSURANCES......................................................................................52 9.15 OBLIGATIONS OF THE PARTIES..............................................................................52
6 STOCK PURCHASE AGREEMENT AGREEMENT (the "Agreement"), dated as of June 15, 1998, by and among REGENT COMMUNICATIONS, INC. (the "Company"), a Delaware corporation, WALLER-SUTTON MEDIA PARTNERS, L.P. ("Waller-Sutton"), a Delaware limited partnership, and the other purchasers from time to time listed on Schedule I hereto (each of Waller-Sutton and such other purchasers individually, a "Purchaser" and collectively, the "Purchasers"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company wishes to sell to the Purchasers, and the Purchasers wish to purchase from the Company, an aggregate of 4,100,000 shares of its Series F Convertible Preferred Stock, $0.01 par value per share (the "Series F Preferred Stock"), for an aggregate purchase price of $20,500,000, upon the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS ----------- 1.1 DEFINITIONS. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "ACQUISITIONS" shall mean the acquisition by the Company or any wholly-owned Subsidiary of 31 radio stations in nine markets to be consummated on the First Closing Date in accordance with and pursuant to the Acquisition Documents. "ACQUISITION DOCUMENTS" shall mean the following agreements, collectively: (i) Agreement of Merger among Faircom Inc., Regent Merger Corp. and the Company, dated as of December 5, 1997, as amended by First Amendment to Agreement of Merger dated April 7, 1998, and by a Second Amendment to Agreement of Merger dated April 24, 1998; (ii) Stock Purchase Agreement, dated June 16, 1997, among the Company and the Shareholders of The Park Lane Group, as amended by First Amendment to Stock Purchase Agreement, dated February 2, 1998, and by a Second Amendment to Stock Purchase Agreement, dated as of May 1, 1998, among the Company and the Shareholders of The Park Lane Group; (iii) Agreement of Merger, dated as of December 17, 1997, among the Company, Regent Broadcasting of Victorville, Inc. and Topaz Broadcasting, Inc., as amended by an Amendment to Agreement of Merger dated as of June __, 1998; (iv) Asset Purchase Agreement, dated December 17, 1997, between Regent Broadcasting of Victorville, Inc. and Ruby Broadcasting, Inc., as amended by an Amendment to Purchase Agreement 7 dated as of June __, 1998; (v) Asset Purchase Agreement, dated December 9, 1997, between Regent Broadcasting of Kingman, Inc. and Continental Radio Broadcasting, L.L.C.; and (vi) Agreement of Merger, dated October 10, 1997, among Alta California Broadcasting, Inc., a California corporation ("Alta California"), Regent Acquisition Corp. and the Company, as amended by an Amendment No. 1 thereto, dated as of June 10, 1998, among Regent Acquisition Corp., Alta California and Alta California Broadcasting, Inc., a Delaware corporation and a wholly-owned subsidiary of Alta California (the "Alta Merger Agreement"); in each case, as the same may be amended or further amended from time to time as permitted by the provisions of this Agreement. "ADDITIONAL CLOSING(S)" shall have the meaning assigned to that term in Section 2.2 hereof. "ADDITIONAL CLOSING DATE(S)" shall have the meaning assigned to that term in Section 2.2 hereof. "ADDITIONAL DEFAULT SHARES" shall have the meaning assigned to that term in Section 2.3(e) hereof. "ADDITIONAL OPTION PERIOD" shall have the meaning assigned to that term in Section 2.3(e) hereof. "ADDITIONAL SHARES" shall have the meaning assigned to that term in Section 2.1 hereof. "AFFILIATE" shall mean any Person (a) directly or indirectly controlling, controlled by, or under common control with, the Company, (b) directly or indirectly owning or holding five percent (5%) or more of any equity interest in the Company, or (c) five percent (5%) or more of whose voting stock or other equity interest is directly or indirectly owned or held by the Company. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and under "common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "AGREEMENT" shall mean this Agreement, including the exhibits and schedules attached hereto, as the same may be amended, supplemented or modified in accordance with the terms hereof. "AUDITED FINANCIAL STATEMENTS" shall have the meaning assigned to that term in Section 5.12 hereof. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. -2- 8 "BY-LAWS" shall mean, unless the context in which it is used otherwise requires, the by-laws of the Company, as in effect on the applicable Closing Date. "CERTIFICATE OF AMENDMENT" shall mean the amendment and restatement of the certificate of incorporation of the Company, which, among other things, sets forth the terms, limitations and relative rights and preferences of the Series F Preferred Stock, substantially in the form attached hereto as Exhibit A. "CERTIFICATE OF INCORPORATION" shall mean the certificate of incorporation of the Company (as amended), as in effect on the applicable Closing Date. "CLOSING" shall mean the First Closing, any Additional Closing or the Default Shares Closing, as the case may be. "CLOSING DATE" shall mean the First Closing Date, any Additional Closing Date or the Default Shares Closing Date, as the case may be. "CODE" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute thereto. "COMMISSION" shall mean the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act. "COMMISSION DOCUMENTS" shall have the meaning set forth in Section 5.32 hereof. "COMMON STOCK" shall mean shares of common stock, par value $0.01 per share, of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted. "COMPANY" shall mean Regent Communications, Inc., a Delaware corporation. "COMMUNICATIONS ACT" shall mean the Communications Act of 1934, as amended, and the rules and regulations of the FCC thereunder. "CONDITION OF THE COMPANY" shall mean the assets, business, properties, results of operations or financial condition of the Company or any of its Subsidiaries. "CONTINGENT OBLIGATION" as applied to any Person, shall mean any direct or indirect liability, contingent or otherwise, of that Person: (i) with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect -3- 9 thereto; (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; or (iii) under any foreign exchange contract, currency swap agreement, interest rate swap agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, and (c) any liability of such Person for the obligations of another through any agreement to purchase, repurchase or otherwise acquire such obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed. "CONTRACTUAL OBLIGATIONS" shall mean as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument to which such Person is a party or by which it or any of its property is bound. "CRISLER AMENDMENT" shall mean that agreement, in form and substance satisfactory to Waller-Sutton, that reduces the compensation payable to The Crisler Company, L.P. ("Crisler") in respect of the Additional Shares in the manner set forth therein. "DEFAULT SHARES" shall have the meaning assigned to that term in Section 2.3 hereof. "DEFAULT SHARES CLOSING" shall have the meaning assigned to that term in Section 2.3 hereof. "DEFAULT SHARES CLOSING DATE" shall have the meaning assigned to that term in Section 2.3 hereof. "DEFINED BENEFIT PLAN" shall mean a defined benefit plan within the meaning of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or unfunded, qualified or non-qualified (whether or not subject to ERISA or the Code). "ENVIRONMENTAL LAWS" shall mean any Federal, state, territorial, provincial or local law, common law doctrine, rule, order, decree, judgment, injunction, license, permit or regulation relating to environmental matters, including those pertaining to land use, air, soil, surface water, ground water (including the protection, cleanup, removal, remediation or damage thereof), public or employee health or safety or any other environmental matter, together with any other laws (Federal, state, territorial, provincial or local) relating to emissions, discharges, releases or threatened releases of any pollutant or contaminant including, without limitation, medical, chemical, biological, -4- 10 biohazardous or radioactive waste and materials, into ambient air, land, surface water, groundwater, personal property or structures, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, discharge or handling of any contaminant, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. 9601 ET SEQ.), the Hazardous Material Transportation Act (49 U.S.C. 1801 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. 6901 ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C. 1251 ET SEQ.), the Clean Air Act (42 U.S.C. 1251 ET SEQ.), the Toxic Substances Control Act (15 U.S.C. 2601 ET SEQ.), and the Occupational Safety and Health Act (29 U.S.C. 651 ET SEQ.), as such laws have been, or are, amended, modified or supplemented heretofore or from time to time hereafter and any analogous future Federal, or present or future state or local laws, statutes and regulations promulgated thereunder. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" shall mean any Person that is treated as a single employer with the Company or any of its Subsidiaries under Section 414(b), (c), (m) or (o) of the Code. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "EXECUTIVE EMPLOYMENT AGREEMENTS" shall mean the separate Employment Agreements between Terry S. Jacobs and William Stakelin and the Company each dated as of March 1 ,1998, copies of which are attached hereto as Exhibit B. "EXERCISABLE SHARES" shall have the meaning assigned to that term in Section 8.14 hereof. "FAIRCOM CONVERTIBLE NOTE PURCHASE AGREEMENT" shall mean the agreement dated the date hereof between Waller-Sutton, Blue Chip Capital Fund II Limited Partnership ("Blue Chip") and Miami Valley Venture Fund L.P. ("Miami") pursuant to which Waller-Sutton is to purchase on the First Closing Date from Blue Chip and Miami $1,500,000 aggregate principal amount of Faircom Convertible Notes as set forth therein.. "FAIRCOM CONVERTIBLE NOTES" shall mean the Class A Convertible Subordinated Promissory Notes and Class B Convertible Subordinated Promissory Notes of Faircom, Inc. "FCC" shall mean the Federal Communications Commission or any similar agency then having jurisdiction to enforce the Communications Act. "FINANCIAL STATEMENTS" shall mean the Audited Financial Statements and the Unaudited Financial Statements. -5- 11 "FIRST CLOSING" shall have the meaning assigned to that term in Section 2.2 hereof. "FIRST CLOSING DATE" shall have the meaning assigned to that term in Section 2.2 hereof. "FUTURE ACQUISITION AGREEMENT" shall mean any agreement approved by the Board of Directors and by Waller-Sutton pursuant to the provisions of the Stockholders' Agreement relating to the acquisition by the Company or any Subsidiary of one or more radio stations, whether by means of the purchase by the Company or such Subsidiary of stock or assets of, or a merger or consolidation by the Company or such Subsidiary with, any other Person or otherwise. "GAAP" shall mean generally accepted accounting principles in effect from time to time within the United States. "GOVERNMENTAL AUTHORITY" shall mean the government of any nation, state, city, locality or other political subdivision of any thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "HAZARDOUS MATERIALS" shall mean those substances which are regulated by or form the basis of liability under any Environmental Laws. "INDEBTEDNESS" shall mean as to any Person (a) all obligations of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, unfunded credit commitments, letters of credit and bankers' acceptances, whether or not matured), (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable and accrued commercial or trade liabilities arising in the ordinary course of business, (d) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by such Person, whether periodically or upon the happening of a contingency, (e) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (f) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (g) all indebtedness secured by any Lien (other than Liens in favor of lessors under leases other than leases included in clause (f)) on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person, and (h) any Contingent Obligation of such Person. "INITIAL SHARES" shall have the meaning assigned to that term in Section 2.1 hereof. -6- 12 "INVESTOR WARRANT SHARES" shall mean the shares of common stock issued upon exercise of the Investor Warrants. "INVESTOR WARRANTS" shall mean detachable warrants in the form attached hereto as Exhibit C to purchase 860,000 shares of Common Stock at $5.00 per share (subject to adjustment for dividends, subdivisions, combinations or reclassifications and the like), which warrants shall be exercisable for 10 years from the First Closing. "LIEN" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (excluding preferred stock and equity related preferences) including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease obligation, or any financing lease having substantially the same economic effect as any of the foregoing. "MAJORITY PURCHASERS" shall mean at the time of determination Waller-Sutton and such other Purchasers as shall, together with Waller-Sutton, hold a majority of the then issued and outstanding shares of Series F Preferred Stock. "OUTSTANDING BORROWINGS" shall mean all Indebtedness of the Company and its Subsidiaries for money borrowed that is outstanding at the relevant time of determination. "PERSON" shall mean any individual, firm, corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "PLANS" shall have the meaning assigned to that term in Section 5.23 hereof. "PREFERRED STOCK" shall mean shares of preferred stock, par value $.01 per share, of the Company including, but not limited to, shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock. "PRO FORMA BALANCE SHEET" shall mean the pro forma consolidated balance sheet of the Company and its Subsidiaries delivered pursuant to Article 3 hereof. "PURCHASER CLOSING NOTICE" shall have the meaning assigned to that term in Section 2.2(c) hereof. -7- 13 "PURCHASER PRO RATA SHARE" shall mean, as to any Purchaser, the amount (expressed as a percentage) obtained by dividing (x) the Purchaser Share Commitment of such Purchaser by (y) the sum of the Purchaser Share Commitments of all Purchasers. "PURCHASER SHARE COMMITMENT" shall mean, as to any Purchaser, the aggregate number of shares of Series F Preferred Stock which such Purchaser is obligated to purchase hereunder (including any Initial Shares), which number is set forth alongside such Purchaser's name on the signature page hereto. "QUALIFIED PUBLIC OFFERING" shall mean the sale by the Company pursuant to a registration statement on Form S-1 or other Form under the Securities Act, of shares of Common Stock at a price per share not less than $12.00 (subject to appropriate adjustment in the event of any stock split, recapitalization, reclassification or the like) and providing gross proceeds to the Company of not less than $25 million in the aggregate (exclusive of any such proceeds received upon exercise of any "over-allotment option" granted to the underwriters of such offering). "REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights Agreement substantially in the form attached hereto as Exhibit D. "REMAINING SHARE COMMITMENT" shall mean, as to any Purchaser and as of any date of determination thereof, the Purchaser Share Commitment of such Purchaser, less the number of shares of Series F Preferred Stock (exclusive of Default Shares and Additional Default Shares) theretofore purchased by such Purchaser pursuant to this Agreement. "REQUIRED CONSENTS" shall mean the authorizations, consents or approvals listed on Schedule 5.2 hereto. "REQUIREMENTS OF LAW" shall mean as to any Person, the certificate or articles of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule, regulation, right, privilege, qualification, license or franchise or determination of an arbitrator or a court or other Governmental Authority (including without limitation, the Federal Communications Act of 1934, as amended, and the rules and regulations promulgated thereunder, and all Federal and State securities laws, and the rules and regulations promulgated thereunder), in each case applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject or pertaining to any or all of the transactions contemplated or referred to herein. "SECURITIES" shall mean the Shares and the Investor Warrants. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder. -8- 14 "SERIES A PREFERRED STOCK" shall mean shares of Series A Convertible Preferred Stock, par value $.01 per share, of the Company. "SERIES A PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement, dated December 1, 1997, between the Company and William L. Stakelin. "SERIES B PREFERRED STOCK" shall mean shares of Series B Senior Convertible Preferred Stock, par value $.01 per share, of the Company. "SERIES B PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement, dated December 8, 1997, between the Company and General Electric Capital Corporation. "SERIES C PREFERRED STOCK" shall mean shares of Series C Convertible Preferred Stock, par value $.01 per share, of the Company. "SERIES D PREFERRED STOCK" shall mean shares of Series D Convertible Preferred Stock, par value $.01 per share, of the Company. "SERIES D PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement, dated December 8, 1997, between the Company and BMO Financial, Inc. "SERIES E PREFERRED STOCK" shall mean shares of Series E Convertible Preferred Stock, par value $.01 per share, of the Company. "SERIES F PREFERRED STOCK" shall have the meaning assigned to that term in the first Whereas clause hereof. "SHARES" shall have the meaning assigned to that term in Section 2.1 hereof. "SOLVENT" shall mean, with respect to the Company and its Subsidiaries considered as a whole, based on the Financial Statements, that (i) the assets and the property of the Company and its Subsidiaries, considered as a whole, exceed the aggregate liabilities (including contingent and unliquidated liabilities) of the Company and its Subsidiaries, considered as a whole, (ii) after giving effect to the transactions contemplated by this Agreement, the Company and its Subsidiaries, considered as a whole, will not be left with unreasonably small capital, and (iii) after giving effect to the transactions contemplated by this Agreement, the Company and its Subsidiaries, considered as a whole, are able to both service and pay their liabilities as they mature and are, in fact, doing so. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that is likely to become an actual or matured liability. "STOCKHOLDERS' AGREEMENT" shall mean the Amended and Restated Stockholders' Agreement, substantially in the form attached hereto as Exhibit E. -9- 15 "STOCK OPTION PLAN" shall mean the 1998 Management Stock Option Plan of the Company, a copy of which is attached hereto as Exhibit F. "STOCK OPTIONS" shall have the meaning assigned to that term in Section 5.19 hereof. "SUBSIDIARY" shall mean, with respect to any Person, a corporation or other entity (i) of which 50% or more of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company or (ii) with respect to which such Person, directly or indirectly, has the power to elect a majority of the board of directors or similar governing body, or otherwise direct the management and/or operations thereof. "TRANSACTION DOCUMENTS" shall mean collectively, this Agreement, the Registration Rights Agreement, the Stockholders' Agreement, the Faircom Convertible Note Purchase Agreement, the Certificate of Incorporation, the Certificate of Amendment, and the By-laws. "TERMINATION DATE" shall mean the earliest to occur of (i) June 15, 2001, (ii) the occurrence of a Change of Control (as defined in the Stockholders' Agreement) which is not consented to or approved by Waller-Sutton, or (iii) the occurrence of any Triggering Event. "TRIGGERING EVENT" shall mean any one or series of related transactions that would result in (i) a sale to any Person other than the Company or any Subsidiary thereof of all or substantially all of the Series F Preferred Stock or the Common Stock, (ii) the consummation of a tender offer for more than 20% of the outstanding shares of Common Stock (computed on a fully-diluted and as converted basis) made by any Person other than the Company, (iii) the consummation of a Qualified Public Offering by the Company of any shares of capital stock thereof, (iv) a sale of all or substantially all of the assets or business of the Company or (v) a merger of the Company with or into another entity, or a recapitalization or reorganization of the Company, if in any such case the shares of Series F Preferred Stock and/or Common Stock would cease to be outstanding or if the holders of shares of Series F Preferred Stock or Common Stock would receive in consideration for their shares of Series F Preferred Stock or Common Stock, as the case may be, as a result of such transaction, securities of any successor entity. "UNAUDITED FINANCIAL STATEMENTS" shall have the meaning assigned to that term in Section 5.12 hereof. 1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to such terms in conformity with GAAP. Financial statements and other information furnished to Purchasers pursuant to this Agreement shall be prepared in accordance with GAAP as in effect at the time of such preparation. No Accounting Changes (as defined below) shall affect any financial covenants, standards or terms in this Agreement; PROVIDED that the Company shall prepare footnotes to each -10- 16 compliance certificate and the financial statements required to be delivered hereunder that show the differences between the financial statements delivered (which reflect such Accounting Changes) and a separate calculation of financial covenant compliance without reflecting such Accounting Changes). "ACCOUNTING CHANGES" means: (a) changes in accounting principles required by GAAP and implemented by the Company; (b) changes in accounting principles recommended by the Company's certified public accountants and implemented by the Company; and (c) changes in carrying value of the Company's or any of its Subsidiaries' assets, liabilities or equity accounts resulting from adjustments that were applicable to, but not included in, the Pro Forma Balance Sheet. All such adjustments resulting from expenditures made subsequent to the First Closing Date (including, without limitation, capitalization of costs and expenses or payment of pre-closing date liabilities) shall be treated as expenses in the period the expenditures are made. 1.3 KNOWLEDGE OF THE COMPANY. All references to the knowledge of the Company or to facts known by the Company shall mean actual knowledge of, or notice to, (i) the Chairman, Chief Executive Officer, President, Chief Financial Officer, Vice President-Finance or any other executive officer of the Company or any Subsidiary or any division of the Company or any Subsidiary and (ii) with respect to representations and warranties made as of the date hereof and as of the First Closing only, any director of the Company or any Subsidiary of the Company. ARTICLE 2 PURCHASE AND SALE OF THE PREFERRED STOCK ---------------------------------------- 2.1 PURCHASE AND SALE OF THE SHARES. (a) Subject to the terms and conditions herein set forth, the Company agrees that it will issue and sell to the Purchasers, and each of the Purchasers agrees that it will acquire from the Company, on the First Closing Date, that number of shares of Series F Preferred Stock set forth opposite each Purchaser's name on Schedule 1 hereto (the "Initial Shares") and the number of Investor Warrants set forth opposite such Purchaser's name on Schedule 1. The Initial Shares shall have the powers, rights and preferences set forth in the Certificate of Amendment. The aggregate purchase price for the Initial Shares and the Investor Warrants shall be $10,250,000, and the purchase price to be paid by each Purchaser for the Initial Shares and Investor Warrants to be purchased by it shall equal the product of (i) $5.00 and (ii) the number of Initial Shares set forth opposite such Purchaser's name on Schedule 1. (b) Subject to the terms and conditions herein set forth, the Company agrees that it will issue and sell to the Purchasers, and each of the Purchasers agrees that it will acquire from the Company, on one or more Additional Closing Dates, that number of shares of Series F Preferred Stock that bears the same proportion to the total number of shares of Series F Preferred Stock being sold on such Additional Closing Date as the number of Initial Shares purchased by such Purchaser bears to 2,050,000, at a purchase price of $5.00 per share, it being understood that the aggregate -11- 17 number of shares of Series F Preferred Stock to be issued and sold on all Additional Closing Dates shall not exceed 2,050,000 (the "Additional Shares"). The Additional Shares shall have the powers, rights and preferences set forth in the Certificate of Amendment. No Purchaser shall be obligated to purchase, at any Additional Closing, a number of Additional Shares which exceeds such Purchaser's Remaining Share Commitment. The price of $5.00 per share set forth herein with respect to the Additional Shares, as well as the maximum number of Additional Shares to be sold hereunder, are subject to adjustment in the case of any stock split, reverse stock split or the like with respect to the Series F Preferred Stock. (c) Subject to the terms and conditions herein set forth, the Company agrees that it will issue and sell, in accordance with the provisions of Section 2.3 hereof, on the Default Shares Closing Date, the Default Shares. The Default Shares shall have the powers, rights and preferences set forth in the Certificate of Amendment. The aggregate purchase price for the Default Shares shall be equal to the purchase price per share for such Default Shares times the number of Default Shares being purchased. The Initial Shares, the Additional Shares and the Default Shares shall be collectively referred to herein as the "Shares". 2.2 CLOSINGS. (a) The issuance and purchase of the Initial Shares and the Investor Warrants shall take place at the closing (the "First Closing") to be held at the offices of Rubin Baum Levin Constant & Friedman, 30 Rockefeller Plaza, New York, NY 10112, at 10:00 a.m., Eastern Daylight Savings Time, on or before June 15, 1998, or at such other time and place as the Company and the Purchasers may agree in writing (the "First Closing Date"). At the First Closing, the Company shall deliver to the Purchasers the Initial Shares and the Investor Warrants against delivery by the Purchasers to the Company of the purchase price therefor, payable by wire transfer of immediately available funds to an account or accounts of the Company designated in writing by the Company. (b) The issuance and purchase of the Additional Shares shall take place at one or more closings (each, an "Additional Closing") to be held at the offices of Rubin Baum Levin Constant & Friedman, 30 Rockefeller Plaza, New York, NY 10112, at 10:00 a.m. on an Additional Closing Date or at such other time and place as the Company and the Purchasers may agree in writing (each, an "Additional Closing Date"); provided, however, that in no event shall any Additional Closing Date be later than the Termination Date. Each of the following shall be an Additional Closing Date: (i) any date specified in a written notice given by the Company to the Purchasers at least 20 Business Days in advance specifying that the Company requires the proceeds from the sale of Additional Shares for a purpose permitted by Section 8.8 hereof (which notice shall include a reasonably detailed breakdown of the proposed use of such proceeds), and (ii) any date specified in a Purchaser Closing Notice given under Section 2.2(c). At each Additional Closing, the Company shall deliver to the Purchasers the Additional Shares to be purchased at such Additional Closing against delivery by the Purchasers to the Company of the purchase price therefor, payable by wire transfer of immediately available funds to an account or accounts of the Company designated in writing by the Company. -12- 18 (c) Upon receipt by the Purchasers of notice, pursuant to Section 8.1(m) hereof, of a proposed Triggering Event (a "Triggering Event Notice"), then each such Purchaser severally shall have the right, but not the obligation, upon written notice to the Company (each such notice, a "Purchaser Closing Notice") given not later than 30 days following Purchaser's receipt of the Triggering Event Notice, to require the Company to sell to such Purchaser up to such number of Additional Shares as shall equal the sum of (x) such Purchaser's Remaining Share Commitment plus (y) the number of Additional Shares, if any, as such Purchaser may have the right to acquire pursuant to Section 2.3(e) hereof. Any Purchaser who shall have delivered a Purchaser Closing Notice pursuant to this Section 2.2(c) shall be under a binding obligation to purchase and pay for all the Additional Shares covered by such Purchaser Closing Notice on an Additional Closing Date specified in such Purchaser Closing Notice, subject only to, and no later than contemporaneously with or immediately preceding, the consummation of the transaction resulting in such Triggering Event. (d) Notwithstanding anything to the contrary contained in this Agreement, if on or before April 15, 2001 there shall not have occurred one or more Additional Closings resulting in the purchase of the maximum number of shares of Series F Preferred Stock to be purchased by the Purchasers pursuant to this Agreement, then each Purchaser severally shall have the right, but not the obligation, upon delivery of a Purchaser Closing Notice to the Company and the other Purchasers not later than May 15, 2001, to require the Company to sell to such Purchaser up to such number of Additional Shares as shall equal the sum of (x) such Purchaser's Remaining Share Commitment plus (y) the number of Additional Shares, if any, as such Purchaser may have the right to acquire pursuant to Section 2.3(e) hereof. Any Purchaser who shall have delivered a Purchaser Closing Notice pursuant to this Section 2.2(d) shall be under a binding obligation to purchase and pay for all the Additional Shares covered by such Purchaser Closing Notice on an Additional Closing Date specified in such Purchaser Closing Notice, which shall be no later than June 15, 2001. The provisions of this Section 2.2(d) shall not apply if the Termination Date shall have occurred on or prior to April 15, 2001. (e) The issuance and purchase of the Default Shares shall take place as set forth in Section 2.3(c) hereof. 2.3 DEFAULT SHARES. (a) If any Purchaser (a "Defaulting Purchaser") fails or refuses to purchase and pay for the number of Additional Shares agreed to be purchased by such Purchaser at any Additional Closing, the Company shall immediately give notice thereof to the Purchasers other than the Defaulting Purchaser (the "Non-Defaulting Purchasers"). (b) Waller-Sutton shall have the option, which must be exercised by written notification to the Company and the other Non-Defaulting Purchasers within ten (10) Business Days of receipt of the notice set forth in Section 2.3(a) hereof (the "Option Period"), to purchase all or any portion of the Additional Shares which the Defaulting Purchaser failed or refused to purchase (the "Default Shares"). If Waller-Sutton fails to notify the Company and the other Non-Defaulting -13- 19 Purchasers of its intent to exercise such option, or if such option is exercised by Waller-Sutton for fewer than all of the Default Shares, then the Company shall so notify all of the other Non-Defaulting Purchasers no later than two (2) Business Days after the expiration of the Option Period, and the remaining Non-Defaulting Purchasers shall have the option, which must be exercised by written notification to the Company and all other Non-Defaulting Purchasers within five (5) Business Days after the date of the aforesaid notice from the Company, to purchase the remaining Default Shares in the same proportions as their purchases of the Initial Shares, or in such proportions as such Non-Defaulting Purchasers may otherwise agree, all upon the price, terms and conditions set forth herein. (c) If the Non-Defaulting Purchasers (or any of them) elect to exercise their option to purchase some or all of the Default Shares, the issuance and purchase of such Default Shares shall take place at a closing (the "Default Shares Closing") to be held at the principal executive offices of the Company at 10:00 a.m., local time, within twenty (20) Business Days following the expiration of the Option Period (the "Default Shares Closing Date"). At each Default Shares Closing, the Company shall deliver to the Non-Defaulting Purchasers the Default Shares to be purchased at such Default Shares Closing against delivery by the Non-Defaulting Purchasers to the Company of the purchase price therefor, payable by wire transfer of immediately available funds to an account or accounts of the Company designated in writing by the Company. (d) In addition to and not in limitation of the right of the Non-Defaulting Purchasers to purchase Default Shares pursuant to this Section 2.3, each Non-Defaulting Purchaser shall have the option, which must be exercised by written notification to the Company, the Defaulting Purchaser and the other Non-Defaulting Purchasers not later than 90 days after expiration of the Option Period, to purchase from the Defaulting Purchaser a portion of the Shares, Investor Warrants and Investor Warrant Shares then owned or held by the Defaulting Purchaser (or, in the case of Investor Warrants and Investor Warrant Shares, by any transferee of the Defaulting Purchaser), such portion to be equal to a fraction, the numerator of which is the Purchaser Share Commitment of the applicable Non-Defaulting Purchaser and the denominator of which is the aggregate Purchaser Share Commitment of all Non-Defaulting Purchasers, or in such other proportions as the Non-Defaulting Purchasers so electing may otherwise agree, at a price equal to $2.50 times the number of shares being purchased by the Non-Defaulting Purchaser. If the Non- Defaulting Purchasers (or any of them) elect to exercise their option to purchase the Shares, Investor Warrants and Investor Warrant Shares of a Defaulting Purchaser or transferee pursuant to this Section 2.3(d), the sale and purchase of such Shares, Investor Warrants and Investor Warrant Shares shall take place at a closing to be held at the principal executive offices of the Company at 10:00 a.m., local time, on the tenth (10th) Business Day following expiration of the 90-day period referred to above in this Section 2.3(d). At each such closing, the Defaulting Purchaser shall deliver or cause to be delivered to the Non- Defaulting Purchasers who shall have exercised the purchase option provided for herein, the Shares, Investor Warrants and Investor Warrant Shares to be purchased by such Non-Defaulting Purchasers against delivery by such Non-Defaulting Purchasers of the purchase price therefor, payable by wire transfer of immediately available funds to an account or accounts designated in writing by the Defaulting Purchaser. -14- 20 (e) Notwithstanding anything to the contrary contained in this Agreement, following any default by a Defaulting Purchaser hereunder, such Defaulting Purchaser shall not be relieved of its obligation to purchase Additional Shares up to its full Purchaser Share Commitment; provided, however, that such Defaulting Purchaser shall have no right following such a default to require the Company to sell any Additional Shares to such Defaulting Purchaser. In the event an Additional Closing pursuant to this Article 2 shall be scheduled to take place following a default by a Defaulting Purchaser, the Company shall so notify the Non-Defaulting Purchasers, which notice shall specify the number of Shares that the Defaulting Purchaser is obligated to purchase at such Additional Closing. Upon receipt of any such notice, Waller- Sutton shall have the option (which must be exercised by written notification to the Company and the other Non-Defaulting Purchasers within ten (10) Business Days of receipt of the notice referred to in this Section 2.3(e) hereof (the "Additional Option Period"), to purchase all or any portion of the Additional Shares to be purchased by the Defaulting Purchaser (the "Additional Default Shares"). If Waller-Sutton fails to notify the Company and the other Non-Defaulting Purchasers of its intent to exercise such option, or if such option is exercised by Waller-Sutton for fewer than all of the Additional Default Shares, then the Company shall so notify all of the other Non-Defaulting Purchasers no later than three (3) Business Days after the date of the aforesaid notice from the Company, and the remaining Non-Defaulting Purchasers shall have the option, which must be exercised by written notification to the Company and all other Non-Defaulting Purchasers within five (5) Business Days after the date of the aforesaid notice from the Company, to purchase the remaining Additional Default Shares in the same proportions as their purchases of the Initial Shares, or in such proportions as such Non-Defaulting Purchasers may otherwise agree, all upon the price, terms and conditions set forth herein. 2.4 FINANCIAL ACCOUNTING POSITIONS; TAX REPORTING. Each of the parties hereto agrees to take reporting and other positions with respect to the Shares which are consistent with the purchase price of the Shares set forth herein for all financial accounting purposes, unless otherwise required by applicable GAAP or Commission rules (in which case the parties agree only to take positions inconsistent with the purchase price of the Shares set forth herein provided that the Purchasers have consented thereto, which consent shall not be unreasonably withheld). Each of the parties to this Agreement agrees to take reporting and other positions with respect to the Shares which are consistent with the purchase price of the Shares set forth herein for all other purposes, including without limitation, for all Federal, state and local tax purposes. -15- 21 2.5 FEES AND EXPENSES. (a) The Company shall pay (i) a transaction structuring fee of $475,000 to Waller- Sutton Management Group, Inc., of which $325,000 shall be paid at the First Closing and $150,000 shall be paid prior to December 31, 1998, and (ii) at each of the Closings, to the extent not previously paid, an amount equal to the out-of-pocket expenses (including, without limitation, attorneys' fees, charges and disbursements, consultants' fees and expenses and due diligence expenses) of the Purchasers incurred at any time from and after February 13, 1998 in connection with (A) the negotiation, execution, delivery and filing of the Transaction Documents and any amendments or modifications thereto and (B) the transactions contemplated by the Transaction Documents, provided, however, that the Company shall only be responsible to pay the attorneys' fees and expenses of one firm of counsel representing all of the Purchasers, which firm shall be selected by Waller-Sutton. (b) The Company shall pay Waller-Sutton Management Group, Inc. a monitoring fee at the rate of $75,000 per annum, payable quarterly in advance, as follows: (i) on the First Closing for the period from the First Closing Date to and including June 30, 1998 and (ii) on July 1, 1998 and on the first day of each calendar quarter thereafter. 2.6 TAG-ALONG RIGHT. In the event that any Purchaser beneficially owning more than two percent (2%) of the issued and outstanding Common Stock of the Company, computed on a fully diluted and as converted basis (each a "Selling Stockholder"), desires to transfer, sell, convey, exchange or otherwise dispose of ("Transfer") a number of shares of the Series F Preferred Stock, or shares of Common Stock issued on conversion thereof (collectively, the "Subject Shares"), which, together with any Transfers of Subject Shares made in transactions other than Exempt Transactions (as defined below)within the immediately preceding 12 months, total at least ten percent (10%) of the number of Initial Shares purchased by such Purchaser hereunder pursuant to a bona fide offer from a third party (the "Buyer") in a transaction not constituting an Exempt Transaction, then the Selling Stockholder shall notify all holders of the Series F Preferred Stock who beneficially own at least two percent (2%) of the issued and outstanding Common Stock of the Company, computed on a fully diluted and as converted basis ("Tag- Along Stockholders"), in writing, of such offer and its terms and conditions (the "Transfer Notice"). The Transfer Notice shall also set forth whether the Buyer is only purchasing Series F Preferred Stock or if the Buyer is willing to purchase both Series F Preferred Stock and Common Stock. Upon receipt of such Transfer Notice, each Tag-Along Stockholder shall have the right to elect to sell to the Buyer, on the same terms and conditions as the Selling Stockholder, shares of Series F Preferred Stock or, in the event the Buyer will purchase shares of Common Stock, both shares of Preferred Stock and shares of Common Stock. In the event Buyer will purchase Common Stock, a Tag-Along Stockholder shall be entitled to convert any other classes of the Company's preferred stock into and exercise any warrants or options held by such Tag-Along Stockholder for shares of Common Stock prior to any sale of Common Stock to the Buyer. The number of shares of Preferred Stock and Common Stock that each Tag-Along Stockholder shall be entitled to sell shall each be equal to the product attained by multiplying (a) the number of shares of Series F Preferred Stock or Common Stock (computed on an as converted basis) held by the Tag- Along Stockholder times (b) the quotient derived by dividing (i) the number of shares of Series F -16- 22 Preferred Stock or Common Stock which otherwise would have been sold by the Selling Stockholder to the Buyer by (ii) the total number of shares of Series F Preferred Stock or Common Stock (computed on an as converted basis) held by such Selling Stockholder and the number of shares of Series F Preferred Stock or Common Stock (computed on an as converted basis) held by the Tag-Along Stockholders who have elected to participate in such Transfer, with the intent that the Selling Stockholder and each Tag-Along Stockholder shall participate pro rata in the sale of shares of Series F Preferred Stock and/or Common Stock to the Buyer. If more than one Tag-Along Stockholder elects to sell shares of Series F Preferred Stock or Common Stock pursuant to this Section 2.6, they may do so pro rata, based on the number of shares of Series F Preferred Stock or Common Stock (computed on an as converted basis) held by each of them or in such other proportions as they may agree. The Tag-Along Stockholders' right to sell pursuant to this Section 2.6 shall be exercised by delivery of written notice to the Selling Stockholder within 10 Business Days following delivery of the Transfer Notice. Any Tag-Along Stockholder who fails to notify the Selling Stockholder within such 10 Business Days shall be deemed to have waived its rights under this Section 2.6. As used herein, the term "Exempt Transaction" shall mean any Transfer by a Purchaser (1) pursuant to Sections 9, 10 or 11 of the Stockholders' Agreement, (2) pursuant to or in connection with a registration statement filed under the Registration Rights Agreement, (3) made under Rule 144 of the Securities Act, or (4) to (i) a direct or indirect partner of such Purchaser if it is a partnership, (ii) a direct or indirect member of such Purchaser if it is a limited liability company, or (iii) an Affiliate. The Purchasers agree that the tag-along rights provided by this Section 2.6 shall be not be applicable to any Transfer as to which the terms of Sections 9, 10 or 11 of the Stockholders' Agreement apply. ARTICLE 3 CONDITIONS TO THE OBLIGATION OF THE PURCHASERS ---------------------------------------------- TO PURCHASE THE SHARES ---------------------- The obligation of the Purchasers to purchase the Initial Shares, the Investor Warrants, the Additional Shares or the Default Shares, as the case may be, to pay the purchase prices therefor at the applicable Closing and to perform any other obligations hereunder shall be subject to the satisfaction (unless waived by the Purchasers or, in the case of any Closing occurring after the First Closing, by the Majority Purchasers) of the following conditions on or before the applicable Closing Date (it being understood and agreed that, with respect to the First Closing, all of the conditions set forth in this Article 3 must be satisfied as of such Closing, and that with respect to each subsequent Closing, only the conditions set forth in Sections 3.1, 3.2, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.13, 3.14, 3.15, 3.17, 3.18 and 3.21 must be satisfied as of such Additional Closing Date). In connection with the Additional Closings, the Company shall be permitted to update the Schedules referred to in Sections 5.15 (except in respect of clause (ix) thereof), 5.18, 5.19, 5.24, 5.27, 5.28 and 5.29 in order to reflect any changes that may result from any acquisitions of radio stations by the Company pursuant to Future Acquisition Agreements, or as otherwise consented to by Waller-Sutton. No Purchaser shall be obligated to purchase any of the Shares to be purchased by it at the First Closing hereunder unless the purchase and sale of each of the other Shares required to be purchased at the First Closing -17- 23 hereunder occurs simultaneously therewith. However, with respect to each Additional Closing, the obligations of each Purchaser to purchase the Additional Shares to be purchased by it shall be separate and independent. 3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Article 5 hereof shall be true and correct in all material respects at and as of the date hereof and the applicable Closing Date as if made at and as of such date, and the Purchasers shall have received a certificate, dated as of the applicable Closing Date, signed by the Chairman of the Board, the President of the Company or the Company's Chief Financial Officer, certifying compliance with this condition. 3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed and complied with all of its agreements and conditions set forth or contemplated herein that are required to be performed or complied with by the Company on or before the applicable Closing Date, and the Purchasers shall have received a certificate, dated as of the applicable Closing Date, signed by the Chairman of the Board, the President, the Vice President-Finance or the Chief Financial Officer of the Company, certifying compliance with this condition. 3.3 COMPLIANCE WITH THE ACQUISITION DOCUMENTS; CLOSING THEREUNDER; NO DEFAULTS. Each of the parties to the Acquisition Documents shall have performed and complied with in all material respects all of the agreements and conditions contemplated under the applicable Acquisition Document to which it is a party and the agreements, instruments and other documents delivered thereunder or contemplated thereby, and there shall be no material default by any such party thereunder. The Acquisition Documents shall not have been amended in any respect or any condition to closing thereunder waived by any party, in any case without the prior written consent of Waller-Sutton, and the transactions contemplated by each of the Acquisition Documents shall have been consummated in accordance with its respective terms. The Purchasers shall have received such certificates or other evidence as they may reasonably request to establish compliance with this condition. 3.4 SECRETARY'S CERTIFICATE. The Purchasers shall have received a certificate from the Company, dated the date of the applicable Closing Date, and signed by the Secretary or an Assistant Secretary of the Company, certifying (a) that the attached copies of the Certificate of Incorporation and By-laws are true, complete and correct and remain unamended and in full force and effect, (b) that the attached copies of the resolutions of the Board of Directors of the Company approving the Transaction Documents to which it is a party and the transactions contemplated hereby and thereby, are true, complete and correct and remain unamended and in full force and effect, and (c) as to the incumbency and specimen signature of each officer or member of the Company executing any Transaction Document to which it is a party or any other document delivered in connection herewith on behalf of the Company. 3.5 DOCUMENTS. The Purchasers shall have received true, complete and correct copies of such agreements, schedules, exhibits, certificates, documents, financial information, projections -18- 24 and filings as they may reasonably request in connection with or relating to the transactions contemplated hereby and by the Acquisition Documents and any Future Acquisition Agreement, all in form and substance satisfactory to the Purchasers. 3.6 PURCHASE OF SHARES PERMITTED BY APPLICABLE LAWS. The acquisition of and payment for the Shares to be acquired by the Purchasers hereunder and the consummation of the transactions contemplated hereby and by the other Transaction Documents (a) shall not be prohibited by any Requirement of Law, (b) shall not subject the Purchasers to any penalty or other onerous condition under or pursuant to any Requirement of Law, and (c) shall be permitted under all Requirements of Law to which the Purchasers or the transactions contemplated by or referred to herein or in the other Transaction Documents are subject; and the Purchasers shall have received such certificates or other evidence as they may reasonably request to establish compliance with this condition. 3.7 OPINION OF COUNSEL. The Purchasers shall have received an opinion of outside counsel to the Company (which shall include special FCC counsel to the Company), dated the applicable Closing Date, relating to the transactions contemplated by or referred to herein, in form and substance reasonably acceptable to the Purchasers. 3.8 APPROVAL OF COUNSEL TO THE PURCHASERS. All actions and proceedings hereunder and all agreements, schedules, exhibits, certificates, financial information, filings and other documents required to be delivered by the Company or any Subsidiary hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall have been in form and substance acceptable to Rubin Baum Levin Constant & Friedman, counsel to the Purchasers, in its reasonable judgment (including, without limitation, the opinions of counsel referred to in Section 3.7 hereof). 3.9 CONSENTS AND APPROVALS. All consents, exemptions, authorizations, or other actions by, or notices to, or filings with, Governmental Authorities and other Persons in respect of all Requirements of Law and with respect to those Contractual Obligations of the Company or any Subsidiary necessary, desirable, or required in connection with the execution, delivery or performance (including, without limitation, the issuance of Common Stock upon conversion of the Shares) by the Company or any Subsidiary, or enforcement against the Company or any Subsidiary, of the Transaction Documents to which it is a party shall have been obtained and shall be in full force and effect as of the applicable Closing Date. 3.10 REGISTRATION RIGHTS AGREEMENT. The Company and all of the parties thereto other than the Purchasers shall have duly executed and delivered the Registration Rights Agreement. 3.11 STOCKHOLDERS' AGREEMENT. The Stockholders' Agreement shall have been duly executed and delivered by all of the parties thereto other than the Purchasers. -19- 25 3.12 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company shall have amended its Certificate of Incorporation and By-laws, in form and substance satisfactory to the Purchasers, and the Certificate of Amendment shall have been duly filed with the Secretary of State of the State of Delaware. 3.13 NO MATERIAL JUDGMENT OR ORDER. There shall not be on the applicable Closing Date any judgment or order of a court of competent jurisdiction or any ruling of any Governmental Authority or any condition imposed under any Requirement of Law which, in the judgment of the Purchasers, would prohibit the purchase of the Shares hereunder or subject the Purchasers to any penalty or other onerous condition under or pursuant to any Requirement of Law if the Shares were to be purchased hereunder. 3.14 GOOD STANDING CERTIFICATE. The Company shall have delivered to the Purchasers as of the Closing Date, a good standing certificate or the equivalent thereof for the Company and each of its Subsidiaries for each of their respective jurisdictions of incorporation or organization, as the case may be, and all other jurisdictions where they are required to be qualified to do business. 3.15 PRO FORMA BALANCE SHEET. The Company shall have delivered to the Purchasers as of the end of the month preceding each subsequent Additional Closing Date a pro forma consolidated balance sheet of the Company and its Subsidiaries, certified by the chief executive officer of the Company that such pro forma balance sheet fairly presents the pro forma adjustments reflecting the consummation of the transactions contemplated by this Agreement , the Transaction Documents and the relevant Future Acquisition Agreements to be consummated as of each such Closing Date, including, without limitation, all material fees and expenses in connection therewith. 3.16 STOCK OPTION PLAN. As of the First Closing Date, the Company shall have adopted, and the requisite number of stockholders shall have approved, the Stock Option Plan. The Purchasers shall have received such certificates or other evidence as they may reasonably request to establish compliance with this condition. 3.17 D & O INSURANCE. The Company shall have in place as of the applicable Closing Date an insurance policy providing directors' and officers' liability insurance coverage for each of the members of the Board of Directors of the Company in an aggregate amount of not less than $5 million. The Purchasers shall have received such certificates or other evidence as they may reasonably request to establish compliance with this condition. 3.18 FUTURE ACQUISITION AGREEMENTS. Subject to the provisions of Section 2.2(c), as of each Additional Closing Date, the Company and/or its Subsidiaries shall have entered into written agreements for the acquisition of one or more radio stations or other assets or properties satisfactory to Waller-Sutton, and the Company shall have delivered to the Purchasers, in a form reasonably satisfactory to Waller- Sutton, evidence that the transactions contemplated thereby shall have been (or on such Additional Closing Date are being) consummated. -20- 26 3.19 SALE OF SERIES A, SERIES B AND SERIES D PREFERRED STOCK. The closing of the sale of the Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock shall have been consummated in accordance with the terms of the Series A Purchase Agreement, the Series B Purchase Agreement and the Series D Purchase Agreement, respectively, without amendment or waiver of any terms thereof without the prior written approval of Waller-Sutton. 3.20 KEY-MAN INSURANCE. As of the earlier of (i) two (2) months after the First Closing Date or (ii) the Additional Closing Date next succeeding the First Closing, the Company shall have in place a keyman term life insurance policy that is renewable on an annual basis with a reputable and financially sound insurer on each of the lives of Terry S. Jacobs and William L. Stakelin in the face amount of not less than $1,000,000. The Purchasers shall have received such certificates or other evidence as they may reasonably request to establish compliance with this condition. 3.21 FAIRCOM CONVERTIBLE NOTE PURCHASE AGREEMENT. The closing of the sale of the Faircom Convertible Notes shall have been consummated in accordance with the terms of the Faircom Convertible Note Purchase Agreement, without amendment or waiver of any of the terms thereof without the prior written approval of Waller-Sutton, and the Company shall have issued to Waller-Sutton 400,640 shares of Series C Preferred Stock in respect of the shares of common stock of Faircom issuable to Waller-Sutton upon conversion of the Faircom Convertible Notes purchased by Waller-Sutton thereunder. 3.22 EXECUTIVE EMPLOYMENT AGREEMENTS. The Company and each of Terry S. Jacobs and William L. Stakelin, respectively, shall have executed and delivered the Executive Employment Agreement to which he is a party. 3.23 COMPLIANCE WITH STATE SECURITIES LAWS. The Company shall have obtained (having used its reasonable best efforts to obtain) all permits and qualifications required by any state for the offer and sale of the Shares or shall have the availability of exemptions therefrom. 3.24 CONVERSION OF FAIRCOM CONVERTIBLE NOTES. All of the Faircom Convertible Notes shall have been converted into common stock of Faircom Inc. 3.25 SBA COMPLIANCE. The Company shall have provided to River Cities information necessary for the preparation of a Portfolio Financing Report on SBA Form 1031, if River Cities is a Purchaser hereunder. -21- 27 ARTICLE 4 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO ISSUE AND SELL THE SHARES ---------------------------- The obligations of the Company to issue and sell the Initial Shares, the Investor Warrants, the Additional Shares or the Default Shares, as the case may be, and perform its other obligations hereunder relating thereto shall be subject to the satisfaction as determined by, or waived by, the Company of the following conditions on or before the applicable Closing Date: 4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchasers contained in Article 6 hereof shall be true and correct in all material respects at and as of the date hereof and the applicable Closing Date, as if made at and as of such date, and the Company shall have received a certificate, dated as of the applicable Closing Date, signed by each Purchaser certifying that such representations and warranties made by such Purchaser are true and correct at and as of the date hereof and at and as of such Closing Date, as if made at and as of such date. 4.2 COMPLIANCE WITH THIS AGREEMENT. Each of the Purchasers shall have performed and complied with all of the respective agreements and conditions set forth or contemplated herein that are required to be performed or complied with by such Purchaser on or before the applicable Closing Date, and the Company shall have received a certificate, dated as of the applicable Closing Date, signed by each Purchaser certifying that such Purchaser has so performed and so complied with such agreements and conditions. 4.3 STOCKHOLDERS' AGREEMENT. The Stockholders' Agreement shall have been duly executed and delivered by the Purchasers. 4.4 CONVERSION OF FAIRCOM CONVERTIBLE NOTES. All of the Faircom Convertible Notes purchased by Waller-Sutton pursuant to the Faircom Convertible Note Purchase Agreement shall have been converted into common stock of Faircom Inc. 4.5 COMPLIANCE WITH STATE SECURITIES LAWS. The Company shall have obtained (having used its reasonable best efforts to obtain) all permits and qualifications required by any state for the offer and sale of the Shares or shall have the availability of exemptions therefrom. -22- 28 ARTICLE 5 REPRESENTATIONS AND WARRANTIES ------------------------------ The Company hereby represents and warrants to the Purchasers, which representations and warranties shall be deemed to be repeated as of the First Closing Date (after giving effect to the transactions contemplated by this Agreement and the Acquisition Documents) and as of each Additional Closing Date (after giving effect to the transactions contemplated by this Agreement and any Future Acquisition Agreement), as follows: 5.1 EXISTENCE AND POWER. The Company and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be; (b) has all requisite power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently, or is currently proposed to be, engaged; (c) is duly qualified, licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that the failure to do so would not have a material adverse effect on the Condition of the Company; and (d) has the power and authority to execute, deliver and perform its obligations under each Transaction Document to which it is or will be a party. 5.2 AUTHORIZATION: NO CONTRAVENTION. The execution, delivery and performance by the Company of each Transaction Document to which it is a party and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Shares and Investor Warrants: (a) have been duly authorized by all necessary corporate action; (b) do not contravene the terms of the Certificate of Incorporation, Bylaws, or any amendment thereto; and (c) upon receipt of the Required Consents, will not violate, conflict with or result in any breach or contravention of or the creation of any Lien under, any Contractual Obligation of the Company or any Subsidiary (except as set forth on Schedule 5.2) or any Requirement of Law applicable to the Company or any Subsidiary. 5.3 GOVERNMENTAL AUTHORIZATION: THIRD PARTY CONSENTS. No approval, consent, compliance, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person in respect of any Requirement of Law, and no lapse of a waiting period under a Requirement of Law, is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company of the Transaction Documents to which it is a party or the consummation of the transactions contemplated hereby or thereby other than those which have been obtained and are in full force and effect as of the date hereof and other than routine filings to be made with the FCC or under state or Federal securities laws which are not required to be made until following the First Closing Date (and which shall be made on or prior to the due date therefor). Without limiting the generality of the foregoing, all licenses, permits, approvals and consents required to be obtained from the FCC for the operation of -23- 29 the radio stations owned or operated by the Company or any of its Subsidiaries have been obtained and are in full force and effect. 5.4 BINDING EFFECT. Each of the Transaction Documents to which it is a party has been duly executed and delivered by the Company, and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity relating to enforceability. 5.5 NO LEGAL BAR. Neither the execution, delivery and performance of the Transaction Documents nor the issuance of or performance of the terms of the Shares will violate any Requirement of Law or any Contractual Obligation of the Company or any Subsidiary. Neither the Company nor any Subsidiary has previously entered into any agreement which will remain in effect following the First Closing, granting any rights to any Person which are inconsistent with the rights to be granted by the Company in the Transaction Documents. 5.6 LITIGATION. Except as set forth on Schedule 5.6, there are no legal actions, suits, proceedings, claims or disputes pending or, to the Company's knowledge, threatened, at law, in equity, in arbitration or before any Governmental Authority against or affecting the Company or any Subsidiary. No injunction, writ, temporary restraining order, decree or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of the Transaction Documents. 5.7 COMPLIANCE WITH LAWS. Except as set forth on Schedule 5.7, the Company and its Subsidiaries are in compliance with all Requirements of Law applicable to them. Without limiting the generality of the foregoing, there have been duly and timely made all filings which are required to be made with respect to the radio stations owned or operated by the Company or any of its Subsidiaries under the Communications Act, and the Company and each of its Subsidiaries are in all respects in compliance with such Act. 5.8 NO DEFAULT OR BREACH. Except as set forth on Schedule 5.8, neither the Company nor any Subsidiary is in, and the incurrence of the obligations of the Company contemplated by the Transaction Documents do not constitute, nor with the giving of notice or lapse of time or both would constitute, a default under or with respect to any Contractual Obligation of the Company or any Subsidiary in any respect. 5.9 TITLE TO PROPERTIES. Except as set forth on Schedule 5.9, the Company and/or each of its Subsidiaries has good record and marketable title in fee simple to, or holds interests as lessee or licensee under leases or licenses in full force and effect in, all real property reflected on the Financial Statements or used in connection with its business. 5.10 USE OF REAL PROPERTY. Except as set forth on Schedule 5.10, the owned and leased real properties reflected on the Financial Statements or used in connection with the business of the -24- 30 Company and its Subsidiaries, are used and operated in compliance and conformity with all applicable leases, contracts, commitments, licenses and permits, to the extent that the failure so to conform would, individually or in the aggregate, adversely affect the Condition of the Company; neither the Company nor any Subsidiary has received notice of violation of any applicable zoning or building regulation, ordinance or other law, order, regulation or requirement relating to the operations of the Company or any Subsidiary; and there is no such violation. Except as set forth on Schedule 5.10, all buildings that are owned or covered by leases reflected on the Financial Statements or used in connection with the business of the Company or any Subsidiary, substantially conform with all applicable ordinances, codes, regulations and requirements, and no law or regulation presently in effect or condition precludes or materially restricts continuation of the present use of such properties. Except as set forth on Schedule 5.10, each of the leases for real properties reflected on the Financial Statements or used in connection with the business of the Company or any Subsidiary is in full force and effect and the Company and its Subsidiaries enjoy peaceful and undisturbed possession thereunder. There is no default on the part of the Company or any Subsidiary or event or condition which with notice or lapse of time, or both, would constitute a default on the part of the Company or any Subsidiary under any of such leases. 5.11 TAXES. Except as set forth on Schedule 5.11, the Company and its Subsidiaries have filed or caused to be filed, or have properly filed extensions for, all tax returns which are required to be filed and have paid or caused to be paid all taxes required to be paid by them and all assessments received by them to the extent that such taxes have become due, except taxes the validity or amount of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. The Company and each of its Subsidiaries have paid or caused to be paid, or have established reserves that the Company reasonably believes to be adequate in all material respects for, all tax liabilities applicable to the Company and its Subsidiaries for all fiscal years which have not been examined and reported on by the taxing authorities (or closed by applicable statutes). 5.12 FINANCIAL CONDITION. (a) The Company has delivered to the Purchasers true and complete copies of (i) the consolidated audited balance sheet of the Company and its Subsidiaries, and the related statements of income, stockholders' equity and cash flow, for the fiscal year ended December 31, 1997 (the "Audited Financial Statements") and (ii) the consolidated unaudited balance sheet of the Company and its Subsidiaries, and the related statements of income, stockholders' equity and cash flow, for the fiscal quarter ended March 31, 1998 (the "Unaudited Financial Statements"). The Financial Statements fairly present, in all material respects, the financial position of the Company and its Subsidiaries as of the dates thereof, and the results of operations and cash flows of the Company and its Subsidiaries as of the dates or for the periods set forth therein, all in conformity with GAAP consistently applied during the period involved, except as otherwise set forth in the notes thereto and subject, in the case of the Unaudited Financial Statements, to the absence of footnotes and normal year-end audit adjustments. -25- 31 (b) The Company has not received any letters from any of its certified public accountants to the management of the Company other than the auditor's opinion letter that will accompany the above-referenced Audited Financial Statements. (c) Each Pro Forma Balance Sheet to be delivered to the Purchasers pursuant to this Agreement shall set forth the assets and liabilities of the Company and its Subsidiaries on a pro forma consolidated basis after taking into account the consummation of the transactions contemplated in this Agreement and the Acquisition Agreements (and, in the case of any Additional Closing, any Future Acquisition Agreement). Each such Pro Forma Balance Sheet shall have been prepared by the Company in accordance with GAAP and shall fairly present in all material respects the assets and liabilities of the Companies and its Subsidiaries on a consolidated basis, reflecting the consummation of the transactions contemplated by this Agreement and the Acquisition Agreements (and, in case of any Additional Closing, any Future Acquisition Agreement) and based on the assumptions set forth therein. (d) The projections of the Company and its Subsidiaries on a consolidated basis heretofore delivered to the Purchasers by Waller-Sutton Management Group, Inc. at the request of the Company and referred to in a Co-Investment Opportunity Memorandum dated March 13, 1998 are based on assumptions which were reasonable when made and such assumptions and projections are reasonable on the date hereof and neither the Company nor any of its Subsidiaries, as of the date of this Agreement, has delivered to any Person or has in its possession any later dated projections. 5.13 ERISA. The execution and delivery of this Agreement and the other Transaction Documents, the purchase and sale of the Shares hereunder and the consummation of the transactions contemplated hereby and thereby will not result in any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.14 DISCLOSURE. (a) Agreement and Other Documents. This Agreement, together with all exhibits and schedules hereto, and the agreements, certificates and other documents furnished to the Purchasers by the Company and its Subsidiaries in connection with the transactions contemplated by this Agreement, the Commission Documents, the Acquisition Documents and any Future Acquisition Agreement do not or will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. (b) Material Adverse Effects. Except for matters relating to the broadcast industry generally, there is no fact known to the Company, which the Company has not disclosed to the Purchasers in writing which materially adversely affects or, insofar as the Company can reasonably foresee, could materially adversely affect, the Condition of the Company or the ability of the Company or any Subsidiary to perform its or their obligations under the Transaction Documents, or any agreement or other document contemplated thereby to which any of them is a party. -26- 32 5.15 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January 1, 1998, except as set forth on Schedule 5.15 or as provided pursuant to the terms of the Acquisition Documents, neither the Company nor any Subsidiary has (i) issued any stock, bonds or other corporate securities except for the securities being issued pursuant to the terms of the Transaction Documents, (ii) borrowed any amount or incurred any liabilities (absolute or contingent), other than in the ordinary course of business, in excess of $25,000, (iii) discharged or satisfied any lien or incurred or paid any obligation or liability (absolute or contingent), other than in the ordinary course of business, in excess of $25,000, (iv) declared or made any payment or distribution to stockholders or purchased or redeemed any shares of its capital stock or other securities, (v) mortgaged, pledged or subjected to lien any of its assets, tangible or intangible, (vi) sold, assigned or transferred any of its tangible assets other than the sale of excess or obsolete inventory or equipment in the ordinary course of business, or canceled any debts or claims, (vii) sold, assigned or transferred any patents, trademarks, trade names, copyrights, trade secrets or other intangible assets, (viii) suffered any losses of property, or waived any rights of substantial value, (ix) suffered any material adverse change in the Condition of the Company, (x) expended any material amount, granted any bonuses or extraordinary salary increases, (xi) entered into any transaction involving consideration in excess of $50,000 except as otherwise contemplated hereby or by the Transaction Documents or (xii) entered into any agreement or transaction, or amended or terminated any agreement, with an Affiliate. To the knowledge of the Company after reasonable investigation, no material adverse change in the Condition of the Company is threatened or reasonably likely to occur. 5.16 ENVIRONMENTAL MATTERS. Except as described on Schedule 5.16: (a) The property, assets and operations of the Company and each Subsidiary are and have been in compliance with all applicable Environmental Laws; there are no Hazardous Materials stored or otherwise located in, on or under any of the property or assets of the Company or any Subsidiary, including, without limitation, the groundwater except in compliance with applicable Environmental Laws; and there have been no releases or threatened releases of Hazardous Materials in, on or under any property adjoining any of the property or assets of the Company or any Subsidiary which have not been remediated to the satisfaction of the appropriate Governmental Authorities. (b) None of the property, assets or operations of the Company or any Subsidiary is the subject of any Federal, state or local investigation evaluating whether (i) any remedial action is needed to respond to a release or threatened release of any Hazardous Materials into the environment or (ii) any release or threatened release of any Hazardous Materials into the environment is in contravention of any Environmental Law. (c) Neither the Company nor any Subsidiary has received any notice or claim, nor are there pending, threatened or reasonably anticipated, lawsuits or proceedings against any of them, with respect to violations of an Environmental Law or in connection with the presence of or exposure to any Hazardous Materials in the environment or any release or threatened release of any Hazardous Materials into the environment, and neither the Company nor any Subsidiary is or was the owner or operator of any property which (i) pursuant to any Environmental Law has been placed on any list -27- 33 of Hazardous Materials disposal sites, including, without limitation, the "National Priorities List" or "CERCLIS List," (ii) has, or had, any subsurface storage tanks located thereon, or (iii) has ever been used as or for a waste disposal facility, a mine, a gasoline service station or, other than for petroleum substances stored in the ordinary course of business, a petroleum products storage facility. (d) Neither the Company nor any Subsidiary has any present or contingent liability in connection with the presence either on or off the property or assets of the Company or Subsidiary of any Hazardous Materials in the environment or any release or threatened release of any Hazardous Materials into the environment. 5.17 INVESTMENT COMPANY/GOVERNMENT REGULATIONS. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Neither the Company nor any Subsidiary is subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act, or any federal or state statute or regulation limiting its ability to incur Indebtedness. 5.18 SUBSIDIARIES. (a) Schedule 5.18 sets forth a complete and accurate list of all of the Subsidiaries of the Company, together with their respective jurisdictions of incorporation or organization. Except as set forth on Schedule 5.18, each such Subsidiary is wholly owned by the Company. All of the outstanding shares of capital stock of the Subsidiaries that are corporations are validly issued, fully paid and nonassessable. Except as set forth on Schedule 5.18, as of the Closing Date, all of the outstanding shares of capital stock of, or other ownership interests in, each of the Subsidiaries are and will be owned by the Company free and clear of any Liens, claims, charges or encumbrances. Except as set forth on Schedule 5.18, no Subsidiary has outstanding options, warrants, subscriptions, calls, rights, convertible securities or other agreements or commitments obligating the Subsidiary to issue, transfer or sell any securities of the Subsidiary. (b) Except as set forth on Schedule 5.18, the Company does not own of record or beneficially, directly or indirectly, (i) any shares of outstanding capital stock or securities convertible into capital stock of any other corporation, or (ii) any participating interest in any limited liability company, partnership, joint venture or other non-corporate business enterprises. 5.19 CAPITALIZATION. (a) As of the First Closing Date, the authorized capital stock of the Company will consist of Thirty Million (30,000,000) shares of Common Stock and Twenty Million (20,000,000) shares of Preferred Stock. As of the First Closing Date and after giving effect to the transactions contemplated by this Agreement and the Acquisition Documents, the number of shares of each class or series of the capital stock of the Company outstanding or reserved for issuance will be as set forth on Schedule 5.19 hereof. The outstanding warrants and all outstanding shares of capital stock of the Company have been duly authorized by all necessary corporate action. All outstanding shares of -28- 34 capital stock of the Company are, and the shares of Common Stock issuable upon conversion of the Preferred Stock and upon exercise of the Investor Warrants, when issued in accordance with the respective terms and conditions of each series thereof, will be validly issued, fully paid and nonassessable. The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class or series of authorized capital stock of the Company are as set forth in the Certificate of Incorporation, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. Schedule 5.19 provides an accurate list, after giving effect to the transactions contemplated by this Agreement, of (A) all holders of any of the issued and outstanding Preferred Stock or Common Stock, together with the number of shares held by each (except, in the case of holders of Series C Preferred Stock, only holders of more than 5% thereof shall be listed), and (B) all of the holders of warrants, options, rights and securities convertible into Common Stock of the Company, together with the number of shares of Common Stock or Preferred Stock to be issued upon the exercise or conversion of such warrants, options, rights and convertible securities. (b) On each applicable Closing Date, except for the Stock Options, the outstanding shares of Preferred Stock, the outstanding options and warrants set forth on Schedule 5.19 and other securities issued hereafter in accordance with action by the Board of Directors of the Company taken in compliance with the Stockholders' Agreement, there will be no outstanding securities convertible into or exchangeable for capital stock of the Company or any Subsidiary or, except as contemplated in the other Transaction Documents (including, without limitation, the Stockholders' Agreement) or in any Future Acquisition Agreement, options, warrants or other rights to purchase or subscribe to capital stock of the Company or any Subsidiary, or contracts, commitments, agreements, understandings or arrangements of any kind to which the Company or any Subsidiary is a party relating to the issuance of any capital stock of the Company or any Subsidiary, any such convertible or exchangeable securities or any such options, warrants or rights. 5.20 PRIVATE OFFERING. No form of general solicitation or general advertising was used by the Company or any Subsidiary, or their representatives in connection with the offer or sale of the Shares. Assuming the accuracy of the representations and warranties of the Purchasers contained in Article VI hereof, no registration of the Shares or the Common Stock issuable upon the conversion of the Shares pursuant to the provisions of the Securities Act or applicable state securities or "blue sky" laws will be required by the offer, sale or issuance of the Shares pursuant to this Agreement or the Common Stock issuable upon conversion of the Shares. The Company agrees that neither the Company, nor anyone acting on its behalf, will offer or sell the Shares or any other security so as to require the registration of the Shares or the Common Stock issuable upon conversion of the Shares pursuant to the provisions of the Securities Act or any state securities or "blue sky" laws, unless such securities or the Common Stock issuable upon conversion of the Shares are so registered. 5.21 BROKER'S, FINDER'S OR SIMILAR FEES. Except for the fees referred to in Schedule 5.21 hereof, there are no brokerage commissions, finder's fees or similar fees or commissions payable in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Company or any Subsidiary. -29- 35 5.22 LABOR RELATIONS. Neither the Company nor any Subsidiary has committed or is engaged in any unfair labor practice. Except as set forth in Schedule 5.22, there is (a) no unfair labor practice complaint pending or threatened against the Company or any Subsidiary before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is so pending or threatened, (b) no strike, labor dispute, slowdown or stoppage pending or threatened against the Company or any Subsidiary, and (c) no union representation question existing with respect to the employees of the Company or any Subsidiary and no union organizing activities are taking place. Neither the Company nor any Subsidiary is a party to any collective bargaining agreement. 5.23 EMPLOYEE BENEFIT PLANS. Neither the Company nor any Subsidiary nor any ERISA Affiliate has any actual or contingent, direct or indirect, liability in respect of any employee benefit plan (as defined in Section 3(3) of ERISA) or other employee benefit arrangement (collectively, the "Plans"), other than those liabilities with respect to such Plans specifically described on Schedule 5.23(a). Schedule 5.23(a) sets forth all Plans relating to the Company. The Company has delivered to the Purchasers accurate and complete copies of all of the Plans. All of the Plans are in substantial compliance with all applicable Requirements of Law. Except as set forth on Schedule 5.23(b), no "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the Code, has occurred in respect of any of the Plans, and no civil or criminal action brought pursuant to Part 5 of Title I of ERISA is pending or, to the best knowledge of the Company, is threatened against any fiduciary of any such Plan. No Plan: (i) is subject to Title IV of ERISA, or is otherwise a Defined Benefit Plan, or is a multiple employer plan (within the meaning of Section 413(c) of the Code); or (ii) provides for post-retirement welfare benefits or a "parachute payment" (within the meaning of Section 280G(b) of the Code). 5.24 PATENTS, TRADEMARKS. ETC. The Company and its Subsidiaries own or are licensed or otherwise have the right to use all patents, trademarks, service marks, trade names, copyrights, licenses, franchises and other rights (collectively, the "Rights") being used to conduct their businesses as now operated (a complete list of licenses or other contracts relating to the Company's and its Subsidiaries' Rights and of registrations of patents, trademarks, service marks and copyrights including any applications therefor constituting such Rights, is attached hereto as Schedule 5.24). No Right or product, process, method, substance or other material presently sold by or employed by the Company or any Subsidiary, or which the Company or any Subsidiary contemplates selling or employing, infringes upon the Rights that are owned by others. Except as set forth on Schedule 5.24, no litigation is pending and no claim has been made against the Company or any Subsidiary or, to the knowledge of the Company, is threatened, contesting the right of the Company or any Subsidiary to sell or use any Right or product, process, method, substance or other material presently sold by or employed by the Company or any Subsidiary. Neither the Company nor any Subsidiary has asserted any claim of infringement, misappropriation or misuse by any Person of any Rights owned by the Company or any Subsidiary or to which it has exclusive use. Except as set forth on Schedule 5.24, no employee, officer or consultant of the Company or any Subsidiary has any proprietary, financial or other interest in any Rights owned or used by the Company or any Subsidiary in their businesses. Except as set forth on Schedule 5.24, neither the Company nor any Subsidiary has any obligation to -30- 36 compensate any Person for the use of any Rights and neither the Company nor any Subsidiary has granted any license or other right to use any of the Rights of the Company or any Subsidiary, whether requiring the payment of royalties or not. The Company and its Subsidiaries have taken all reasonable measures to protect and preserve the security, confidentiality and value of their Rights, including trade secrets and other confidential information. All trade secrets and other confidential information of the Company and its Subsidiaries are not part of the public domain or knowledge, nor have they been used, divulged or appropriated for the benefit of any Person other than the Company or any Subsidiary or otherwise to the detriment of the Company or any Subsidiary. No employee or consultant of the Company or Subsidiary has used any trade secrets or other confidential information of any other Person in the course of his work for the Company or any Subsidiary. No patent, invention, device, principle or any statute, law, rule, regulation, standard or code is pending or proposed which would restrict the Company's or any Subsidiary's ability to use any of the Rights. 5.25 POTENTIAL CONFLICTS OF INTEREST. Except as set forth on Schedule 5.25, no officer or director of the Company or any Subsidiary: (a) owns, directly or indirectly, any interest in (excepting less than 5% stock holdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, any Person that is engaged in a broadcasting business in the Applicable Region or is engaged in business as a lessor, lessee, supplier, distributor, sales agent or customer of, or lender to or borrower from, the Company or any Subsidiary; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property that the Company or any Subsidiary uses in the conduct of business; or (c) has any cause of action or other claim whatsoever against, or owes or has advanced any amount to, the Company or any Subsidiary, except for claims in the ordinary course of business such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements existing on the date hereof. As used herein, the term "Applicable Region" shall mean (i) as to either of Messrs. Jacobs or Stakelin, anywhere in the United States, and (ii) as to any other officer or director, any market in which the Company or any Subsidiary is engaged in business. 5.26 TRADE RELATIONS. Except as set forth on Schedule 5.26, there exists no actual or, to the knowledge of the Company, threatened termination, cancellation or limitation of, or any adverse modification or change in, the business relationship of the Company or any Subsidiary or its business with any customer or any group of customers whose purchases are individually or in the aggregate material to the business of the Company or any Subsidiary, or with any material supplier, and there exists no present condition or state of facts or circumstances that would materially adversely affect the Condition of the Company or prevent the Company or any Subsidiary from conducting its business after the consummation of the transactions contemplated by this Agreement, in substantially the same manner in which such business has heretofore been conducted. 5.27 OUTSTANDING BORROWINGS. Schedule 5.27 lists (i) the amount of all Outstanding Borrowings of the Company and its Subsidiaries as of the closing of the transactions contemplated hereby, (ii) the Liens that relate to such Outstanding Borrowings and that encumber the assets of the Company or any Subsidiary, (iii) the name of each lender thereof, and (iv) the amount of any unfunded commitments available to the Company in connection with any Outstanding Borrowings. -31- 37 5.28 MATERIAL CONTRACTS. Neither the Company nor any Subsidiary is a party to any Contractual Obligation, or is subject to any charge, corporate restriction, judgment, injunction, decree, or Requirement of Law, which materially adversely affects or could reasonably be determined to materially adversely affect the Condition of the Company. Schedule 5.28 lists all contracts, agreements and commitments of the Company and each Subsidiary as of the First Closing Date, whether written or oral, other than (a) the Transaction Documents and the Acquisition Documents, (b) contracts entered into in the ordinary course of business, and (c) any other contracts, agreements and commitments of the Company or any Subsidiary that do not extend beyond one year and involve the receipt or payment of not more than $15,000. With respect to each contract, agreement and commitment of the Company and its Subsidiaries required to be set forth on Schedule 5.28, the Company has delivered to the Purchasers a full and complete copy of all agreements and understandings between the parties thereto with respect to the subject matter thereof and all transactions related thereto, and there are no agreements or understandings, oral or written, or side agreements not contained therein that relate to or modify the substance thereof. Each contract or agreement to which the Company or any subsidiary is a party (i) has been duly authorized by all necessary corporate and other action on the part of the Company and each Subsidiary which is a party thereto, (ii) was validly executed and delivered by the Company and each such Subsidiary, and (iii) is the legal, valid and binding obligation of the Company and each such Subsidiary and their successors, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting creditors' rights generally and by general principles of equity relating to enforceability. Each of such documents is in full force and effect, none of their provisions has been waived by any party thereto and there are no defaults thereunder or notice of defaults delivered pursuant thereto. 5.29 INSURANCE. Schedule 5.29 accurately summarizes all of the insurance policies or programs of the Company and its Subsidiaries in effect as of the date hereof, and indicates the insurer's name, policy number, expiration date, amount of coverage, type of coverage, annual premiums, exclusions and deductibles, and also indicates any self-insurance program that is in effect. All such policies are in full force and effect, are underwritten by financially sound and reputable insurers, are sufficient for all applicable Requirements of Law and otherwise are in compliance with the criteria set forth in Section 8.6 hereof. All such policies will remain in full force and effect and will not in any way be affected by, or terminate or lapse by reason of any of the transactions contemplated hereby. 5.30 SOLVENCY. The Company and its Subsidiaries are Solvent. 5.31 COMPLIANCE WITH EACH ACQUISITION DOCUMENT; CLOSINGS THEREUNDER; NO DEFAULTS. Except as set forth on Schedule 5.31, each of the parties to each Acquisition Agreement has performed and complied with all of the agreements and conditions contemplated under such Acquisition Agreement and the agreements, instruments and other documents delivered thereunder or contemplated thereby, including, without limitation, the Transaction Documents that are required to be performed or complied with by each such party, and, except as set forth on Schedule 5.31, there is no default by any such party thereunder. Except as set forth in Schedule 5.31, the Acquisition -32- 38 Documents have not been amended in any respect or any condition to closing thereunder waived by any party, in any case without the prior written consent of Waller-Sutton, and the transactions contemplated by each of the Acquisition Documents have been consummated in accordance with its respective terms. The disclosures set forth in Schedule 5.31 shall not constitute a waiver by the Purchasers of any rights or remedies they may have with respect to any breach or default by any party to any Acquisition Agreement of the terms of such Acquisition Agreement. 5.32 COMMISSION DOCUMENTS. Each of the Company and its Subsidiaries has filed all registration statements, proxy statements, reports and other documents required to be filed by it under the Securities Act or the Exchange Act, and all amendments thereto (collectively, the "Commission Documents"); and the Company and each such Subsidiary have furnished the Purchasers copies of all such Commission Documents, each as filed with the Commission, relating to the Acquisitions and all such other Commission Documents as the Purchasers shall have reasonably requested in connection with the transactions contemplated hereby and by the Acquisition Documents. Each Commission Document when filed with the Commission was true and accurate in all material respects and in compliance in all material respects with the requirements of its respective report form. 5.33 INCORPORATION OF REPRESENTATIONS AND WARRANTIES OF PARTIES TO THE ACQUISITION DOCUMENTS. Each of the representations and warranties of the parties to the Acquisition Documents other than the Company are hereby incorporated herein by this reference as though fully set forth and the Company represents and warrants to the Purchasers that each such representation and warranty is true, correct and complete in all material respects. 5.34 SMALL BUSINESS CONCERN. The Company acknowledges that River Cities is a Federal licensee under the Small Business Investment Act of 1958, as amended (the "SB Act"). The Company, together with its "affiliates" (as that term is defined in Title 13, Code of Federal Regulations, ss. 121.103), is a "small business concern" within the meaning of the SB Act and the regulations thereunder, including Title 13, Code of Federal Regulations, ss. 121.101 ET. SEG. The information regarding the Company and its affiliates set forth in the SB Act Form 1031 delivered at the First Closing shall be accurate and complete. The Company does not presently engage in, and it shall not hereafter engage in, any activities, nor shall the Company use directly or indirectly the proceeds hereunder for any purpose for which a Small Business Investment Company is prohibited from providing funds by the SB Act and the regulations thereunder (including Title 13, Code of Federal Regulations, ss. 107.720 ET. SEG.). 5.35 COMPLIANCE WITH LOAN AGREEMENT. The Company is not in default and no event has occurred which, with notice or lapse of time or both, would constitute a default, in the due performance or observance of any term, covenant or condition contained in that Credit Agreement between the Company, certain Lenders and The Bank of Montreal, dated as of November 14, 1997, as amended by a First Amendment to Credit Agreement dated as of February 16, 1998 and a Second Amendment to Credit Agreement dated as of June 15, 1998 (the "Credit Agreement"). As of the First Closing Date, the Company will have $34,400,000 borrowing availability under the Credit Agreement which, together with the proceeds of the sale of the Series A Preferred Stock, the Series -33- 39 B Preferred Stock, the Series D Preferred Stock and the Series F Preferred Stock required under Section 3.19 above, will be sufficient to consummate all of the acquisitions contemplated by the Acquisition Documents and to pay all costs and expenses associated therewith. In addition, the Company expects to have sufficient cash on hand or borrowing availability under the Credit Agreement to satisfy its working capital needs for the foreseeable future. 5.36 YEAR 2000 COMPLIANCE. All hardware and software products used by the Company or its Subsidiaries in the administration and the business operations thereof will be able to accurately process date data (including, but not limited to calculating, comparing and sequencing) from, into and between the twentieth century (through the year 1999), the year 2000 and the twenty-first century, including leap year calculations when used in accordance with the product documentation accompanying such hardware and software products. 5.37 RADIO STATIONS KCBQ (AM) AND WSSP (FM). The Company is party to one or more agreements or arrangements pursuant to which the Company has been reimbursed by an unaffiliated third party for all operating losses incurred by radio station KCBQ (AM) from March 1, 1997 through December 31, 1997 (and thereafter for such time as the station is held for sale), which unreimbursed losses as of May 31, 1998 are approximately $90,000 (which the Company represents will be reimbursed or paid in the ordinary course within 60 days of the date hereof). The Company is in negotiations for the sale of substantially all of the assets of radio station KCBQ (AM), which could lead to a consummation of a sale during the third quarter of 1998. In consideration for the issuance by the Company of a five-year promissory note for $1.5 million (the "WSSP Note"), the Company acquired an option to purchase radio station WSSP (FM). Under the terms of the WSSP Note, the Company is obligated to pay in full satisfaction thereof the lesser of (i) the stated principal amount of such note or (ii) the proceeds received by the Company from a sale of WSSP (FM) or of the option to acquire WSSP (FM). The WSSP Note is collateralized by the Company's interest in a note receivable from Southwind Broadcasting, Inc. for $1.5 million or by a first lien on the assets used in the operation of such radio station. Except as stated above, the Company has not incurred any liability or obligation in respect of the ownership or operation of radio stations KCBQ (AM) or WSSP (FM). 5.38 FAIRCOM DEBT. The Company shall, upon consummation of the transactions contemplated herein, pay all indebtedness of Faircom Inc. that is not "Subordinated Indebtedness" as defined in that certain Subordination Agreement, dated as of June 30, 1997, as amended by the Amendment and Reaffirmation of Intercreditor and Subordination Agreement, dated as of January 22, 1998, by and among Faircom Flint Inc., Faircom Mansfield Inc., Faircom Inc., Blue Chip Capital Fund II Limited Partnership, Miami Valley Venture Fund L.P. and AT&T Commercial Financial Corporation. 5.39 CONSOLIDATED FINANCIAL INFORMATION. The Company shall deliver to the Purchasers no later than June 30, 1998, the pro forma consolidated balance sheet and financial statements of the Company and its Subsidiaries for each of the three month period ended March 31, 1998 and the twelve month period ended March 31, 1998, certified by the chief executive officer of the Company -34- 40 that such pro forma balance sheet and financial statements have been prepared in accordance with generally accepted accounting principals and fairly present the pro forma adjustments reflecting the consummation of the transactions contemplated by this Agreement, the Transaction Documents and the Acquisition Agreements, including, without limitation, all material fees and expenses in connection therewith. The Total Consolidated Broadcast Cash Flow for the twelve month period ended March 31, 1998 set forth in such pro forma consolidated financial statements (prior to adjustments) shall be not more than $50,000 less than the comparable amount contained in the "pro forma 12 month trailing financial statements" of the Company delivered by the Company to the lenders under the Credit Agreement in connection with the loans being made on the First Closing Date thereunder. ARTICLE 6 REPRESENTATIONS AND ------------------- WARRANTIES OF THE PURCHASERS ---------------------------- Each Purchaser, severally but not jointly, hereby represents and warrants as to itself or himself as follows: 6.1 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by such Purchaser of each Transaction Document to which such Purchaser is a party: (a) are within such Purchaser's power and authority and have been duly authorized by all necessary action; (b) do not contravene the terms of such Purchaser's organizational documents or any amendment thereof; and (c) will not violate, conflict with or result in any breach or contravention of any Contractual Obligation or any Requirement of Law applicable to such Purchaser. 6.2 BINDING EFFECT. This Agreement has been duly executed and delivered by such Purchaser and each Transaction Document to which such Purchaser is a party constitutes such Purchaser's legal, valid and binding obligation, enforceable against such Purchaser in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 6.3 NO LEGAL BAR. The execution, delivery and performance of each Transaction Document to which such Purchaser is a party by such Purchaser will not violate any Requirement of Law applicable to such Purchaser. 6.4 EXPERIENCE. Such Purchaser has carefully reviewed the information with respect to such Purchaser contained in the registration statement on Form S-4 filed by the Company in respect of securities of the Company to be issued in connection with its planned merger with Faircom Inc., as well as the representations concerning the Company and its Subsidiaries contained in this Agreement; the officers of the Company have made available to such Purchaser any and all written information which such Purchaser has requested and have answered to such Purchaser's satisfaction all inquiries made by such Purchaser; and such Purchaser has sufficient knowledge and experience -35- 41 in investing in companies similar to the Company so as to be able to evaluate the risks and merits of the investment in the Shares and Investor Warrants and is able financially to bear the risks thereof. 6.5 PURCHASE FOR OWN ACCOUNT. The Shares and the Investor Warrants to be acquired by such Purchaser pursuant to this Agreement, or upon conversion thereof to Common Stock, are being or will be acquired for such Purchaser's own account for investment and with no intention of distributing or reselling such securities or any part thereof in any transaction that would be in violation of the securities laws of the United States of America, or any state, without prejudice, however, to such Purchaser's right at all times, subject to the provisions of the Stockholders' Agreement, to sell or otherwise dispose of all or any part of the Shares or Investor Warrants under an effective registration statement under the Securities Act, or any applicable state securities laws or under an exemption from such registration available under the Securities Act, or any applicable state securities laws and subject, nevertheless, to the disposition of such Purchaser's property being at all times within such Purchaser's control. If such Purchaser should in the future decide to dispose of any of the Shares or Investor Warrants or the Common Stock issuable upon conversion or exercise thereof, such Purchaser understands and agrees that such Purchaser may do so only in compliance with the Securities Act and applicable state securities laws, as then in effect, as well as with the Shareholders' Agreement. Such Purchaser agrees to the imprinting of one or more legends on certificates representing all of the Shares and Investor Warrants to the following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS." "THE ISSUER IS SUBJECT TO RESTRICTIONS CONTAINED IN THE COMMUNICATIONS ACT OF 1934, AS AMENDED. THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IF, AS A RESULT THEREOF, THE ISSUER WOULD BE IN VIOLATION OF THAT ACT." "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THAT CERTAIN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED AS OF June 15, 1998 AMONG REGENT COMMUNICATIONS, INC. AND CERTAIN OF ITS STOCKHOLDERS, AS THE SAME MAY BE AMENDED FROM TIME TO TIME." 6.6 EXEMPTION. Such Purchaser understands that the Shares and Investor Warrants have not been registered under the Securities Act or under the securities laws of any state on the grounds that the sale provided for in this Agreement and the issuance of the Shares are intended to be exempt from registration thereunder, and that the Company's reliance on such exemption is predicated in part on such Purchaser's representations set forth herein. 6.7 ACCREDITED INVESTOR. Such Purchaser is an accredited investor within the definition set forth in Rule 501(a) promulgated under the Securities Act. Such Purchaser is not subscribing to the Shares and Investor Warrants as a result of or pursuant to any advertisement, article, notice or -36- 42 other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of a subscription by a person other than a representative of the Company. Such Purchaser acknowledges that the Shares and Investor Warrants, including shares of Common Stock issued upon conversion or exercise thereof, must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. 6.8 NO PUBLIC MARKET. Such Purchaser understands that no public market now exists for the Shares or Investor Warrants and that there is no assurance that a public market will ever exist for the Shares or Investor Warrants. 6.9 ERISA. No part of the funds used by such Purchaser to purchase the Shares or Investor Warrants hereunder constitutes assets of any "employee benefit plan" (as defined in Section 3(3) of ERISA) or "plan" (as defined in Section 4975 of the Code) listed on Schedule 5.23(b). 6.10 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage commissions, finder's fees or similar fees or commissions payable in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with such Purchaser or any action taken by such Purchaser. 6.11 GOVERNMENTAL AUTHORIZATION: THIRD PARTY CONSENT. No approval, consent, compliance, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person in respect of any Requirement of Law, and no lapse of a waiting period under a Requirement of Law, is necessary or required in connection with the execution, delivery or performance by such Purchaser or enforcement against such Purchaser of this Agreement or the transactions contemplated hereby. ARTICLE 7 INDEMNIFICATION --------------- 7.1 INDEMNIFICATION. In addition to all other sums due hereunder or provided for in this Agreement, the Company agrees to indemnify and hold harmless each Purchaser and its Affiliates and each of their respective officers, directors, agents, employees, subsidiaries, partners, attorneys, accountants and controlling persons (each, an "Indemnified Party") to the fullest extent permitted by law from and against any and all losses, claims, damages, expenses (including, without limitation, -37- 43 reasonable fees, disbursements and other charges of counsel incurred by an Indemnified Party in any action or proceeding between the Company and such Indemnified Party (or Indemnified Parties) or between an Indemnified Party (or Indemnified Parties) and any third party or otherwise) or other liabilities, losses, or diminution in value of the Shares (collectively, "Liabilities") resulting from or arising out of (i) any breach of any representation or warranty, covenant or agreement of the Company in this Agreement, the Certificate of Incorporation, the Certificate of Amendment, the Registration Rights Agreement, the Stockholders' Agreement or the other Transaction Documents, including, without limitation, the failure to make payment when due of amounts owing pursuant to this Agreement, the Shares or the other Transaction Documents, on the due date thereof (whether at the scheduled maturity, by acceleration or otherwise);provided, however, that with respect to a breach of the covenants of the Company contained in Sections 8.1(other than subsections (j) and (l) thereof), 8.2, 8.3, 8.4, 8.5 and 8.7 from and after the date hereof, the indemnification provided herein shall be limited to (1) the indemnification of the Purchasers for all out-of-pocket costs and expenses incurred by them in the course of causing the Company to duly perform its obligations under such Sections, including but not limited to the reimbursement of legal fees and expenses, and (2) damages incurred with respect to any purchase of Additional Shares which occurs at a time any such breach existed, (ii) any breach by the Company, any of its Subsidiaries or any other party to any of the Acquisition Documents of any covenant or agreement of such contained therein, or (iii) any legal, administrative or other actions (including actions brought against any of the Purchasers by any party to any of the Acquisition Documents, or by any of the other Purchasers, the Company, any Subsidiary, any equity holders of the Company or any Subsidiary or any other Person, or derivative actions brought against any of the Purchasers by any Person claiming through or in the Company's or any Subsidiary's name), proceedings or investigations (whether formal or informal), or written threats thereof, based upon, relating to or arising out of the Transaction Documents or the Acquisition Documents, or the transactions contemplated thereby, or any such actual or threatened action, proceeding or investigation by any Person against an Indemnified Party arising out of or relating to or by reason of such Indemnified Party's status as a holder of securities of the Company, or any Indemnified Party's role therein or in the transactions contemplated thereby; provided, however, that the Company shall not be liable under this Section 7.1 to an Indemnified Party: (a) for any amount paid by the Indemnified Party in settlement of claims by the Indemnified Party without the Company's written consent (which consent shall not be unreasonably withheld), (b) to the extent that it is finally judicially determined that such Liabilities resulted from the willful misconduct or gross negligence of such Indemnified Party or (c) to the extent that it is finally judicially determined that such Liabilities resulted from the breach by such Indemnified Party of any representation, warranty, covenant or other agreement of such Indemnified Party contained in this Agreement or any other Transaction Document; provided, further, that if and to the extent that such indemnification is unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of such Liabilities which shall be permissible under applicable laws. In connection with the obligation of the Company to indemnify for expenses as set forth above, the Company further agrees, upon presentation of appropriate invoices containing reasonable detail, to reimburse each Indemnified Party for all such expenses (including, without limitation, fees, disbursements and other charges of counsel incurred by an Indemnified Party in any action or proceeding between the Company and such Indemnified Party (or Indemnified Parties) or between an Indemnified Party (or -38- 44 Indemnified Parties) and any third party or otherwise) as they are incurred by such Indemnified Party; provided, however, that if an Indemnified Party is reimbursed hereunder for any expenses, such reimbursement of expenses shall be refunded to the extent it is finally judicially determined that the Liabilities in question resulted from (i) the willful misconduct or gross negligence of such Indemnified Party or (ii) the breach by such Indemnified Party of any representation, warranty, covenant or other agreement of such Indemnified Party contained in this Agreement or any other Transaction Document. 7.2 LIMITATIONS ON INDEMNIFICATION. (a) The Company shall have no indemnification obligation to an Indemnified Party pursuant to this Article 7 with respect to a breach of any representation or warranty unless such Indemnified Party delivers to the Company written notice of such breach within the applicable survival period for such representation or warranty as set forth in Section 9.1 hereof. (b) No Indemnified Party shall be entitled to indemnification under this Article 7 unless the aggregate amount of Liabilities to which the Indemnified Parties are entitled to recover exceeds $100,000. In the event that such Liabilities exceed an aggregate of $100,000, the Indemnified Parties shall be entitled to indemnification under this Article 7 for all such Liabilities. The limitation set forth in this paragraph (b) shall not apply with respect to any (i) any breach of any representation or warranty set forth in Section 5.21 hereof, (ii) matter constituting fraud or intentional or willful misconduct, or (iii) covenant or agreement of the Company to be performed or complied with from and after the First Closing Date. 7.3 NOTIFICATION. Each Indemnified Party under this Article 7 will, promptly after the receipt of notice of the commencement of any action, investigation, claim or other proceeding against such Indemnified Party in respect of which indemnity may be sought from the Company under this Article 7, notify the Company in writing of the commencement thereof. The omission of any Indemnified Party so to notify the Company of any such action shall not relieve the Company from any liability which it may have to such Indemnified Party under this Article 7 unless, and only to the extent that, such omission results in the Company's forfeiture of material substantive rights or defenses. In case any such action, claim or other proceeding shall be brought against any Indemnified Party and it shall notify the Company of the commencement thereof, the Company shall be entitled to assume and control the defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its reasonable judgment; provided, however, that any Indemnified Party may, at its own expense, retain separate counsel to participate in such defense. Notwithstanding the foregoing, in any action, claim or proceeding in which the Company, on the one hand, and an Indemnified Party, on the other hand, is, or is reasonably likely to become, a party, such Indemnified Party shall have the right to employ separate counsel at the Company's expense and to control its own defense of such action, claim or proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a conflict or potential conflict exists between the Company, on the one hand, and such Indemnified Party, on the other hand, that would make such separate representation advisable. The Company agrees that it will not, without the prior written consent of the Purchasers, settle, -39- 45 compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of the Purchasers and each other Indemnified Party from all liability arising or that may arise out of such claim, action or proceeding. The Company shall not be liable for any settlement of any claim, action or proceeding effected against an Indemnified Party without its written consent, which consent shall not be unreasonably withheld. The rights accorded to Indemnified Parties hereunder shall survive the termination of this Agreement and shall be in addition to any rights that any Indemnified Party may have at common law, by separate agreement or otherwise. 7.4 REGISTRATION RIGHTS AGREEMENT. Notwithstanding anything to the contrary in this Article 7, the indemnification and contribution provisions of the Registration Rights Agreement shall govern any claim made with respect to registration statements filed pursuant thereto or sales made thereunder. ARTICLE 8 AFFIRMATIVE COVENANTS --------------------- For so long as the Purchasers shall continue to beneficially own any shares of Series F Preferred Stock and/or Investor Warrants, and until the payment by the Company of all amounts due to the Purchasers under this Agreement and the other Transaction Documents, including, without limitation, all fees, expenses and amounts due at such time in respect of indemnity obligations under Article 7, the Company hereby covenants and agrees with the Purchasers as follows: 8.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP (it being understood that monthly and quarterly financial statements are not required to have footnote disclosures). The Company shall deliver to the Purchasers each of the financial statements and other reports described below: (a) MONTHLY AND QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any event within thirty (30) days after the end of each month (or forty-five (45) days after the end of any month that is also the end of a quarter), the Company shall deliver to the Purchasers the consolidated and consolidating balance sheets of the Company and its Subsidiaries, as at the end of such month and the related consolidated and consolidating statements of income, stockholders' and members equity and cash flow for such month and for the period from the beginning of the then current fiscal year of the Company to the end of such month (and, with respect to financial statements delivered for months that are also the last month of any fiscal quarter, accompanied by the related consolidated and consolidating statements of income, stockholders' and member's equity and cash flow for such -40- 46 fiscal quarter), which, in the case of quarterly financial statements, shall include a comparison to the corresponding period of the prior fiscal year and a comparison to the corresponding figures contained in the budgets delivered pursuant to Section 8.1(f) hereof, in each case with a reasonably detailed explanation of any material variances. (b) YEAR-END FINANCIAL STATEMENTS. As soon as available and in any event within ninety (90) days after the end of the fiscal year of the Company, the Company shall deliver to the Purchasers (A) the consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated and consolidating statements of income, stockholders' and members' equity and cash flow for such fiscal year, (B) a schedule of the outstanding Indebtedness for borrowed money of the Company and its Subsidiaries describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan, and (C) a report with respect to the financial statements from Coopers & Lybrand or another nationally recognized accounting firm of certified public accountants selected by the Company and reasonably acceptable to the holders of a majority of the shares of Series F Preferred Stock, which report shall be prepared in accordance with Statement of Auditing Standards No. 58 (the "Statement") entitled "Reports on Audited Financial Statements" and such report shall be "Unqualified" (as such term is defined in such Statement). Together with each delivery of financial statements of the Company and its Subsidiaries pursuant to this subsection 8.1(b), the Company shall deliver to the Purchasers a copy of a letter from the Company to such accounting firm, which letter shall have been delivered to such accounting firm prior to its delivery of such financial statements, stating that an intent of the Company in engaging the accounting firm's professional services to prepare the audit report relating to such financial statements was to benefit and influence the Purchasers and their successors or assigns. Such letter shall state that the Purchasers intend to rely on the audit report and the accounting firm's professional services provided to the Company and its Subsidiaries. (c) COMPANY'S COMPLIANCE CERTIFICATE. Together with each delivery of quarterly and annual financial statements of the Company and its Subsidiaries pursuant to subsections 8.1(a) and 8.1(b) above, the Company shall deliver to the Purchasers a fully and properly completed compliance certificate (in the form of Exhibit G hereto or in such other form and substance satisfactory to the Purchasers) signed by the Company's chief executive officer or chief financial officer. (d) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof, the Company shall deliver to the Purchasers copies of all significant reports submitted by the Company's certified public accountants in connection with each annual, interim or special audit or review of any type of the financial statements or related internal control systems of the Company and its Subsidiaries made by such accountants, including any comment letter submitted by such accountants to management in connection with their services. (e) MANAGEMENT REPORTS. Together with each delivery of financial statements of the Company and its Subsidiaries pursuant to subsections 8.1(a) and 8.1(b) (but with respect to -41- 47 subsection 8.1(a), with respect only to financial statements of the Company and its Subsidiaries delivered for months that are the last month of any fiscal quarter), the Company shall deliver to the Purchasers a management report (i) describing the operations and financial condition of the Company and its Subsidiaries for the quarter or fiscal year then ended and the portion of the current fiscal year then elapsed (or for the fiscal year then ended in the case of year-end financials), which description shall include, without limitation, station ratings by station and corresponding advertising market share (in each case, if and when available), (ii) setting forth in comparative form on a quarter-to-quarter basis the corresponding figures from the most recent projections for the current fiscal year delivered pursuant to subsection 8.1(f) or otherwise approved by the Board of Directors, and discussing the reasons for any significant variations, and (iii) setting forth in reasonable detail the compliance or non-compliance by the Company or any Subsidiary with any financial or other covenants to which the Company or any such Subsidiary is subject pursuant to any loan agreement or other agreement relating to Indebtedness of the Company or such Subsidiary and discussing the reasons for any non-compliance. The information above shall be presented in reasonable detail and shall be certified by the chief financial officer of the Company to the effect that such information fairly presents the results of operations and financial condition of the Company and its Subsidiaries as at the dates and for the periods indicated. (f) BUDGETS. No earlier than sixty (60) days prior nor later than thirty (30) days after the end of each fiscal year beginning with the current fiscal year, the Company shall prepare and deliver to the Purchasers budgets of the Company and its Subsidiaries for the next succeeding fiscal year, on a month to month basis, which budgets shall be in form and substance reasonably satisfactory to Waller-Sutton. (g) SEC FILINGS AND PRESS RELEASES. Promptly upon their becoming available, the Company shall deliver to the Purchasers copies of (i) all financial statements, reports, notices and proxy statements sent or made available by the Company or any of its Subsidiaries to their security holders, (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Company or any of its Subsidiaries with any securities exchange or with the Commission or any other governmental or private regulatory authority, and (iii) all press releases and other statements made available by the Company or any of its Subsidiaries to the public concerning material developments in the business of the Company or any of its Subsidiaries. (h) EVENTS OF DEFAULT ETC. Promptly upon any officer of the Company obtaining knowledge of any of the following events or conditions, the Company shall deliver to the Purchasers copies of all notices given or received by the Company or any of its Subsidiaries with respect to any such event or condition and a certificate of the Company's chief executive officer specifying the nature and period of existence of such event or condition and what action the Company has taken, is taking and proposes to take with respect thereto: (i) any condition or event that constitutes a breach of any provision of this Agreement; (ii) any notice that any Person has given to the Company or any Subsidiary or any other action taken with respect to a claimed default in any agreement evidencing Indebtedness in excess of $50,000, either individually or in the aggregate, or any other material agreement to which the Company or any Subsidiary is a party; or (iii) any event or condition that -42- 48 could reasonably be expected to result in any material adverse effect on the Condition of the Company. (i) LITIGATION. Promptly upon any officer of the Company obtaining knowledge of (i) the institution of any action, suit, proceeding, governmental investigation or arbitration against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary not previously disclosed by the Company to the Purchasers or (ii) any material development in any action, suit, proceeding, governmental investigation or arbitration at any time pending against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary, which, in each and either case, is reasonably likely to have a material adverse effect on the Condition of the Company, the Company will promptly give notice thereof to the Purchasers and provide to the Purchasers such other information as may be reasonably available to the Company to enable the Purchasers and their respective counsel to evaluate such matter. (j) SUBSIDIARIES; ACQUISITIONS OF ASSETS. Not less than thirty (30) days prior to (i) acquiring the stock of a Person, such that such Person will become a Subsidiary, or (ii) acquiring all or substantially all of the assets of a business unit of any Person (other than a Subsidiary), the Company shall notify the Purchasers of the Company's or any Subsidiary's intention to acquire such stock or assets, and following such notice, such stock or assets will not be acquired unless, if required by Section 6 of the Stockholders' Agreement, the Company or a Subsidiary shall have executed and delivered an acquisition or other agreement with the seller(s) thereof in form and substance satisfactory to Waller-Sutton, setting forth the terms and conditions of any such acquisition. (k) NO DEFAULTS. The Company shall deliver to the Purchasers concurrently with the delivery of the financial statements referred to in subsection 8.1(b), a certificate of the Company's Chief Financial Officer in the form of stating that to his or her knowledge no breach of this Agreement or any Transaction Document shall have occurred during the period covered thereby, except as specified in such certificate. (l) NOTICE OF TRIGGERING EVENTS. The Company shall notify the Purchasers as promptly as practicable of any proposed transaction that is reasonably likely to cause or result in a Triggering Event, which notice (i) shall be given in any event not later than 30 days prior to the consummation of any such transaction or, if earlier, 10 days after the Company shall have entered into any letter of intent, memorandum of understanding, agreement in principle (whether or not legally binding) or definitive agreement relating thereto or received an unsolicited offer or bid relating thereto and (ii) shall provide a reasonably detailed description of the nature of the proposed transaction, including without limitation the name or names of the parties thereto other than the Company, the consideration to be received by the Company or its securityholders in respect of or as a result of such transaction, the proposed schedule for closing of such transaction and such other information (financial or otherwise) relating thereto as the Purchasers shall request. The Company shall not permit or facilitate the consummation or occurrence of any transaction which is reasonably likely to cause or result in a Triggering Event unless the notice required by this Section 8.1(l) has been so given and the Company complies with its obligations under Section 2.2(c). If the Company -43- 49 identifies any information given to a Purchaser pursuant hereto as confidential at the time such information is provided, Purchaser shall treat such information as confidential and shall limit the internal distribution of such information and shall refrain from disclosing such information to any third party, until such time as such information otherwise becomes publicly available or is disclosed without breach of this subsection. (m) OTHER INFORMATION. With reasonable promptness, the Company shall deliver to the Purchasers such other information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably required by the Purchasers. 8.2 PRESERVATION OF CORPORATE EXISTENCE. The Company shall, and shall cause each of its Subsidiaries to: (a) preserve and maintain in full force and effect its corporate existence; (b) conduct their businesses in accordance with sound business practices, keep their material items of property in good working order and condition (normal wear and tear excepted), and from time to time make all needed repairs to, renewals of or replacements of such properties (except to the extent that any of such properties are obsolete or are being replaced) so that the efficiency of their business operations shall be satisfactorily maintained and preserved; and (c) file or cause to be filed in a timely manner all material reports, applications, estimates and licenses that shall be required by a Governmental Authority. 8.3 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each of its Subsidiaries to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including without limitation: (a) all tax liabilities, assessments and governmental charges or levies upon the Company or any Subsidiary or their properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; (b) all lawful claims which the Company or such Subsidiary is obligated to pay, which are due and which, if unpaid, might by law become a Lien upon any material property, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; and (c) all payments of principal, interest and other amounts when due on Indebtedness. 8.4 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause its Subsidiaries to comply, in all material respects with all Requirements of Law and with the directions of any -44- 50 Governmental Authority having jurisdiction over them or their business or property (including all applicable Environmental Laws). 8.5 INSPECTION; COMPLIANCE WITH SMALL BUSINESS INVESTMENT ACT. (a) The Company will permit, and will cause each of its Subsidiaries to permit, representatives of the Purchasers to visit and inspect any of their properties, to examine their corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss their affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested, upon reasonable advance notice. (b) In addition to and not in limitation of the foregoing, the Company agrees to provide River Cities with sufficient information to permit River Cities to comply with its obligations under the SB Act and the regulations thereunder. River Cities and representatives of the SB Act shall be given access to the Company's records to confirm that the proceeds of the sale of the Shares are used for the purposes delineated in Section 8.8 hereof. The President of the Company shall certify to River Cities, within three (3) months of the date of the First Closing and from time to time thereafter, that the Company has used the proceeds in accordance with the purposes delineated in Section 8.8 hereof. If the Company identifies any information given to a River Cities pursuant to this Section 8.5 as confidential at the time such information is provided, River Cities shall treat such information as confidential and shall limit the internal distribution of such information and shall refrain from disclosing such information to any third party. 8.6 MAINTENANCE OF INSURANCE. The Company and its Subsidiaries will maintain or cause to be maintained with financially sound and reputable insurers that have a rating of "A" or better as established by Best's Rating Guide (or an equivalent rating with such other publication of a similar nature as shall be in current use), public liability and property damage insurance with respect to their respective businesses and properties against loss or damage of the kinds customarily carried or maintained by companies of established reputation engaged in similar businesses and will deliver evidence thereof to Purchasers. Without limiting the foregoing, the Company and its Subsidiaries will maintain at all times business interruption insurance in an amount satisfactory to the Board of Directors of the Company, and directors' and officers' liability insurance coverage for each of the members of the Board of Directors of the Company in amounts satisfactory to the Board of Directors of the Company but in no event less than $5 million; provided, however, that the Company shall not be obligated to purchase or maintain such insurance in the event that reasonable terms and pricing are not commercially available. 8.7 BOOKS AND RECORDS. The Company shall, and shall cause each of its Subsidiaries to, keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and businesses of the Company and each of its Subsidiaries in accordance with GAAP consistently applied to the Company and its Subsidiaries taken as a whole. -45- 51 8.8 USE OF PROCEEDS. The Company shall use the proceeds of the sale of the Initial Shares at the First Closing hereunder only to fund the Acquisitions, including payment of capital expenditures related thereto, the fees and expenses in connection with the transactions contemplated hereunder and under the Transaction Documents and the Acquisition Documents. The proceeds of the sale of the Additional Shares will be used by the Company to fund acquisitions of radio stations pursuant to Future Acquisition Agreements and, in connection therewith, to the extent approved by the Board of Directors and Waller- Sutton, to pay capital expenditures, working capital requirements, closing costs and transaction expenses related thereto, in each case as approved by Waller-Sutton. In the event of any diversion by the Company of the proceeds of the sale of the Shares from the uses specified in this Section 8.8 that causes or results in a breach or violation by River Cities of the SB Act, which shall remain uncured or unwaived for more than 30 days after notice thereof by River Cities to the Company, the Company shall use diligent efforts to assist River Cities upon its request to facilitate the sale by River Cities of its interest in the Company to a third party. 8.9 BOARD NOMINEES. The Company shall maintain a Board of Directors consisting of the number of directors specified in Section 2 of the Stockholders' Agreement and use its best efforts to have the nominees designated pursuant to Section 2 of the Stockholders' Agreement elected to the Board of Directors of the Company in accordance with the terms thereof. Without limiting the generality of the foregoing, each Purchaser other than Waller-Sutton by its execution and delivery of this Agreement agrees that for so long as Waller-Sutton shall continue to beneficially own an aggregate number of shares of Common Stock (either directly or indirectly through its ownership of Series F Preferred Stock, Series C Preferred Stock and/or Investor Warrants) equal to at least 10% of the number of shares of Common Stock beneficially owned by it as of the First Closing Date (either directly or indirectly), such Purchaser shall nominate and vote its shares of Series F Preferred Stock for the election as directors designated by the holders of the Series F Preferred Stock of such Persons as are nominated by Waller-Sutton. 8.10 GRANTING OF OPTIONS. The Company may grant up to an aggregate of 2,000,000 Stock Options, of which up to 1,224,000 Stock Options may be granted as of the First Closing Date; provided, however, the aggregate amount of shares of Common Stock issuable upon the exercise of all such Stock Options shall at no time exceed 15% of the sum of (i) all then outstanding shares of Common Stock of the Company and (ii) the number of shares of Common Stock then issuable upon the conversion of then outstanding shares of convertible preferred stock or issuable upon the exercise of then outstanding warrants or then outstanding stock options (including, but not limited to, the Stock Options); and provided, further, however, that the number of shares of Common Stock issuable to Terry S. Jacobs and William Stakelin upon the exercise of any such Stock Options shall not exceed the lesser of (x) 733,000 individually (or 1,466,000 in the aggregate) or (y) 5.5% individually (or 11% in the aggregate) of the sum of (A) all then outstanding shares of Common Stock of the Company and (B) the number of shares of Common Stock then issuable upon the conversion of then outstanding shares of convertible preferred stock or issuable upon the exercise (and conversion) of then outstanding warrants or then outstanding stock options computed on a fully diluted basis. If the Stock Options are granted, the Company shall grant the Stock Options at an exercise price equal to at least the per share fair market value of the Common Stock (as determined by the Company's Board -46- 52 of Directors) at the time of such grant, but in no event less than $5.00 per share. From and after the First Closing Date, any increase in the number of Stock Options available for grant under the Stock Option Plan or in the maximum number of shares of Common Stock issuable upon the exercise of all such Stock Options (other than pursuant to the operation of customary antidilution provisions contained in the Stock Option Plan) shall require the approval of the Company's Board of Directors and Waller- Sutton. 8.11 BUSINESS ACTIVITIES. The Company shall engage in no business or business activity other than the businesses and business activities in which it is currently engaged and the performance of its obligations under the Transaction Documents. 8.12 BOARD CONSENT. The Company shall not, and shall not enter into any agreement or commitment to, engage in any transaction that is required pursuant to the terms of the Stockholders' Agreement to be approved by the Company's Board of Directors and/or Waller-Sutton, including but not limited to any merger, acquisition, change of control, issuance of equity or debt securities (including the issuance of Stock Options in excess of the amounts specified in Section 8.10 hereof), sale of assets or the like, without each required approval having been obtained. 8.13 RESERVATION OF SHARES. The Company shall at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance or delivery upon (a) exercise of the options and warrants set forth on Schedule 5.19, the Stock Options and the Investor Warrants, and (b) conversion of the Shares, the maximum number of shares of capital stock that may be issuable or deliverable upon such exercise or conversion, as the case may be (the "Exercisable Shares"). The Exercisable Shares shall, when issued or delivered and paid for in accordance with such options, warrants, the Stock Options, the Investor Warrants or the Certificate of Amendment with respect to the Shares, as the case may be, be duly and validly issued and fully paid and non-assessable. The Company shall issue such capital stock in accordance with the provisions of such options, warrants, the Stock Options, the Investor Warrants or the Certificate of Amendment with respect to the Shares, as the case may be, and shall otherwise comply, in each case, with the terms thereof. ARTICLE 9 MISCELLANEOUS ------------- 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made herein shall survive the execution and delivery of this Agreement, any investigation by or on behalf of either Purchaser, acceptance of the Shares and payment therefor, or termination of this Agreement until the date that is 12 months after the final Additional Closing Date, except for the representations and warranties set forth in the Acquisition Documents which are incorporated herein pursuant to Section 5.33, which shall terminate one year from the closing of the acquisition effected pursuant to each such Acquisition Document and except for representations and warranties set forth in Sections 5.9, 5.11, 5.13, 5.16, 5.19 and 5.20 and all matters constituting fraud, or -47- 53 intentional or willful misconduct, which shall survive until the expiration of the applicable statute of limitation periods (including extensions or waivers thereof). If notification of a breach of any representation or warranty is given on or before the applicable survival period, any claim with respect to such breach shall survive until finally resolved by agreement of the parties or nonappealable court order. 9.2 NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: (a) if to Waller-Sutton: Waller-Sutton Media Partners, L.P. c/o Waller-Sutton Management Group, Inc. 1 Rockefeller Plaza, Suite 3300 New York, New York 10020 Telecopier No.: (212)218-4355 Attention: Cathy M. Brienza with a copy to: Rubin Baum Levin Constant & Friedman 30 Rockefeller Plaza, 29th Floor New York, New York 10112 Telecopier No.: (212) 698-7825 Attention: Ronald Greenberg, Esq. -48- 54 (b) If to the Company: Regent Communications, Inc. 50 E. RiverCenter Blvd., Suite 180 Covington, KY 41011 Telecopier: 606-292-0351 Attention: Terry S. Jacobs with a copy to: Strauss & Troy 2100 PNC Center 201 East Fifth Street Cincinnati, Ohio 45202-4186 Telecopier: 513-241-8259 Attention: Alan C. Rosser, Esq. (c) If to any Purchaser other than Waller-Sutton, to such Purchaser at its address as it appears on the books and records of the Company or such other address as to which such Purchaser shall have notified the Company in accordance with the provisions of this Section 9.2. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied. 9.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Subject to applicable securities laws and FCC limitations, each Purchaser may assign any of its rights under any of the Transaction Documents to any Person, and, also subject to the terms of the Stockholders' Agreement, any holder of any of the Shares or any of the Common Stock issuable upon conversion of the Series F Preferred Stock may assign any such securities to any Person. The Company may not assign any of its rights under this Agreement without the prior written consent of Waller-Sutton. Except as provided in Article 7, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of any of the Transaction Documents. 9.4 AMENDMENT AND WAIVER. (a) No failure or delay on the part of any of the parties hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and -49- 55 are not exclusive of any remedies that may be available to the parties hereto at law, in equity or otherwise. (b) Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by any party from the terms of any provision of this Agreement, shall be effective (i) only if it is made or given in writing and signed by all of the parties hereto, and (ii) only in the specific instance and for the specific purpose for which made or given; provided, however, that any amendment, supplement or modification of or to any provision of Article 8 hereof, and any consent to any departure by any party from the terms of any provision of Article 8 hereof, shall be effective if it is made or given in writing and signed by the Purchasers holding a majority of the issued and outstanding shares of Series F Preferred Stock (provided that such majority shall include Waller-Sutton), and provided further, however, that amendments and waivers to the provisions of Article 3 effected or given at any time following the Initial Closing shall be binding on all Purchasers if agreed to in writing by the Company and Waller-Sutton. Except where notice is specifically required by this Agreement, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. 9.5 SIGNATURES AND COUNTERPARTS. Telefacsimile transmissions of any executed original document and/or retransmission of any executed telefacsimile transmission shall be deemed to be the same as the delivery of an executed original. At the request of any party hereto, the other parties hereto shall confirm telefacsimile transmissions by executing duplicate original documents and delivering the same to the requesting party or parties. 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. 9.6 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE. 9.8 JURISDICTION. EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT THE ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SHARES OR ANY AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM THAT THE SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY -50- 56 HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 9.2, SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING. 9.9 SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 9.10 RULES OF CONSTRUCTION. Unless the context otherwise requires, "or" is not exclusive, and references to sections or subsections refer to sections or subsections of this Agreement. 9.11 ENTIRE AGREEMENT. This Agreement, together with the exhibits and schedules hereto and the other Transaction Documents, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement, together with the exhibits and schedules hereto and the other Transaction Documents, supersede all prior agreements and understandings between the parties with respect to such subject matter. 9.12 CERTAIN EXPENSES. The Company agrees to pay all reasonable expenses of Waller-Sutton (including reasonable fees, charges and disbursements of its counsel) incurred in connection with (i) any amendment, supplement, modification or waiver of or to any provision of this Agreement (including, without limitation, a response to a request by the Company for such Purchasers' consent to any action otherwise prohibited hereunder), the Certificate of Amendment, or consent to any departure by the Company from, the terms of any provision of this Agreement or the Certificate of Amendment; and (ii) any matters on behalf of the Purchasers arising hereunder or under the Transaction Documents, including without limitation the reasonable out-of-pocket expenses of the Purchasers incurred to monitor or confirm the Company's performance of or compliance with all agreements and covenants on its part to be performed or complied with by the Company hereunder or thereunder. 9.13 PUBLICITY. Except as may be required by applicable law, none of the parties hereto shall issue a publicity release or announcement or otherwise make any public disclosure concerning this Agreement or the transactions contemplated hereby, without prior approval by the other party hereto. If any announcement is required by law to be made by any party hereto, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties an opportunity to comment thereon. -51- 57 9.14 FURTHER ASSURANCES. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations, or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement. 9.15 OBLIGATIONS OF THE PARTIES. Each Purchaser's obligations and the obligations of the Company hereunder are subject to the execution and delivery by the other Purchasers of this Agreement. The obligations of each Purchaser hereunder and under the other Transaction Documents to which such Purchaser is a party shall be several and not joint, and no Purchaser shall be liable or otherwise responsible for the acts or omissions of any other Purchaser. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -52- 58 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written. REGENT COMMUNICATIONS, INC. By:__________________________________________________ Name: Title: WALLER-SUTTON MEDIA PARTNERS, L.P. By: WALLER-SUTTON MEDIA, L.L.C., its General Partner By:__________________________________________________ Member WPG CORPORATE DEVELOPMENT ASSOCIATES V, L.P. By:__________________________________________________ Name: Title: WPG CORPORATE DEVELOPMENT ASSOCIATES V (OVERSEAS), L.P. By:__________________________________________________ Name: Title: -53- 59 GENERAL ELECTRIC CAPITAL CORPORATION By:__________________________________________________ Name: Title: RIVER CITIES CAPITAL AND LIMITED PARTNERSHIP By:__________________________________________________ Name: Title: -------------------------------------------------- WILLIAM H. INGRAM -54- EX-4.E 5 EXHIBIT 4(E) 1 Exhibit 4(e) REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of June 15, 1998, by and among REGENT COMMUNICATIONS, INC. ("Regent"), PNC BANK, N.A., a national banking association, as Trustee ("PNC"), WALLER-SUTTON MEDIA PARTNERS, L.P. ("Waller-Sutton"), WILLIAM H. INGRAM ("Ingram"), WPG CORPORATE DEVELOPMENT ASSOCIATES V, L.P., a Delaware limited partnership, and WPG CORPORATE DEVELOPMENT ASSOCIATES V (OVERSEAS), L.P., a Delaware limited partnership (collectively, "WP&G"), BMO FINANCIAL, INC. ("BMO"), WILLIAM L. STAKELIN ("Stakelin"), TERRY S. JACOBS ("Jacobs"), RIVER CITIES CAPITAL FUND LIMITED PARTNERSHIP ("River Cities"), GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), MIAMI VALLEY VENTURE FUND L.P. ("Miami Valley"), BLUE CHIP CAPITAL FUND II LIMITED PARTNERSHIP ("Blue Chip") and THOMAS P. GAMMON ("Gammon") (PNC, Waller-Sutton, WP&G, BMO, Stakelin, Jacobs, River Cities, GE Capital, Miami Valley, Blue Chip and Gammon are collectively referred to herein as the "Stockholders" and each individually as a "Stockholder"). Capitalized terms used herein and not otherwise defined are defined in Section 9 hereof. W I T N E S S E T H: - - - - - - - - - - WHEREAS, each of the Stockholders owns shares of preferred stock of Regent which are convertible into shares of the common stock of Regent (the "Common Stock") and/or warrants to purchase shares of Common Stock; WHEREAS, Regent and the Series F Purchasers are parties to that certain Stock Purchase Agreement dated as of June 15, 1998 (the "Series F Stock Purchase Agreement"); and WHEREAS, the Series F Stock Purchase Agreement requires that Regent enter into this Agreement with the Stockholders to provide for the grant of certain registration rights to the Stockholders, it being intended that this Agreement shall supercede and replace the provisions of any agreement entered into prior to the date hereof between Regent and any Stockholder relating to the grant or exercise of registration rights. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. SECURITIES SUBJECT TO THIS AGREEMENT. The securities entitled to the benefits of this Agreement are the Registrable Securities. 2 2. DEMAND REGISTRATIONS. (a) At any time, Waller-Sutton and, after July 1, 2000, the holders of at least 10% of the outstanding Common Stock (computed on an "as-converted" and fully-diluted basis) shall have the right to request that Regent register all or part of its Registrable Securities under the Securities Act of 1933, as amended (the "Securities Act"). Such request (each, a "Request") shall be in writing and specify the number of Registrable Securities to be registered and the intended method of distribution thereof. Regent shall only be obligated to effect two registrations of Registrable Securities pursuant to a Request made by Waller-Sutton under this Section and only one registration pursuant to a Request made by any parties other than Waller-Sutton under this Section. Promptly after receipt of a Request, Regent will give written notice of such requested registration to all other Stockholders (the "Notice of Request"), and thereupon Regentwill, as expeditiously as possible, use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities that Regent has been so requested to register by Waller-Sutton; and (ii) all other Registrable Securities that Regent has been requested to register by any other Stockholder by written request given to Regent within fifteen (15) days after the giving of the Notice of Request; PROVIDED, that Regent may postpone for not more than 60 calendar days the filing or effectiveness of a registration statement under this Section 2 if the Board of Directors of Regent determines that such registration could reasonably be expected to have a material adverse effect on any proposal or plan by Regent to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer of similar transaction then under consideration, any public or private sale of equity securities which Regent reasonably expects to consummate within the next 60 days, or any registration statement which has been filed by Regent, or which Regent has a bona fide intention of filing within the next 30 days, with respect to any class of equity securities of Regent. (b) Waller-Sutton will be entitled, at any time prior to the requested registration being declared effective by the SEC, to withdraw a Request, and if such Request is withdrawn the registration of Registrable Securities which is to be effected as a result of such Request shall be terminated and abandoned. (c) If Regent proposes to effect a registration requested pursuant to Section 2(a) by the filing of a registration statement on Form S-3 (or any similar short-form registration statement), Regent will comply with any request by the Managing Underwriter (as defined below) to effect such registration on another permitted form if such Managing Underwriter advises Regent that, in its opinion, the use of another form of registration statement is of material importance to such proposed offering. - 2 - 3 (d) A registration requested pursuant to Section 2 will not be deemed to have been effected unless it has been declared effective by the SEC; PROVIDED, that if after it has become effective, the offering of Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected. (e) Regent will pay all Registration Expenses in connection with each of the registrations of Registrable Securities requested to be effected by it pursuant to this Section 2. (f) Waller-Sutton shall have the right, with the approval of Regent (which approval will not be unreasonably withheld), to select the investment banker (or investment bankers) that shall manage the offering of Registrable Securities pursuant to the requested registration (collectively, the "Managing Underwriter"). Waller-Sutton shall also have the right to request that any registration effected under this Section 2 constitute a "shelf registration" pursuant to Rule 415 under the Securities Act which will permit stockholders to sell their Registrable Securities from time to time while such registration remains effective. (g) In addition to the right to request registration pursuant to Section 2(a), if Regent is eligible to register securities with the SEC on behalf of selling Stockholders on Form S-3, or a similar "short form" registration statement, then Waller-Sutton or, after July 1, 2000, the holders of at least 10% of the outstanding Common Stock (computed on an "as-converted" and fully-diluted basis), will be entitled to request an unlimited number of such "short form" registrations for which Regent will pay all Registration Expenses. All Stockholders shall be entitled to participate in such "short form" registrations in the same manner as provided in Section 2(a). Registrations made pursuant to this Section 2 shall be made using "short form" registration statements whenever Regent is permitted to use such applicable form and Waller- Sutton requests or consents to the use of such form. (h) In connection with any offering pursuant to this Section 2, the only shares that may be included in such offering are Registrable Securities. (i) If in connection with any registration pursuant to this Section 2, the Managing Underwriter shall advise Regent that, in its judgment, the number of shares proposed to be included in such offering is such as to materially and adversely affect the success of the offering, then Regent will promptly so advise each Stockholder who has requested registration, and the Registrable Securities requested to be registered by the Stockholders (including Waller-Sutton) shall be reduced pro rata, based on the respective number of Registrable Securities as to which registration has been so requested by such persons, until the number of shares to be included in such offering has been reduced to a level acceptable to the Managing Underwriter; PROVIDED, that, the registration of any of the Registrable Securities of Waller-Sutton shall only count as an effected registration pursuant to Section 2(a) if Waller-Sutton is able to register and sell all of the Registrable Securities requested by it to be included in such registration. - 3 - 4 -4- 5 3. PIGGYBACK REGISTRATIONS. (a) If Regent at any time proposes to register any of its equity securities under the Securities Act (other than a registration on Form S-4 or S-8 or any successor forms thereto), whether or not for sale for its own account, on a form and in a manner that would permit registration of Registrable Securities for sale to the public under the Securities Act, it will give at least 45 days' advance written notice to all Stockholders of its intention to do so, describing such securities and specifying the form and manner and the other relevant facts involved in such proposed registration (including, without limitation, (x) whether or not such registration will be in connection with an underwritten offering of Registrable Securities and, if so, the identity of the Managing Underwriter and whether such offering will be pursuant to a "best efforts" or "firm commitment" underwriting and (y) the price (net of any underwriting commissions, discounts and the like) at which the Registrable Securities are reasonably expected to be sold). Upon the written request of any Stockholder delivered to Regent within 20 days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Stockholder and the intended method of disposition thereof), Regent will use best efforts to effect the registration under the Securities Act of all of the Registrable Securities that Regent has been so requested to register; PROVIDED, HOWEVER, that: (i) If, at any time after giving such written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, Regent shall determine for any reason not to register such securities, Regent may, at its election, give written notice of such determination to each Stockholder who made a request as hereinabove provided and thereupon Regent shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of Waller-Sutton or other Stockholders to request that such registration be effected as a registration under Section 2. (ii) If such registration involves an underwritten offering, all Stockholders requesting to be included in Regent's registration must sell their Registrable Securities to the underwriters selected by Regent on the same terms and conditions as apply to Regent except that if the terms hereof and of the terms of the agreement with the underwriters conflict, then the terms hereof shall control. No registration effected under this Section 3 shall relieve Regent of its obligation to effect registration upon request under Section 2. (b) Regent shall not be obligated to effect any registration of Registrable Securities under this Section 3 incidental to the registration of any of its securities solely in connection with mergers, acquisitions, exchange offers, dividend reinvestment plans or stock option or other employee benefit plans. -5- 6 (c) If Regent registers any of its equity securities, it shall use a form that would permit Stockholders to exercise their rights set forth in this Section 3 unless (i) the failure to use another form would create a material disadvantage to Regent or (ii) the transaction contemplated by Regent is a transaction for which Form S-4, Form S-8 or any such successor form is specifically applicable. (d) The Registration Expenses incurred in connection with each registration of Registrable Securities requested pursuant to this Section 3 (including, without limitation, each registration canceled pursuant to Section 3(a)(i) above), shall be paid by Regent. (e) If a registration pursuant to this Section 3 involves an underwritten offering and the Managing Underwriter advises Regent that, in its opinion, the number of securities proposed to be included in such registration, when added to the number of securities desired to be offered by Regent, is such as to materially and adversely affect the success of such offering, then Regent will include in such registration the number of Registrable Securities requested by the Stockholders to be included in such registration that, when added to the number of securities desired to be offered by Regent, in the opinion of such Managing Underwriter can be sold, such amount to be allocated among all such Stockholders pro rata on the basis of the respective number of Registrable Securities each such Stockholder has requested to be included in such registration; provided, however, that no other securities (other than securities being sold by Regent and Registrable Securities) shall be included in such offering unless and until all Registrable Securities have been included. (f) In connection with any underwritten offering with respect to which Stockholders shall have requested registration pursuant to this Section 3, Regent shall have the right to select the Managing Underwriter with respect to the offering. 4. REGISTRATION PROCEDURES. (a) If and whenever Regent is required to effect the registration of any Registrable Securities under the Securities Act as provided in this Agreement, Regent will, as expeditiously as possible: (i) Prepare and, in any event within 60 days after the end of the period within which requests for registration may be given to Regent, file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective (except as otherwise provided in Sections 5 and 6 below); provided, that before filing a registration statement or prospectus or any amendments or supplements thereto, Regent will furnish to the counsel selected by Waller-Sutton or, if Waller-Sutton has not requested that any of its Registrable Securities be included, the Stockholders owning a majority of the number of shares of the Registrable Securities to be included in such registration, copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel (and Regent shall not file any document to which such counsel reasonably object). -6- 7 (ii) Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective during all periods (except as otherwise provided in Sections 5 and 6 below) and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until (x) in the event that the registration statement is filed on Form S-1, or similar long-form registration statement, for a period of three months from the date of its effectiveness, or (y) in the event the registration statement is filed on Form S-3 or similar short-form, or "evergreen" registration statement and constitute a "shelf registration statement" pursuant to Rule 415 under the Act, for such time until all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement, until all of the Registrable Securities covered thereby cease to be Registrable Securities, or for such shorter period of time as to which Waller-Sutton shall consent. (iii) Furnish to each Stockholder to be included in such registration, without charge, (A) a copy of the order of the SEC declaring such registration statement and any post-effective amendment thereto effective, (B) such reasonable number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including any documents incorporated therein by reference and all exhibits), (C) such reasonable number of copies of the prospectus included in such registration statement (including such preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, and (D) such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Stockholder. (iv) Use its best efforts to register or qualify such Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as Waller-Sutton shall reasonably request, keep each such registration or qualification (or exemption therefrom) effective for the period required pursuant to Section 4(a)(ii) above, and do any and all other acts and things that may be reasonably necessary or advisable to enable such Stockholder to consummate the disposition of the Registrable Securities owned by such Stockholder, in such jurisdictions within such time periods, except that Regent shall not for any such purpose be required (A) to qualify to do business as a foreign corporation in any jurisdiction where it is not then so qualified, or (B) to take any action that would subject it to general or unlimited service of process in any such jurisdiction where it is not then so subject, unless the Managing Underwriter shall otherwise request. (v) Use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Stockholder or Stockholders to consummate the disposition of such Registrable Securities and keep each such registration or approval effective for the period required pursuant to Section 4(a)(ii) above. -7- 8 (vi) Immediately notify each Stockholder holding Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of any event the happening of which results in the prospectus included in such registration statement including an untrue statement of a material fact or omitting to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and, at the request of any such Stockholder, prepare and deliver a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (vii) Otherwise comply with all applicable rules and regulations of the SEC and make generally available to the Stockholders, in each case as soon as practicable, but not later than 45 calendar days after the close of the fiscal period covered thereby (90 calendar days in case the fiscal period covered corresponds to a fiscal year of Regent), an earnings statement of Regent which will satisfy the provisions of Section 11(a) of the Securities Act. (viii) Use its best efforts in cooperation with the underwriters to list such Registrable Securities on each securities exchange on which equity securities of Regent are listed or as the underwriters may reasonably designate. (ix) Provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement. (x) Make available for inspection by any Stockholder, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of Regent and its subsidiaries, and cause Regent's officers, directors, employees and independent accountants to supply all information reasonably requested by any such Stockholder, underwriter, attorney, accountant or agent in connection with such registration statement, and cause Regent's officers, directors, employees and agents to meet with prospective purchasers of the Registrable Securities offered for sale pursuant to such registration statement and otherwise generally participate in a "road show" customary for offerings of the type contemplated by the registration statement. (xi) Permit any Stockholder which, in its reasonable judgment, might be deemed to be an underwriter or a controlling person of Regent, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to Regent in writing, that in the reasonable judgment of such holder and its counsel should be included. -8- 9 (xii) Use its best efforts to prevent the issuance of any stop order suspending the effectiveness of such registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification (or exemption from qualification) of any equity securities included in such registration statement for sale in any jurisdiction, and, if such order is issued, use its best efforts to obtain the withdrawal of such order at the earliest possible moment. (xiii) In the event the offering is an underwritten offering, use its best efforts to obtain a "comfort" letter from the independent public accountants for Regent in customary form and covering such matters of the type customarily covered by such letters. (xiv) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings and is otherwise acceptable to Waller- Sutton) and take all such other actions in connection therewith (including those reasonably requested by Waller-Sutton, or in the event Waller-Sutton has not requested that its Registrable Securities be included, the Stockholders owning a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such securities and in such connection, whether or not the registration is an underwritten registration, (a) make such representations and warranties to the Stockholders in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm or supplement the same if and when requested; and (b) deliver such documents and certificates as may be requested by Waller-Sutton, or in the event Waller-Sutton has not requested that its Registrable Securities be included, the Stockholders owning a majority of the Registrable Securities being sold, to evidence the continued validity of the representations and warranties of Regent and its subsidiaries made pursuant to clause (a) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by Regent. (xv) Furnish to each Stockholder a signed counterpart, addressed to the Stockholders, of (A) an opinion of counsel for Regent, in form and substance customarily given in underwritten public offerings, or as otherwise reasonably acceptable to Waller-Sutton, dated the effective date of the registration statement, and (B) subject to the accountants obtaining the necessary representations as specified in Statement on Auditing Standards No. 72, a "comfort" letter signed by the independent public accountants who have certified Regent's financial statements included in the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to changes subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities. -9- 10 (xvi) On or before the effective date of a shelf registration (A) provide a CUSIP number for each such security and (B) provide the transfer agent with printed certificates for the Registrable Securities, which are in a form eligible for deposit with DTC. If any such registration or comparable statement refers to any holder by name or otherwise as the Stockholder of any securities of Regent and if in its sole and exclusive judgment, such Stockholder is or might be deemed to be a controlling person of Regent, such Stockholder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Stockholder and presented to Regent in writing, to the effect that the holding by such Stockholder of such securities is not to be construed as a recommendation by such Stockholder of the investment quality of Regent's securities covered thereby and that such holding does not imply that such Stockholder will assist in meeting any future financial requirements of Regent, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such Stockholder; provided that with respect to this clause (ii) such Stockholder shall furnish to Regent an opinion of counsel to such effect, which opinion and counsel shall be reasonably satisfactory to Regent. (xvii) Use its best efforts to cause such Registrable Securities to be listed on a securities exchange or market or trading system. (b) Each Stockholder will, upon receipt of any notice from Regent of the happening of any event of the kind described in Section 4(a)(vi), forthwith discontinue disposition of the Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Stockholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4(a)(vi). (c) If a registration pursuant to Sections 2 or 3 involves an underwritten offering, Regent agrees, if so required by the Managing Underwriter, not to effect any Public Sale of any of its equity or debt securities, or securities convertible into or exchangeable or exercisable for any of such equity or debt securities, during a period commencing 15 days before and ending 90 calendar days after the effective date of such registration, except for such underwritten offering or except in connection with a stock option plan, stock purchase plan, savings or similar plan, or an acquisition, merger or exchange offer. (d) If a registration pursuant to Sections 2 or 3 involves an underwritten offering, any Stockholder requesting to be included in such registration may elect, in writing, prior to the effective date of the registration statement filed in connection with such registration, not to register such securities in connection with such registration, unless such Stockholder has agreed with Regent or the Managing Underwriter to limit its rights under this Section 4. (e) It is understood that in any underwritten offering in addition to any Stock (the "initial shares") the underwriters have committed to purchase, the underwriting agreement may grant the underwriters an option to purchase up to a number of additional shares of authorized but unissued -10- 11 shares of Stock (the "Option Shares") equal to 15% of the initial shares (or such other maximum amount as the NASD may then permit), solely to cover over-allotments. Shares of Stock proposed to be sold by Regent and the Stockholders shall be allocated between initial shares and Option Shares as agreed or, in the absence of agreement, pursuant to Sections 2(i) or 3(e), as the case may be. The number of initial shares and Option Shares to be sold by requesting Stockholders shall be allocated pro rata among all such Stockholders on the basis of the relative number of shares of Registrable Securities included in such registration for each such Stockholder subject to any reduction in the number of shares to be sold pursuant to the terms of this Agreement. (f) In the case of Registrable Securities held by a Stockholder and included in any registration statement filed hereunder which include shares of Common Stock issuable upon the conversion of convertible preferred stock or the exercise of options or warrants, the Stockholder holding such convertible preferred stock or options or warrants hereby agrees to convert such stock to, or exercise such options or warrants for, shares of Common Stock concurrently with and conditional upon the registration statement being declared effective by the SEC, it being understood that, unless otherwise requested by Waller-Sutton, such registration statement shall only register the sale of shares of Common Stock. In addition, the purchase price of Registrable Securities underlying any warrant to be exercised may be paid by a promissory note that shall be payable out of the proceeds of the sale of the Registrable Securities so registered. 5. BLACKOUT PERIOD. Regent shall be entitled to elect that any registration statement filed hereunder not be useable, for a reasonable period of time, but not in excess of 20 consecutive days, which period may be extended to 60 consecutive days with the consent of Waller-Sutton (each a "Blackout Period"), if Regent determines in good faith that the registration and distribution of Registrable Securities (or the use of such registration statement or related prospectus) would materially interfere with any pending financing, acquisition, corporate reorganization or any other significant corporate development involving Regent (other than a corporate development described in Section 6) or would require premature disclosure thereof and promptly gives the holders of record of Registrable Securities written notice of such determination, containing a general statement of the reasons for such postponement or restriction on use and an approximation of the length of the anticipated delay; PROVIDED, HOWEVER, that the aggregate number of days included in all Blackout Periods during any consecutive 12 month period shall not exceed an aggregate of (x) 135 days minus (y) the number of days the holders of Registrable Securities are required to refrain from effective public sales or distributions of Registrable Securities pursuant to Section 6 during such period; and PROVIDED, FURTHER, that Regent shall not be entitled to initiate a Blackout Period unless it shall concurrently forbid purchases or sales of Regent stock in the open market by all of the directors and senior executives of Regent. Regent shall give written notice to each Stockholder of record of Registrable Securities of the commencement and the termination of any Blackout Period. The Blackout Period shall begin and end when the applicable notice is given (unless it shall earlier terminate pursuant to the terms hereof). 6. HOLDBACK AGREEMENT. If (i) Regent shall file a registration statement for its own account (other than in connection with the registration of securities issuable pursuant to an employee -11- 12 stock option, stock purchase or similar plan or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act) with respect to Common Stock and (ii) with reasonable prior notice, Regent (in the case of a non-underwritten offering pursuant to such registration statement) advises the Stockholders in writing that a public sale or distribution of Registrable Securities would materially adversely affect such offering or the managing underwriter or underwriters (in the case of an underwritten offering pursuant to such registration statement) advises Regent in writing (in which case Regent shall notify the Stockholders in writing) that a public sale or distribution of Registrable Securities would materially adversely impact such offering, then each holder of Registrable Securities shall, to the extent not inconsistent with applicable law, refrain from effecting any public sale or distribution of Registrable Securities (excluding sales pursuant to Rule 144 under the Securities Act) during the 5-day period prior to, and during the 40- day period beginning on, the effective date of such registration statement; PROVIDED, HOWEVER, that the aggregate number of days the Stockholders are required to refrain from offering any public sale or distribution of Registrable Securities pursuant to Sections 5 and 6 during any consecutive 12 month period shall not exceed an aggregate of (x) 135 days minus (y) the number of days included in all Blackout Periods during such period. 7. INDEMNIFICATION. (a) In the event of any registration of any securities of Regent under the Securities Act pursuant to Sections 2 or 3, Regent will, and it hereby agrees to, indemnify and hold harmless, to the extent permitted by law, each Stockholder owning any Registrable Securities covered by such registration statement, its directors and officers, employees or agents, each other person who participates as an underwriter in the offering or sale of such securities and each other person, if any, who controls such Stockholder or any such underwriter within the meaning of the Securities Act (each, an "Indemnitee"), as follows: (i) against any and all loss, liability, claim, damage or expense whatsoever including, without limitation, expenses contemplated by subparagraph (iii) below (collectively, "Losses") arising out of or based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement (or any amendment or supplement thereto), including all documents incorporated therein by reference, or other document related to compliance, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein not misleading or any violation (or alleged violation) of the Securities Act or other securities laws in connection with any such registration or compliance; (ii) against any and all Losses to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or -12- 13 omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of Regent; and (iii) against any and all expenses reasonably incurred by them in connection with investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; PROVIDED, HOWEVER, that this indemnity does not apply to any Loss incurred by an Indemnitee, to the extent arising out of an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to Regent by or on behalf of any such Indemnitee expressly for use in the preparation of any registration statement (or any amendment thereto) or any preliminary prospectus or prospectus (or any amendment or supplement thereto); and PROVIDED, FURTHER, that Regent will not be liable to any person who participates as an underwriter in the offering or sale of Registrable Securities or any other person, if any, who controls such underwriter within the meaning of the Securities Act, under the indemnity agreement in this Section 7(a) with respect to any preliminary prospectus or final prospectus or final prospectus as amended or supplemented, as the case may be, to the extent that any such Loss of such underwriter or controlling person results from the fact that such underwriter offered or sold Registrable Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final prospectus or of the final prospectus as then amended or supplemented, whichever is most recent, if Regent has previously furnished copies thereof to such underwriter. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnitee and shall survive the transfer of such securities by such Indemnitee. (b) Regent may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Sections 2 or 3, that Regent shall have received an undertaking reasonably satisfactory to it from the Stockholder proposing to include such Registrable Securities or any underwriter, to indemnify and hold harmless against all Losses (in the same manner and to the same extent as set forth in Section 7(a)), Regent with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to Regent by or on behalf of such Stockholder or underwriter specifically stating that it is for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of Regent or any such director, officer or controlling person and shall survive the transfer of such securities by such Stockholder. In that event, the obligations of Regent and such Stockholders pursuant to this Section 7 are to be several and not joint; provided, however, that with respect to each claim pursuant to this Section, Regent shall be liable for the full amount of such claim, and each such Stockholder's liability under this Section 7 shall be limited to an amount equal to the net proceeds (after deducting the -13- 14 underwriting discount and expenses) received by such Stockholder from the sale of Registrable Securities held by such Stockholder pursuant to this Agreement. (c) Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding involving a claim referred to in this Section 7, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to such indemnifying party of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 7, except to the extent (but only to the extent) that a court of competent jurisdiction determines (which determination is not subject to appeal) that the indemnifying party has been materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim (in which case the indemnifying party shall not be liable for the fees and expenses of more than one firm of counsel in addition to appropriate local counsel chosen by Waller-Sutton (or, if it is not an indemnified party, by a majority (by number of shares) of the sellers of Registrable Securities), or more than one firm of counsel for the underwriters in connection with any one action or separate but similar or related actions), the indemnifying party will be entitled by giving written notice of its intention to do so within 20 days of the date it receives notice of such claim from the indemnified party to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless: (i) the indemnifying party agrees to pay such fees and expenses; or (ii) the indemnifying party fails promptly to assume and/or to vigorously maintain the defense of such proceeding or fails to employ counsel satisfactory to such indemnified party; or (iii) the named parties to any such proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party or an affiliate of the indemnifying party, and there may be one or more defenses available to such indemnified party that are in addition to, or in conflict with, those available to the indemnifying party or affiliate or controlling person (in which case, if such indemnified party, notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such proceeding on behalf of such indemnified party), it being understood, however, that the indemnifying party shall not, in connection with any one such proceeding or separate but substantially similar or related proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such indemnified party unless, in the reasonable judgment of an indemnified party, a conflict of interest exists between such indemnified party and any other indemnified party with respect to such proceeding, in which event the indemnifying party shall be liable for the fees and expenses of such additional counsel. -14- 15 (d) Regent and each Stockholder including Registrable Securities on a registration statement shall provide for the foregoing indemnity (with appropriate modifications) in any underwriting agreement with respect to any required registration or other qualification of securities under any federal or state law or regulation of any governmental authority. 8. CONTRIBUTION. In order to provide for just and equitable contribution in circumstances under which the indemnity contemplated by Section 7 is for any reason not available (or not sufficient to hold such indemnified party harmless), the parties required to indemnify by the terms thereof shall contribute to the aggregate Losses incurred by the indemnified party. In determining the amounts which the respective parties shall contribute, there shall be considered the relative fault of Regent on the one hand, and of the indemnified or indemnifying party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses, the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission and any other equitable considerations appropriate under the circumstances. The relative fault of Regent, on the one hand, and of the indemnified or indemnifying party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact has been taken by, or relates to information supplied by, Regent or by the indemnified or indemnifying party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission; provided, that no Stockholder including Registrable Securities on a registration statement shall be required to contribute any amount in excess of the amount such Stockholder would have been required to pay to an indemnified party if the indemnity under Section 7 were available. Regent and each such Stockholder agree with each other and the underwriters of the Registrable Securities, if requested by such underwriters, that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the underwriters were treated as one entity for such purpose) or for the underwriters' portion of such contribution to exceed the percentage that the underwriting discount bears to the initial public offering price of the Registrable Securities or any other method that does not take account of the equitable considerations referred to in this Section. For purposes of this Section 8, each person, if any, who controls an underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such underwriter, and each director and each officer of Regent who signed the registration statement, and each person, if any, who controls Regent or a seller of Registrable Securities within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as Regent or a Stockholder including Registrable Securities on a registration statement, as the case may be. 9. RULE 144. Regent covenants that it will file the reports required to be filed by it under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations adopted by the SEC thereunder, and it will take such further action as any Stockholder may reasonably request, all to the extent required from time to time to enable such Stockholder to sell shares of Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such -15- 16 Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Stockholder, Regent will deliver to such holder a written statement as to whether it has complied with such requirements. -16- 17 10. OTHER PROVISIONS REGARDING REGISTRATION RIGHTS. (a) Except as provided in this Agreement as it may be amended from time to time in accordance with the express terms hereof, neither Regent nor any of its subsidiaries will grant to any person the right to request that Regent register any equity securities of Regent, or any securities convertible or exchangeable into or exercisable for such securities. (b) Notwithstanding anything to the contrary in any previous agreement or security, Regent shall have no obligations to any Stockholder with respect to the registration of any shares of Stock, except as provided in this Agreement. (c) In the event the Registrable Securities of Waller-Sutton initially sought to be included on a Registration Statement (prior to the operation or application of any "cut-back" provisions set forth herein) do not represent more than 20% of Waller-Sutton's Registrable Securities or in the event the Registrable Securities of Waller-Sutton are not included on a registration statement filed pursuant to Sections 2 or 3 hereof, the term "Waller-Sutton," as used in Sections 2(b), 2(f), 4(a)(iv), 4(f) and 7(c) in respect of such registration statement, shall refer to the holders of a majority of the Registrable Securities being included on such registration statement. 11. DEFINITIONS. "APPLICABLE PERCENTAGE" means 2%, prior to the consummation of a Qualified Public Offering, and 4% at all times thereafter. "PUBLIC SALE" means any sale of Stock to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 adopted under the Securities Act. "QUALIFIED PUBLIC OFFERING" shall have the meaning ascribed to it in the Series F Stock Purchase Agreement. "REGISTRABLE SECURITIES" mean the following: (a) all shares of Common Stock now owned or hereafter acquired (including through the conversion of convertible preferred stock or the exercise of warrants or options) or owned of record by the Stockholders, or issuable upon the conversion of preferred stock or the exercise of warrants or options now owned or hereafter acquired by any Stockholder; and (b) any shares of capital stock issued or issuable by Regent in respect of any shares of Stock referred to in the foregoing clause (a) by way of a stock dividend or stock split or in connection with a combination or subdivision of shares, reclassification, recapitalization, merger, consolidation or other reorganization of Regent. -17- 18 As to any particular Registrable Securities that have been issued, such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of under such registration statement, (ii) such securities have been sold in an open market transaction pursuant to Rule 144, (iii) except in the case of securities held by Waller-Sutton and except in the case of securities held by Stockholders beneficially owning more than the Applicable Percentage of the outstanding Common Stock of Regent (computed on an "as-converted" and fully-diluted basis), they shall become eligible for sale to the public pursuant to Rule 144(k), or (iii) they shall have ceased to be outstanding. "REGISTRATION EXPENSES" means all fees and expenses incident to the performance of or compliance with all requirements for the registration of securities under this Agreement, including, without limitation: (a) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the National Association of Securities Dealers, Inc. ("NASD") and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities)); (b) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depositary Trust Company ("DTC") and of printing prospectuses if the printing of prospectuses is required or reasonably requested by Waller-Sutton or, if it is not a seller of Registrable Securities pursuant thereto, by the holders of a majority of the Registrable Securities to be included in any Registration Statement); (c) reasonable messenger, telephone, duplication, word processing and delivery expenses incurred by Regent in the performance of its obligations hereunder; (d) fees and disbursements of counsel for Regent; (e) fees and disbursements of all independent certified public accountants (including, without limitation, the expenses of any special audit and "comfort" letters required by or incident to such performance); (f) fees and expenses of any "qualified independent underwriter" or other independent appraiser participating in an offering pursuant to Section 3 of Schedule E to the By-laws of the NASD, but only where the need for such a "qualified independent underwriter" arises due to a relationship with Regent; (g) Securities Act liability insurance, if Regent or Waller-Sutton so desires such insurance; -18- 19 (h) fees and expenses of all other persons retained by Regent; internal expenses of Regent (including, without limitation, all salaries and expenses of officers and employees of Regent performing legal or accounting duties); and the expenses of any annual or special audit; (i) rating agency fees and the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange; and (j) the reasonable fees and disbursements (A) of not more than one counsel (in addition to appropriate local counsel), chosen by Waller-Sutton (or, if it is not a seller of Registrable Securities pursuant thereto, by the holders of a majority of the Registrable Securities to be included in any Registration Statement) and (B) for other reasonable out-of-pocket expenses of the holders of Registrable Securities incurred in connection with the registration of the Registrable Securities, including without limitation under Sections 4(a) (x) and (xi). but excluding underwriting fees and commissions incurred by the Stockholders. "SEC" means the Securities and Exchange Commission of United States of America. "SERIES F PURCHASERS" means Waller-Sutton, Ingram, WP&G, GE Capital and River Cities. "STOCK" means (i) any Common Stock or preferred stock of Regent ("Preferred Stock") purchased or otherwise acquired by any Stockholder, (ii) any equity securities issued or issuable directly or indirectly with respect to the Common Stock or Preferred Stock referred to in clause (i) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, and (iii) any other shares of any class or series of capital stock of Regent held by a Stockholder. Any determination hereunder of the percentage of outstanding Stock held by one or more holders thereof shall be performed on the basis that all Preferred Stock then outstanding is converted into Common Stock in accordance with the terms of the Preferred Stock set forth in the certificate of incorporation of Regent as in effect on the date of such determination. 12. AMENDMENT AND WAIVER. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the parties to this Agreement unless approved in writing by Waller-Sutton and Stockholders who, together with Waller Sutton, are the holders of at least 51 % of the Stock held by the Stockholders. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 13. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or -19- 20 rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 14. ENTIRE AGREEMENT; CONFLICTING AGREEMENTS. Except as otherwise expressly set forth herein, this document embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof, and this agreement supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may constitute or be deemed to constitute the grant of registration rights by Regent to any other party, including but not limited to the following: Section 12E of the Agreement of Merger, dated as of December 5, 1997, among Faircom, Regent Merger Corp. and Regent, Section 13 of the Stock Purchase Agreement, dated as of December 8, 1997, between Regent and BMO, Section 6 of the Stock Purchase Agreement, dated as of December 1, 1997, between Regent and Stakelin, Sections 9 and 6 of the Stock Purchase Agreements, dated as of May 20, 1997, and November 26, 1997, respectively, between Regent and Jacobs, Section 9 of the Stock Purchase Agreement, dated as of May 20, 1997, between Regent and River Cities and Section 13 of the Stock Purchase Agreement, dated as of December 8, 1997, between Regent and GE Capital, all of which provisions are deemed null and void and of no further force or effect. 15. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Regent and its successors and assigns and the Stockholders and any permitted subsequent holders of Registrable Securities and the respective successors and permitted assigns of each of them, so long as they hold Registrable Securities. 16. COUNTERPARTS. This Agreement may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. 17. REMEDIES. Regent and any Stockholder shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that Regent and any Stockholder may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. 18. NOTICES. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed first class mail (postage prepaid) or sent by reputable overnight courier service (charges prepaid) to Regent at the address set forth below and to any Stockholder at the address indicated on the signature pages hereto and to any subsequent holder of Stock subject to this Agreement at such address as indicated by Regent's records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the -20- 21 sending party. Notices will be deemed to have been given hereunder when delivered personally, three days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service. Regent's address is set forth below its signature hereto. 19. GOVERNING LAW. The corporate law of the State of Delaware will govern all questions concerning the relative rights of Regent and its Stockholders. All other questions concerning this Agreement shall be governed by and interpreted in accordance with the domestic laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 20. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -21- 22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. THE COMPANY: REGENT COMMUNICATIONS, INC. By: -------------------------------------------- Title: Chairman & CEO Address: 50 E. River Center Blvd. Suite #180 Covington, KY 41011 Telecopier No: (606) 292-0352 ---------------------------------------------- TERRY S. JACOBS Address: 6561 Madeira Hills Dr. Cincinnati, OH 45243 Telecopier No: ( ) - ---------------------------------------------- WILLIAM J. STAKELIN Address: 1870 Madison Road Cincinnati, Ohio 45231 Telecopier No: (513) - PNC BANK, N.A., as Trustee By: -------------------------------------------- Address: 201 East Fifth Street, Fifth Floor Cincinnati, OH 45202 Telecopier No: (513) -
-22- 23 RIVER CITIES CAPITAL FUND LIMITED PARTNERSHIP By: River Cities Management Limited Partnership, General Partner By: Mayson, Inc., General Partner By: ------------------------------------ R. Glen Mayfield, Vice President Address: 221 East Fourth Street Suite 2250 Cincinnati, Ohio 45202 Telecopier No: (513) - BMO FINANCIAL, INC. By: -------------------------------------------- Address: GENERAL ELECTRIC CAPITAL CORPORATION By: -------------------------------------------- Senior Vice President Address: 3379 Peachtree Road, N.E. Suite 600 Atlanta, GA 30326 Telecopier No: (404) -
-23- 24 WALLER-SUTTON MEDIA PARTNERS, L.P. By: Waller-Sutton Media, L.L.C., its General Partner By: --------------------------------------- Address: c/o Waller-Sutton Management Group, Inc. 1 Rockefeller Plaza, Suite 3300 New York, NY 10020 Attention: Cathy M. Brienza Telecopier No: (212) 218-4355 with a copy (which shall not constitute notice) to: Rubin Baum Levin Constant & Friedman 30 Rockefeller Plaza New York, NY 10112 Attention: Ronald Greenberg, Esq. Telecopier No: (212) 698-7825 ---------------------------------------------- WILLIAM H. INGRAM Address: c/o Waller-Sutton Management Group, Inc. 1 Rockefeller Plaza, Suite 3300 New York, NY 10020 Telecopier No: (212) 218-4355 with a copy (which shall not constitute notice) to: Rubin Baum Levin Constant & Friedman 30 Rockefeller Plaza New York, NY 10112 Attention: Ronald Greenberg, Esq. Telecopier No: (212) 698-7825
-24- 25 WPG CORPORATE DEVELOPMENT ASSOCIATES V, L.P., By: -------------------------------------------- By: -------------------------------------------- Address: One New York Plaza New York, New York 10004-1950 Telecopier No: (212) - WPG CORPORATE DEVELOPMENT ASSOCIATES V (OVERSEAS), L.P. By: -------------------------------------------- By: -------------------------------------------- Address: c/o BankAmerica Trust & Banking Corp. (Cayman) Ltd. BankAmerica House Fort Street George Town, Grand Cayman Cayman Islands Telecopier No: ( ) - BLUE CHIP CAPITAL FUND II LIMITED PARTNERSHIP By: Blue Chip Venture Company, Ltd., its general partner By: -------------------------------------------- Address: 2000 PNC Center 201 East Fifth Street Cincinnati, Ohio 45202 Attn: John H. Wyant Telecopier No: (513) 723-2306 MIAMI VALLEY VENTURE FUND L.P.
-25- 26 By: Blue Chip Venture Company of Dayton, Ltd., its special limited partner By: -------------------------------------------- John H. Wyant Manager Address: 2000 PNC Center 201 East Fifth Street Cincinnati, Ohio 45202 Attn: John H. Wyant Telecopier No: (513) 723-2306 ---------------------------------------------- THOMAS P. GAMMON Address: Telecopier No.:
-26- EX-4.F 6 EXHIBIT 4(F) 1 Exhibit 4(f) THE WARRANT REPRESENTED BY THIS CERTIFICATE AND ANY SHARES THAT MAY BE ISSUED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE CORPORATION SHALL HAVE RECEIVED EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE CORPORATION (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION). THIS WARRANT IS SUBJECT TO REPURCHASE AS PROVIDED IN AND PURSUANT TO THE TERMS OF SECTION 2.3(d) OF THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED AS OF THE DATE HEREOF, AMONG THE CORPORATION, THE HOLDER AND THE OTHER PARTIES NAMED THEREIN. REGENT COMMUNICATIONS, INC. Warrant for the Purchase of 650,000 Shares of Common Stock ---------------------------------------------------------- Dated June 15, 1998 FOR VALUE RECEIVED, REGENT COMMUNICATIONS, INC. (the "Corporation"), a Delaware corporation, hereby certifies that WALLER-SUTTON MEDIA PARTNERS, L.P., a Delaware limited partnership, or its assignee ("Holder") is entitled to purchase from the Corporation from and after the date hereof and on or before the tenth anniversary of the date hereof (the "Termination Date"), 650,000 fully paid and non-assessable shares of the common stock of the Corporation, par value $.01 per share ("Common Stock"), at a price of $5.00 per share. Hereinafter, (i) said Common Stock together with any other equity securities which may be issued by the Corporation in addition thereto or in substitution therefor, is referred to as "Common Stock," (ii) the shares of Common Stock purchasable hereunder are referred to as the "Warrant Shares," and (iii) the price payable hereunder for each of the Warrant Shares is referred to as the "Per Share Warrant Price." The Per Share Warrant Price and the aggregate number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment as hereinafter provided. 1. EXERCISE OF WARRANT. (a) Subject to the provisions of this Warrant, this Warrant may be exercised by the Holder in whole or in part (but unless this Warrant is being exercised in full, only for whole shares of Common Stock) at any time or from time to time, but not later than 5:00 p.m. Eastern Daylight Time, on the Termination Date, by presentation and surrender thereof at the principal office of the Corporation with the subscription form at the end hereof duly executed and 2 either (i) accompanied by payment of the Per Share Warrant Price for the number of shares specified in such form, with payment made in cash, or by certified check or bank cashier's check payable to the order of the Corporation, or (ii) in the manner set forth in Section 1(b) below. (b) If the Current Market Price shall be greater than the Per Share Warrant Price, then the Holder may also exercise this Warrant, in whole or in part, in a "cashless" or "net-issue" exercise by delivering to the Corporation at its address set forth and pursuant to Section 10, a written notice of such Holder's election to exercise all or a portion of this Warrant on a "cashless" basis, which notice shall specify the total number of shares of Common Stock as to which this Warrant is being exercised on a "cashless" basis (the "Aggregate Net Exercise Number"). Such notice shall also specify as to the Aggregate Net Exercise Number, the portion thereof which represents the shares of Common Stock to be delivered to such Holder and the portion thereof which represents the shares of Common Stock with respect to which the Warrant is being surrendered in payment of the aggregate exercise price for the shares of Common Stock to be delivered to the Holder. For purposes of this Section 1(b), each share of Common Stock as to which this Warrant is surrendered shall be attributed a value equal to (x) the Current Market Price per share of Common Stock as of the date of the written notice from the Holder referred to above, minus (y) the then Per Share Warrant Price. Notwithstanding anything to the contrary contained in this Warrant, if as of the Termination Date, the Per Share Warrant Price shall be less than the then Current Market Price, then this Warrant shall be deemed exercised pursuant to this Section 1(b) as of the Termination Date without further action on the part of the Holder, notwithstanding that such Holder did not deliver notice of exercise, as provided for in this Section 1. (c) As used herein the term "Current Market Price" per share of Common Stock, as of any date of determination thereof, shall be deemed to be the price determined as follows: (i) If the Common Stock is traded on a national securities exchange or is traded in the over-the-counter market, the Current Market Price per share of Common Stock shall be deemed to be the average of the daily market prices for twenty (20) trading days preceding such date. The market price for each such trading day shall be, if the Common Stock is traded on a national securities exchange or on the National Association of Securities Dealers' National Market System, the closing or final sales price for such trading day, and if the Common Stock is otherwise traded in the over-the-counter market, the average of its closing bid and asked prices on the preceding day for such trading. (ii) If the Current Market Price per share of Common Stock cannot be ascertained by the method set forth in paragraph (i) immediately above, the Current Market Price per share of Common Stock shall be deemed to be the price equal to the quotient determined by dividing the Appraised Value of the Common Stock by the number of outstanding shares of Common Stock (on a fully diluted basis including any fractional shares and assuming the exercise in full of all then-outstanding options, warrants or other rights to purchase shares of Common Stock that are then currently exercisable at exercise prices equal to or less than the Current Market Price). The -2- 3 Appraised Value of the Common Stock shall be determined by either (a) the majority decision of the Corporation's Board of Directors, including the Holder's representatives to the Board of Directors voting in favor thereof, or (b) if no such majority decision of the Board of Directors is reached, by an investment bank or other financial institution with experience in the appraisal of or investment in radio station properties in the United States (an "Appraiser") selected by the Board of Directors and reasonably acceptable to the members of the Board of Directors nominated to serve by holders of the outstanding shares of the Corporation's 10% Series F Convertible Preferred Stock, voting separately as a class, pursuant to the provisions of Article FOURTH, Paragraph I, Section 11, of the Corporation's Amended and Restated Certificate of Incorporation (the "Series F Directors"). If such Appraiser is not reasonably acceptable to the Series F Directors, then such Appraiser shall be selected by the President of the American Arbitration Association, New York City office, upon the request of any director of the Corporation. (d) If this Warrant should be exercised in part only, the Corporation shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder (or its designee designated in the Assignment Form annexed hereto) to purchase the balance of the shares purchasable hereunder. Upon receipt by the Corporation of this Warrant, in proper form for exercise, accompanied by payment of the Per Share Warrant Price for the number of shares specified in such form (or upon receipt of the election specified in Section 1(b) above), the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise (effective as of the close of business on such date), notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. 2. RESERVATION OF WARRANT SHARES. The Corporation will at all times reserve and keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of Common Stock and Other Securities (as defined below) receivable upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer and free and clear of all preemptive rights. 3. FULLY PAID STOCK; TAXES. The Corporation agrees that the shares of Common Stock represented by each and every certificate for Warrant Shares or Other Securities delivered on the exercise of this Warrant and payment of the Per Share Warrant Price shall, at the time of such delivery, be validly issued and outstanding, fully paid and non-assessable. The Corporation further covenants and agrees that it will pay, when due and payable, all federal and state stamp, original issue or similar taxes, if any, which are payable in respect of the issue of this Warrant and/or any Warrant Share or certificates therefor but excluding any federal, state or local taxes based on the income of the Holder. 4. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon exercise of this Warrant in full, the Company shall pay to the Holder (or its designee designated in the Assignment Form annexed hereto) an amount in cash equal to the fair value of such fractional -3- 4 share (determined in such manner as the Board of Directors of the Corporation shall reasonably determine). 5. ADJUSTMENTS TO THE PER SHARE WARRANT PRICE AND NUMBER OF WARRANT SHARES. (a) If after the date hereof shares of Common Stock are issued as a dividend or other distribution on Common Stock, the Per Share Warrant Price in effect at the opening of business on the business day next succeeding the date fixed for the determination of the stockholders entitled to receive such dividend or other distribution shall be decreased to the Per Share Warrant Price determined by multiplying said Per Share Warrant Price so in effect by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock issued and outstanding and the number of shares of Common Stock then issuable upon conversion of preferred stock of the Corporation issued and outstanding (the "Conversion Shares"), all at the close of business on the date fixed for such determination and the denominator of which shall be the sum of said number of shares issued and outstanding (including the Conversion Shares) at the close of business on the date fixed for such determination and the number of shares constituting such dividend or other distribution, and the aggregate number of Warrant Shares shall be increased proportionately. Such decrease to the Per Share Warrant Price and such increase to the aggregate number of Warrant Shares shall become effective immediately after the opening of business on the business day next succeeding the date fixed for such determination. (b) If after the date hereof outstanding shares of Common Stock shall be subdivided into a greater number of shares or outstanding shares shall be combined into a smaller number of shares, the Per Share Warrant Price in effect at the opening of business on the business day next succeeding the day upon which such subdivision or combination becomes effective shall be decreased or increased, as the case may be, to the Per Share Warrant Price determined by multiplying said Per Share Warrant Price so in effect by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock issued and outstanding and the number of Conversion Shares, all immediately before such subdivision or combination becomes effective and the denominator of which shall be the number of such shares outstanding (including the Conversion Shares) at the opening of business on the business day succeeding the day upon which such subdivision or combination becomes effective. In the event of a decrease to the Per Share Warrant Price, the aggregate number of Warrant Shares hereunder shall be increased proportionately, and in the event of an increase to the Per Share Warrant Price, the aggregate number of Warrant Shares hereunder shall be decreased proportionately. (c) If after the date hereof the Corporation shall distribute to all or substantially all holders of Common Stock either (i) any cash dividends (excluding ordinary cash dividends paid out of earnings and profits) or (ii) any evidences of indebtedness, assets or any other securities of the Corporation or any rights, warrants, options to subscribe for, purchase or otherwise acquire securities of the Corporation (any of which are referred to herein as "Other Securities"), then and in any such case the Corporation shall either distribute such dividends or Other Securities to the Holder of this Warrant or reserve for the benefit of the Holder of this Warrant, such amount of such dividends or Other Securities as the Holder of this Warrant would have owned or been entitled to receive -4- 5 immediately following such action had this Warrant been exercised for shares of Common Stock prior thereto. In addition, the Corporation shall either distribute to, or reserve for the benefit of, the Holder of this Warrant any principal, interest, dividends or other property payable with respect to such dividends or Other Securities as and when such interest, dividends or other property is distributed to the holders of Common Stock. If such a reserve is made, as and when this Warrant is exercised, the Holder shall be entitled to receive from the Corporation such Holder's share of such dividends or Other Securities together with the principal, interest, dividends or other property payable with respect thereto. (d) Upon any adjustment to the Per Share Warrant Price, then, and in each such case, the Corporation will promptly obtain a certificate from a firm of independent public accountants of recognized standing selected by its Board of Directors (who may be the regular auditors of the Corporation) setting forth the adjusted Per Share Warrant Price, the related adjustment to the aggregate number of Warrant Shares and a brief statement of the facts accounting for such adjustment and will cause a brief summary thereof to be mailed to the Holder of this Warrant. (e) In case of any reclassification of Common Stock of the Corporation, other than a subdivision or combination of the outstanding Common Stock, or of any consolidation or merger to which the Corporation or any subsidiary of the Corporation is a party and for which approval of shareholders of the Corporation is required, or of the sale or transfer of all or substantially all of the assets of the Corporation, or of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall cause to be mailed to the Holder of this Warrant, at least 20 days prior to the applicable date hereinafter specified, a notice stating the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. (f) If, on or prior to the Termination Date, the Corporation shall consolidate with or merge into another corporation, or another corporation shall merge into the Corporation in a merger in which shares of Common Stock are converted into a right to receive cash, property or other securities, or the Corporation shall sell or transfer all or substantially all of the assets of the Corporation, the Corporation shall take such action so that the Holder of this Warrant will thereafter receive upon the exercise hereof the securities or property to which a holder of the number of shares of Common Stock then deliverable upon the exercise of such Warrant would have been entitled to receive upon such consolidation, merger, sale or transfer if such Warrant had been exercised in full immediately prior to such transaction. (g) All calculations under this Section 5 shall be made to the nearest one-hundredth of a cent or to the nearest one thousandth of a share, as the case may be. No adjustment shall be required unless such adjustment would result in an increase or decrease of at least one percent (1%) of the Per Share Warrant Price, provided, however, that any adjustments which by reason of -5- 6 this paragraph (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (h) If at any time, as a result of an adjustment made pursuant to paragraph (c) above, the Holder shall become entitled to purchase any Other Securities, thereafter the number of such Other Securities purchasable upon exercise of this Warrant and the price of the Other Securities shall be subject to adjustment from time to time and in a manner and on terms as nearly equivalent as practicable to the provisions with respect to this Warrant contained in paragraphs (a) through (g), inclusive above. (i) Upon the expiration of any rights, options, warrants or conversion of exchange privileges which caused an adjustment to the Per Share Warrant Price to be made, if any thereof shall not have been exercised, the Per Share Warrant Price shall, upon such expiration, be readjusted as if (i) the only shares of Common Stock so issued were the shares of Common Stock actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges, if any, and (ii) any such shares of Common Stock were issued or sold for the consideration actually received by the Corporation upon such exercise plus the aggregate consideration actually received by the Corporation for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges, whether or not exercised; provided, however, that no such readjustment shall have the effect of decreasing the Per Share Warrant Price by an amount in excess of the amount of any adjustment initially made in respect to the issuance, sale or grant of such rights, options, warrant, or conversion or exchange privileges. (j) Upon any exercise of this Warrant at a time when there are dividends or distributions declared but unpaid (whether as to Common Stock or Other Securities or other property payable with respect hereto) and as to which the dividend date or other date fixed for payment has passed, then (i) to the fullest extent permitted by law, such unpaid dividends or distributions shall be paid by the Corporation contemporaneously with the exercise of this Warrant, and (ii) to the extent payment of such unpaid dividends or distributions is not legally permitted, then the Per Share Warrant Price shall be further adjusted by increasing the number of shares of Common Stock or Other Securities or property issuable upon conversion to take into account the value of such unpaid dividends or other distributions in determining the amount of Common Stock or Other Securities to be issued upon exercise of this Warrant. 6. REPURCHASE RIGHT. Until June 15, 2001, or, if earlier, until such time as the obligation to purchase Additional Shares set forth in Section 2.1 of that Stock Purchase Agreement, dated as of the date hereof, among the Corporation, the Holder and the other parties named therein (the "Purchase Agreement"), has been satisfied or terminated, this Warrant and the Warrant Shares will be subject to and may be repurchased as provided in Section 2.3 of the Purchase Agreement in the event the Holder becomes a Defaulting Purchaser (as defined in the Purchase Agreement). This Warrant and any Warrant Shares issued on exercise hereof shall bear an appropriate legend indicating that they are subject to such repurchase. At the request of the Holder, and after such time as the obligation to purchase Additional Shares has been satisfied or terminated, such legend may be -6- 7 removed and Section 2.3 of the Purchase Agreement shall no longer be of any force or effect on this Warrant or Warrant Shares. 7. LIMITED TRANSFERABILITY. (a) This Warrant and the Warrant Shares have not been registered under the Act and may be transferred only (1) subject to the provisions of Section 6, (i) pursuant to an exemption from registration under the Act and in compliance with applicable state securities laws, or (ii) to either an entity that is a direct or indirect partner of the Holder, or any entity that is a direct or indirect member of a Holder that is a limited liability company, or to an entity wholly owned by the Holder, or to an entity directly or indirectly controlling, controlled by or under common control with any such entities, (iii) pursuant to applicable laws of descent and distribution to a spouse, children, parents or siblings (or the respective executors, administrators, conservators, guardians or custodians during the minority of such persons) ("Immediate Family") or during the Holder's lifetime to such Holder's spouse, adult children or to a trust for the benefit of the Holder's Immediate Family, or (2) pursuant to or in connection with a Qualified Public Offering (as defined in the Purchase Agreement), or (3) pursuant to the exercise of registration rights granted by the Corporation, or (4) following a Qualified Public Offering, pursuant to Rule 144 of the Act. This Warrant may not be transferred if such transfer would require any registration or qualification under or cause the loss of exemption from registration or qualification under, such Act or any applicable state securities law with respect to the Warrants or the Warrant Shares. This Warrant and any Warrant Shares shall bear an appropriate legend with respect to such restrictions on transfer indicated in (1) and (2) above and with respect to the provisions of Section 6. This Warrant is transferable only upon the books which the Corporation shall cause to be maintained for such purpose. Any assignment or transfer may be made by surrendering this Warrant to the Corporation together with the attached assignment form properly executed by the assignor or transferor. Upon such surrender the Corporation will execute and deliver, in the case of an assignment or transfer in whole, a new Warrant in the name of the assignee or transferee or, in the case of an assignment or transfer in part, a new Warrant in the name of the assignee or transferee named in such instrument of assignment or transfer and a new Warrant in the name of the assignor or transferor covering the number of Warrant Shares in respect of which this Warrant shall not be assigned or transferred to the assignee or transferee. (b) The Corporation may treat the registered holder of this Warrant as it appears on its books any time as the Holder and the owner of this Warrant for all purposes. The Corporation shall permit the Holder of this Warrant or his duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the Holders of Warrants. All Warrants will be dated the same date as this Warrant. 8. LOSS, ETC. OF WARRANT. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of this Warrant, and of indemnity in form and amount reasonably satisfactory to the Corporation, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, and upon reimbursement of the Corporation's reasonable incidental expenses, the Corporation shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination. -7- 8 9. WARRANT HOLDER NOT A STOCKHOLDER. This Warrant does not confer upon the Holder any right to vote or to consent or to receive notice as a stockholder of the Corporation, as such, in respect of any matters whatsoever, or any other rights or liabilities as a stockholder, prior to the exercise hereof. 10. COMMUNICATION. No notice or other communication under this Warrant shall be effective unless, but any notice or other communication shall be effective and shall be deemed to have been given if, the same is in writing and is either sent by Federal Express or similar overnight courier of national reputation, or is mailed by first-class mail, postage prepaid, addressed to: (a) the Corporation at 50 East River Center Blvd., Suite 180, Covington, KY 41011, or such other address as the Corporation has designated in writing to the Holder, or (b) the Holder at the address shown on Schedule I hereto. 11. HEADINGS. The headings of this Warrant have been inserted as a matter of convenience, and shall not affect the construction hereof. 12. AMENDMENTS. This Warrant may be amended only by written agreement of the Corporation and the Holder. 13. APPLICABLE LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed therein. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] -8- 9 IN WITNESS THEREOF, REGENT COMMUNICATIONS, INC. has executed this Warrant as of the date set forth on the first page hereof. REGENT COMMUNICATIONS, INC. By: ------------------------------------ President -9- 10 SUBSCRIPTION ------------ The undersigned, _________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase _________________ shares of Common Stock of REGENT COMMUNICATIONS, INC. covered by said Warrant and makes payment therefor in full at the price per share provided by said Warrant. Dated: --------------- ---------------------------------------- Signature Address: -------------------------------- -------------------------- ASSIGNMENT ---------- FOR VALUE RECEIVED __________________________ hereby sells, assigns and transfers unto ________________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint ______________________________, attorney, to transfer said Warrant on the books of REGENT COMMUNICATIONS, INC., which hereby agrees to be bound by the terms of the Warrant as defined therein. Dated: --------------- ---------------------------------------- Signature Address: -------------------------------- -10- EX-4.G 7 EXHIBIT 4(G) 1 EXHIBIT 4(g) THE WARRANT REPRESENTED BY THIS CERTIFICATE AND ANY SHARES THAT MAY BE ISSUED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE CORPORATION SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE CORPORATION (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION). REGENT COMMUNICATIONS, INC. Warrant for the Purchase of 50,000 Shares of Common Stock Dated June 15, 1998 FOR VALUE RECEIVED, REGENT COMMUNICATIONS, INC. (the "Corporation"), a Delaware corporation, hereby certifies that GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, or its assignee ("Holder") is entitled to purchase from the Corporation from and after the date hereof and on or before the fifth anniversary of the date hereof (the "Termination Date"), 50,000 fully paid and non-assessable shares of the Common Stock ("Common Stock") of the Corporation at a price of $5.00 per share. Hereinafter, (i) said Common Stock, together with any other equity securities which may be issued by the Corporation in addition thereto or in substitution therefor, is referred to as "Common Stock," (ii) the shares of Common Stock purchasable hereunder are referred to as the "Warrant Shares," and (iii) the price payable hereunder for each of the Warrant Shares is referred to as the "Per Share Warrant Price." The Per Share Warrant Price is subject to adjustment as hereinafter provided. 1. Exercise of Warrant. Subject to the provisions of this Warrant, this Warrant may be exercised by the Holder in whole or in part (but unless this Warrant is being exercised in full, only for whole shares of Common Stock) at any time or from time to time, but not later than 5:00 p.m. Eastern Standard Time, on the Termination Date by presentation and surrender thereof at the principal office of the Corporation with the subscription form at the end hereof duly executed and accompanied by payment of the Per Share Warrant Price for the number of shares specified in such form. Payment shall be in cash, certified check or bank cashier's check payable to the order of the Corporation. If this Warrant should be exercised in part only, the Corporation shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder (or its designee designated in the Assignment Form annexed hereto) to purchase the balance of the shares purchasable hereunder. Upon receipt by the Corporation of this Warrant, in proper 2 form for exercise, accompanied by payment of the Per Share Warrant Price for the number of shares specified in such form, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise (effective as of the close of business on such date), notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. 2. Reservation of Warrant Shares. The Corporation will at all times reserve and keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of Common Stock and Other Securities (as defined below) receivable upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer and free and clear of all preemptive rights. 3. Fully Paid Stock; Taxes. The Corporation agrees that the shares of Common Stock represented by each and every certificate for Warrant Shares or Other Securities delivered on the exercise of this Warrant and payment of the Per Share Warrant Price shall, at the time of such delivery, be validly issued and outstanding, fully paid and non-assessable. The Corporation further covenants and agrees that it will pay, when due and payable, all federal and state stamp, original issue or similar taxes, if any, which are payable in respect of the issue of this Warrant and/or any Warrant Share or certificates therefor but excluding any federal, state or local taxes based on the income of the Holder. 4. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon exercise of this Warrant in full, the Company shall pay to the Holder (or its designee designated in the Assignment Form annexed hereto) an amount in cash equal to the fair value of such fractional share (determined in such manner as the Board of Directors of the Corporation shall reasonably determine). 5. Adjustments of Per Share Warrant Price. (a) If after the date hereof shares of Common Stock are issued as a dividend or other distribution on Common Stock, the Per Share Warrant Price in effect at the opening of business on the business day next succeeding the date fixed for the determination of the shareholders entitled to receive such dividend or other distribution shall be decreased to the Per Share Warrant Price determined by multiplying said Per Share Warrant Price so in effect by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock issued and outstanding and the number of shares of Common Stock then issuable upon conversion of Preferred Stock of Regent issued and outstanding (the "Conversion Shares"), all at the close of business on the date fixed for such determination and the denominator of which shall be the sum of said number of shares issued and outstanding (including the Conversion Shares) at the close of business on the date fixed for such determination and the number of shares constituting such dividend or other distribution, such decrease becoming effective immediately after the opening of business on the business day next succeeding the date fixed for such determination. (b) If after the date hereof outstanding shares of Common Stock shall be subdivided into a greater number of shares or outstanding shares shall be combined into a smaller number of shares, the Per Share Warrant Price in effect at the opening of business on the business day next succeeding the day upon which such subdivision or combination becomes effective shall be decreased or increased, as the case may be, to the Per Share Warrant price determined by multiplying said Per Share Warrant Price so in effect by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock issued and outstanding and the number of Conversion Shares, all immediately before such subdivision or combination becomes effective and the denominator of -2- 3 which shall be the number of such shares outstanding (including the Conversion Shares) at the opening of business on the business day succeeding the day upon which such subdivision or combination becomes effective. (c) If after the date hereof the Corporation shall distribute to all or substantially all holders of Common Stock either (i) evidences of indebtedness or assets (excluding cash dividends or distributions) or (ii) any other securities of the Corporation or any rights, warrants, options to subscribe for, purchase or otherwise acquire securities of the Corporation (any of which are referred to herein as "Other Securities"), then and in any such case the Corporation shall either distribute such Other Securities to the Holder of this Warrant or reserve for the benefit of the Holder of this Warrant, such amount of such Other Securities as the Holder of this Warrant would have owned or been entitled to receive immediately following such action had this Warrant been exercised for shares of Common Stock prior thereto. In addition, the Corporation shall either distribute to, or reserve for the benefit of, the Holder of this Warrant any principal, interest, dividends or other property payable with respect to such Other Securities as and when such interest, dividends or other property is distributed to the holders of Common Stock. If such a reserve is made, as and when this Warrant is exercised, the Holder shall be entitled to receive from the Corporation such Holder's share of such Other Securities together with the principal interest, dividends or other property payable with respect thereto. (d) Upon any adjustment of the Per Share Warrant Price, then, and in each such case, the Corporation will promptly obtain a certificate of a firm of independent public accountants of recognized standing selected by its Board of Directors (who may be the regular auditors of the Corporation) setting forth the adjusted Per Share Warrant Price and a brief statement of the facts accounting for such adjustment and will cause a brief summary thereof to be mailed to the Holder of this Warrant. (e) In case of any reclassification of Common Stock of the Corporation, other than a subdivision or combination of the outstanding Common Stock, or of any consolidation or merger to which the Corporation or any subsidiary of the Corporation is a party and for which approval of shareholders of the Corporation is required or of the sale or transfer of all or substantially all of the assets of the Corporation or of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall cause to be mailed to the Holder of this Warrant, at least 20 days prior to the applicable date hereinafter specified, a notice stating the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares for securities or other property deliverable upon such reclassification consolidation, merger, sale, transfer, dissolution, liquidation or winding up. (f) If, on or prior to the Termination Date, the Corporation shall consolidate with or merge into another corporation, or another corporation shall merge into the Corporation in a merger in which shares of Common Stock are converted into a right to receive cash, property or other securities, or the Corporation shall sell or transfer all or substantially all of the assets of the Corporation, the Corporation shall take such action so that the Holder of this Warrant will thereafter receive upon the exercise hereof the securities or property to which a holder of the number of shares of Common Stock then deliverable upon the exercise of such Warrant would have been entitled to receive upon such consolidation, merger, sale or transfer if such Warrant had been exercised in full immediately prior to such transaction. -3- 4 (g) All calculations under this Section 5 shall be made to the nearest one-hundredth of a cent or to the nearest one thousandth of a share, as the case may be. No adjustment shall be required unless such adjustment would result in an increase or decrease of at least one (1%) percent of the Per Share Warrant Price; provided, however, that any adjustments which by reason of this paragraph (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (h) If at any time, as a result of an adjustment made pursuant to paragraph (c) above, the Holder shall become entitled to purchase any Other Securities, thereafter the number of such Other Securities purchasable upon exercise of this Warrant and the price of the Other Securities shall be subject to adjustment from time to time and in a manner and on terms as nearly equivalent as practicable to the provisions with respect to this Warrant contained in paragraphs (a) through (g), inclusive above. (i) Upon the expiration of any rights, options, warrants or conversion of exchange privileges which caused an adjustment to the Per Share Warrant Price to be made, if any thereof shall not have been exercised, the Per Share Warrant Price shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (i) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges and (ii) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise plus the aggregate consideration, if any, actually received by the Corporation for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges, whether or not exercised; provided further, that no such readjustment shall have the effect of decreasing the Per Share Warrant Price by an amount in excess of the amount of the adjustment initially made in respect to the issuance, sale or grant of such rights, options, warrant, or conversion or exchange privileges. (j) Upon any exercise of this Warrant at a time when there are dividends or distributions declared but unpaid (whether as to Common Stock or Other Securities or other property payable with respect hereto) and as to which the dividend date or other date fixed for payment has passed, then, (i) to the fullest extent permitted by law, such unpaid dividends or distributions shall be paid by the Corporation contemporaneously with the exercise of this Warrant, and (ii) to the extent payment of such unpaid dividends or distributions is not legally permitted, then the Per Share Warrant Price shall be further adjusted by increasing the number of shares of Common Stock or Other Securities or property issuable upon conversion to take into account the value of such unpaid dividends or other distributions in determining the amount of Common Stock or Other Securities to be issued upon exercise of this Warrant. 6. Limited Transferability. (a) This Warrant and the Warrant Shares have not been registered under the Securities Act of 1933 and may be transferred only pursuant to an effective registration thereunder or an exemption from registration thereunder and in compliance with applicable state securities laws. This Warrant may not be transferred if such transfer would require any registration or qualification under, or cause the loss of exemption from registration or qualification under, such Act or any applicable state securities law with respect to the Warrants or the Warrant Shares. This Warrant and any Warrant Shares shall bear an appropriate legend with respect to such restrictions on transfer. This Warrant is transferable only upon the books which the -4- 5 Corporation shall cause to be maintained for such purpose. Any assignment or transfer may be made by surrendering this Warrant to the Corporation together with the attached assignment form properly executed by the assignor or transferor. Upon such surrender the Corporation will execute and deliver, in the case of an assignment or transfer in whole, a new Warrant in the name of the assignee or transferee or, in the case of an assignment or transfer in part, a new Warrant in the name of the assignee or transferee named in such instrument of assignment or transfer and a new Warrant in the name of the assignor or transferor covering the number of Warrant Shares in respect of which this Warrant shall not be assigned or transferred to the assignee or transferee. (b) The Corporation may treat the registered holder of this Warrant as it appears on its books any time as the Holder and the owner of this Warrant for all purposes. The Corporation shall permit the Holder of this Warrant or his duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the Holders of Warrants. All Warrants will be dated the same date as this Warrant. 7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of this Warrant, and of indemnity in form and amount reasonably satisfactory to the Corporation, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, and upon reimbursement of the Corporation's reasonable incidental expenses, the Corporation shall execute and deliver to the Holder new Warrant of like date, tenor and denomination. 8. Warrant Holder Not A Shareholder. This Warrant does not confer upon the Holder any right to vote or to consent or to receive notice as a shareholder of the Corporation, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof. 9. Communication. No notice or other communication under this Warrant shall be effective unless, but any notice or other communication shall be effective and shall be deemed to have been given if, the same is in writing and is mailed by first-class mail, postage prepaid, addressed to: (a) the Corporation at 50 East RiverCenter Blvd., Suite 180, Covington, KY 41011, or such other address as the Corporation has designated in writing to the Holder, or (b) the Holder at the address shown on the Corporation's books as described above. 10. Headings. The headings of this Warrant have been inserted as a matter of convenience, and shall not affect the construction hereof. 11. Amendments. This Warrant may be amended only by written agreement of the Corporation and the Holder. 12. Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed therein. -5- 6 IN WITNESS THEREOF, REGENT COMMUNICATIONS, INC. has executed this Warrant as of the date set forth on the first page hereof. REGENT COMMUNICATIONS, INC. By: /s/ -------------------------- President -6- 7 SUBSCRIPTION The undersigned, ___________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase ___________ shares of Common Stock of REGENT COMMUNICATIONS, INC. covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant. Dated: __________________ Signature: _________________________ Address: _________________________ _________________________ ASSIGNMENT FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto _______________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint ________________________________, attorney, to transfer said Warrant on the books of REGENT COMMUNICATIONS, INC. ___________________ hereby agrees to be bound by the terms of the Warrant as defined therein. -7- EX-4.H 8 EXHIBIT 4(H) 1 EXHIBIT 4(h) AGREEMENT TO ISSUE WARRANT Agreement dated as of June 15, 1998 by and between Regent Communications, Inc., a Delaware corporation ("Regent") and General Electric Capital Corporation, a New York corporation ("GE Capital"). WITNESSETH: WHEREAS, GE Capital owns 1,000,000 shares of the 7% Series B Convertible Preferred Stock of Regent; and WHEREAS, Regent contemplates the issuance of shares of a Series F Convertible Preferred Stock of Regent to Waller-Sutton Media Partners, L.P. ("Waller-Sutton") and certain other investors pursuant to the terms of a Stock Purchase Agreement of even date herewith; and WHEREAS, in order to induce GE Capital to approve the issuance of shares of a Series F Convertible Preferred Stock of Regent to Waller-Sutton and certain other investors as described in the Registration Statement on Form S-4 filed by Regent with the Securities and Exchange Commission, effective May 7, 1998, and as more specifically set forth in said Stock Purchase Agreement, Regent has agreed to issue to GE Capital, and GE Capital has agreed to accept upon issuance of such shares, warrants to purchase 50,000 shares of Regent Common Stock. NOW, THEREFORE, the parties, desiring to enter into this Agreement to establish the specific terms and conditions of the warrants, agree as follows: 1. Issuance of Warrant. Upon and concurrently with the issuance to Waller-Sutton of shares of Series F Convertible Preferred Stock of Regent pursuant to the terms of said Stock Purchase Agreement, 2 Regent shall deliver to GE Capital a warrant in the form of Exhibit A hereto to purchase 50,000 shares of Common Stock of Regent (the "Warrant"). 2. Representations and Warranties of Regent. Regent hereby represents and warrants to GE Capital as follows: (a) All corporate action on the part of Regent, its directors and stockholders necessary for the authorization, execution, delivery and performance of this Agreement by Regent; the authorization, sale, issuance and delivery of (i) the Warrant and (ii) the Warrant Shares (as defined in the Warrant), and the performance of all of Regent's obligations hereunder and thereunder has been taken. (b) This Agreement constitutes the valid and binding obligation of Regent, enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement is subject to general principles of equity regardless of whether enforcement is considered in a proceeding at law or in equity. (c) The Warrant, when issued in compliance with the provisions of this Agreement, will be validly issued, will have the rights, preferences and privileges described therein and will constitute valid and binding obligations of Regent, enforceable in accordance with its terms, subject to the matters described above. (d) The Warrant Shares have been duly and validly reserved and, when issued in compliance with the provisions of the Warrant, will be validly issued, fully paid and nonassessable. (e) The Warrant and the Warrant Shares will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed upon the holders -2- 3 thereof through no action of Regent; provided, however, that the Warrant and the Warrant Shares will be subject to restrictions on transfer under state and/or federal securities laws as set forth therein. 3. Representations and Warranties of GE Capital. GE Capital hereby represents and warrants to Regent, as of the date hereof, as follows: (a) Investment Intent. GE Capital is acquiring the Warrant for its own account, for investment and not with a view to resale, distribution, or other disposition, and GE Capital has no present plans to enter into any contract, undertaking, agreement or arrangement for any such resale, distribution or other disposition. GE Capital will not sell or otherwise transfer the Warrant without registration under the Securities Act of 1933, as amended, and applicable state securities laws, or pursuant to an exemption from the registration requirements thereof which, in the opinion of counsel acceptable to Regent, is available for the transaction. (b) Opportunity to Review Books and Records. GE Capital has had a reasonable opportunity to inspect all documents, books and records pertaining to Regent and the Warrant and confirms that the Warrant is being acquired without GE Capital's receipt of any offering literature. (c) Opportunity for Questions. GE Capital has had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of Regent concerning Regent, its business and proposed operations, the terms of the Warrant and all other aspects of investment in Regent, and all such questions have been answered to the full satisfaction of GE Capital. (d) No Conflict. The execution, delivery and performance of this Agreement by GE Capital (i) will not constitute a default under or conflict with any agreement or instrument to -3- 4 which GE Capital is a party or by which it or its assets are bound, (ii) will not conflict with or violate any order, judgment, decree, statute, ordinance or regulation applicable to GE Capital (including, without limitation, any applicable laws relating to permissible legal investments) and (iii) do not require the consent of any person or entity. (e) Authority of GE Capital. This Agreement constitutes the legal, valid and binding obligations of GE Capital, enforceable against GE Capital in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement is subject to general principles of equity regardless of whether enforcement is considered in a proceeding at law or in equity. 4. Miscellaneous. (a) Notices. Any notice, request or other document to be given hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telecopy or certified or registered mail, postage prepaid: (i) if to Regent, addressed to: Regent Communications, Inc. 50 East RiverCenter Boulevard, Suite 180 Covington, Kentucky 41011 Attn: Terry S. Jacobs, Chairman of the Board Facsimile (606) 292-0352 (ii) if to GE Capital, addressed to: General Electric Capital Corporation 3379 Peachtree Road, N.E., Suite 600 Atlanta, Georgia 30326 Attn: Regent Account Manager Facsimile (408)-842-1533 -4- 5 with a copy to: General Electric Capital Corporation 201 High Ridge Road Stanford, Connecticut 06927 Attn: Region Counsel Facsimile: (203) 316-7889 or to such other address or telecopy number as any party shall have specified by notice given to the other parties in the manner specified above. (b) Entire Agreement; Amendment. This Agreement, including the Exhibit hereto, and the other agreements, if any, expressly contemplated by this Agreement, contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior oral and written agreements, memoranda, term sheets, understandings and undertakings among the parties hereto relating to the subject matter hereof. This Agreement may be modified or amended only by a written instrument executed by or on behalf of the parties hereto. (c) Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware without regard to the application of its conflicts of laws principles. The parties hereby waive all right to trial by jury in any action, suit or proceeding brought to enforce or defend any rights or remedies under this Agreement or the transactions contemplated hereby. (d) Severability. If any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. (e) Construction. The section and subsection headings used herein are for convenience of reference only, are not a party of this Agreement and are not to affect the construction of, or be taken into consideration in interpreting, any provision of this Agreement. -5- 6 As used in this Agreement, the masculine, feminine and neuter gender each includes the other, unless the context otherwise dictates. Any and all schedules and exhibits referred to in this Agreement and attached hereto are and shall be incorporated in this Agreement as if fully set forth herein. (f) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instruments. (g) Specific Performance. The parties hereto acknowledge that damages may be an inadequate remedy for any breach of the provisions of this Agreement and agree that the obligations of the parties hereunder may be specifically enforced, and no party will take any action to impede the other from seeking to enforce such right of specific performance after any such breach. (h) Successors and Assigns; Assignability. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successor and permitted assigns. This Agreement shall not confer upon any person other than the parties hereto and their respective successors and permitted assigns any rights or remedies hereunder. (i) Further Assurances. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. -6- 7 (j) Survival. The representations and warranties of the parties contained herein shall survive execution and delivery of this Agreement and issuance and delivery of the Warrant or Warrant Shares. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered, as of the day and year first above written. REGENT COMMUNICATIONS, INC. By:/s/ ------------------------------------ Its: -------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION By:/s/ ------------------------------------ Its: -------------------------------- 7 EX-20.A 9 EXHIBIT 20(A) 1 Exhibit 20(a) FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ..........to.............. Commission file number 0-15392 FAIRCOM INC. (Exact name of registrant as specified in its charter) Delaware 87-0394057 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Glen Head Road, Old Brookville, N.Y. 11545 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 676-2644 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, $.01 Par Value Not Applicable Securities registered pursuant to Section 12(g) of the Act: NONE -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 20, 1998, the aggregate market value of the registrant's voting stock held by non-affiliates was approximately $5,294,000. The number of outstanding shares of Common Stock as of March 20, 1998 was 7,378,199. 2 PART I ITEM 1. BUSINESS The Company Faircom Inc., a Delaware corporation ("Faircom" or the "Company"), owns and operates six radio stations, WFNT(AM) and WCRZ(FM) in Flint, Michigan; WWBN(FM) in Tuscola, Michigan, a community north of Flint; WMAN(AM) and WYHT(FM) in Mansfield, Ohio, and WSWR(FM) in Shelby, Ohio adjoining Mansfield. Faircom was founded by Joel M. Fairman in April 1984 and began operations with the objective of acquiring broadcasting properties at prices considered attractive by Faircom, financing them on terms satisfactory to Faircom, managing them in accordance with Faircom's operating strategy and building a broadcasting group. Faircom has sought to acquire radio properties which have a history of growing revenues and broadcast cash flow, have capable operating management and are in communities with good growth prospects or which have attractive competitive environments. Faircom focuses its acquisition efforts on medium and smaller radio markets, particularly where there may be an opportunity to achieve a significant cluster of stations in the market or to add additional stations in surrounding communities. Faircom has not purchased, and does not foresee purchasing in the near future, properties with negative cash flows, or so-called "under-performing" or "turnaround" properties, unless they complement or can be combined with the operations of positive cash flow properties in a market or regional cluster. Faircom's strategy is to have at least $1,000,000 in broadcast cash flow and be among the top three operators in each of its markets. In June 1997, Faircom, through its wholly-owned subsidiary, Faircom Mansfield Inc. ("Faircom Mansfield"), purchased substantially all of the assets of WMAN(AM) and WYHT(FM) for total cash consideration of $7,650,000. Faircom also negotiated the refinancing of all its existing indebtedness, increased such indebtedness and obtained additional equity capital in connection with the acquisition. In January 1998, Faircom purchased substantially all of the assets and operations of radio station WSWR(FM) in Shelby, Ohio for $1,125,000 in cash. The acquisition was financed with internal funds and a loan to Faircom of $1,100,000 from Blue Chip Capital Fund II Limited. This loan is expected to be refinanced from term loans to Regent Communications Inc. ("Regent") at the closing of the pending merger of Faircom and Regent discussed below. The loan is in the form of a subordinated note, matures on the first to occur of April 1, 1999 or the closing of the merger and bears accrued interest at 14% per annum, payable at maturity. Faircom continuously reviews radio properties for possible acquisition, and several acquisitions are currently being actively pursued. No assurance can be given that Faircom will successfully consummate any of such acquisitions. 3 Faircom's executive offices are located at 333 Glen Head Road, Suite 220, Old Brookville, New York 11545 and its telephone number is (516) 676-2644. All of Faircom's properties are owned and operated through subsidiary corporations and references to the term "Faircom" or the "Company" herein include such subsidiaries unless the context requires otherwise. Pending Merger On December 5, 1997, Faircom signed an agreement to merge with Regent Communications, Inc. ("Regent"), another group radio broadcaster. Under the terms of the agreement, Faircom will merge with and into a subsidiary of Regent. The shareholders of Faircom will receive shares of Regent Series C Convertible Preferred Stock, par value $.01 per share ("Series C Preferred Stock"). The Series C Preferred Stock has full voting rights, provides for annual cumulative dividends of 7%, and is convertible on a one-for-one basis (subject to adjustment in certain events) into the common stock, $.01 par value per share, of Regent. The Series C Preferred Stock is subject to mandatory conversion under certain circumstances. In the event of a liquidation of Regent, the Series C Preferred Stock has a preference in the amount of its stated value of $5.00 per share, together with accrued and unpaid dividends. In the merger, the outstanding shares of Faircom Common Stock will be exchanged for fully paid and nonassessable shares of Series C Preferred Stock, and each outstanding Faircom option will be converted into a Regent option entitling the holder to acquire, on equivalent terms, the same number of shares of Series C Preferred Stock as the holder would have been entitled to receive in the merger if such Faircom option had been exercised in full prior to the date of the merger. The number of shares of Series C Preferred Stock to be issued in the merger and issuable pursuant to Regent options to be received in exchange for Faircom options in the merger will be based upon an aggregate liquidation preference amount of $33,162,000, adjusted by the amount of Faircom's net working capital and decreased by its senior debt and by one-half of the prepayment premium on such senior debt to be paid at the closing of the merger, all as computed as of the last day of the month immediately preceding the closing date of the merger. Faircom anticipates a closing of the merger in the second quarter of 1998. The closing of the merger is subject to the effectiveness of a registration statement and delivery of a related proxy statement to Faircom's stockholders, satisfaction of the conditions of the merger agreement and the approval of Faircom's stockholders. Operating Strategy Faircom's strategy has been to purchase radio properties that exhibit growing revenues and broadcast cash flow, and have experienced, in-place operating personnel. After acquiring a radio station, Faircom reviews the station's operations and 2 4 attempts to realize economies associated with ownership of multiple stations by centralizing such functions as accounting and other administrative activities. A minimal staff is maintained at the corporate level reflecting Faircom's strategy of minimizing corporate expenses while giving considerable autonomy to its station managers. Faircom relies on experienced station managers who are given the authority for decision making at the station level, subject to guidance by Faircom's management. Faircom's station managers are partially compensated on the basis of their ability to meet or exceed budgeted operating results. Consequently, operating personnel can benefit by meeting the revenue and expense objectives of Faircom. Each station targets specific demographic groups based upon advertiser demand, the format of the station and the competition in the market. Through program selection, promotion, advertising and the use of selected on-air personnel, each station attempts to attract a target audience that it believes is attractive to advertisers. Faircom retains consultants to assist its programming personnel by evaluating and suggesting improvements for programming. Faircom also conducts research through outside consultants to evaluate and improve its programming and also uses its own personnel for such research. The Radio Broadcasting Industry At December 31, 1997, there were 4,762 commercial AM and 5,542 commercial FM stations authorized and operating in the United States. An increasing number of persons listen to FM radio because of clearer sound characteristics and stereo transmission. In the spring of 1997, FM listenership was about 78% of total radio audience. Operations Radio station revenue is derived predominantly from local and regional advertising and to a lesser extent from national advertising. Network compensation also provides some revenue. For example, in 1997, approximately 77% of Faircom's consolidated station advertising revenues were from local and regional sales, 22% from national sales and about 1% from network or syndication compensation. Local and regional sales generally are made by a station's sales staff. National sales generally are made by "national rep" firms, specializing in radio advertising sales on the national level. These firms are compensated on a commission-only basis. Local and regional sales are made primarily to businesses in the market covered by a station's broadcast signal and to some extent to businesses in contiguous or nearby markets. Such businesses include auto dealers, soft drink, beer and wine distributors, fast food outlets and financial institutions. National sales are made to larger, nationwide advertisers, such as soft drink producers, automobile manufacturers and airlines. Most advertising contracts are short-term, generally running only for a few weeks. Advertising rates charged by a radio station are based primarily on the station's ability to attract 3 5 audiences in the demographic groups which advertisers wish to reach and on the number of stations competing in the market area. Rating service surveys quantify the number of listeners tuned to the station at various times. Rates are generally highest during morning and evening drive-time hours. Faircom's stations' advertising sales are made by their sales staffs under the direction of a general manager or sales managers. Television, billboard, newspaper and direct mail advertising, as well as special events and promotions, can be used to supplement direct contact by the sales staff in developing advertising clients. The primary costs incurred in operating a radio station are salaries, programming, promotion and advertising expenditures, occupancy costs of premises for studios and offices, transmitting and other equipment expenses and music license royalty fees. Radio broadcasting revenues are spread over the calendar year. The first quarter generally reflects the lowest and the third and fourth quarters the highest revenues for the year, due in part to increases in retail advertising in the summer and in the fall in preparation for the holiday season and, in election years, to political advertising. The radio industry is continually faced with technological changes and innovations, the possible rise in popularity of competing entertainment and communications media, changes in labor conditions, governmental restrictions and actions of federal regulatory bodies, including the FCC, any of which could have a material effect on Faircom's business. However, broadcasting stations have generally enjoyed growth in listeners and value within the past several decades. Population increases and greater availability of radios, particularly car and portable radios, have contributed to this growth. Competition The radio broadcasting industry is a highly competitive business. Faircom's radio broadcasting stations compete for audience share and revenue directly with the other AM and FM radio stations in their respective market areas, as well as with other advertising media such as newspapers, television, magazines, outdoor advertising, transit advertising and mail marketing. Competition within the radio broadcasting industry occurs primarily in the individual market areas so that a station in one market does not generally compete with stations in other market areas. In addition to management experience, factors which are material to competitive position include the station's ratings in its market, rates charged for advertising time, broadcast signal coverage, assigned frequency, audience characteristics, the ability to create and execute promotional campaigns for clients and for the station, local program acceptance and the number and characteristics of other stations in the market area. Faircom attempts to improve its competitive position by reviewing programming and the programming of competitors, upgrading technical facilities where appropriate, attempting to expand sales to existing advertising clients and developing new client 4 6 relationships, and by promotional campaigns aimed at the demographic groups targeted by its stations. In order to provide additional opportunity for persons interested in obtaining radio broadcasting licenses, including minorities, the FCC in 1984 proposed new licenses for new full service FM broadcast stations in 684 communities. This FCC program is referred to as the "Docket 80-90" proceeding. Where these stations have commenced commercial broadcasting, they have increased competition in these markets. Also, it has been customary in the industry for experienced operators to buy stations in markets they consider attractive and attempt to improve the performance of these stations by additional investment and better management, thus increasing competition in these markets. The FCC recently has allocated spectrum to a new technology, digital audio broadcasting ("DAB"), to deliver satellite-based audio programming to a national or regional audience and has adopted regulations for a DAB service. DAB may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats with compact disc quality sound to local and national audiences. Another form of DAB, known as In-Band On Channel ("IBOC"), could provide DAB in the present FM radio band. It is not known at this time whether this technology also may be used in the future by existing radio broadcast stations either on existing or alternate broadcasting frequencies. In addition, three applications have been granted by the FCC for authority to offer multiple channels of digital, satellite-delivered S-Band aural services that could compete with conventional terrestrial radio broadcasting. These satellite radio services use technology that may permit higher sound quality than is possible with conventional AM and FM terrestrial radio broadcasting. Implementation of DAB or IBOC would provide an additional audio programming service that could compete with Faircom's radio stations for listeners, but the effect upon Faircom cannot be predicted. Implementation of DAB or IBOC would provide an additional audio programming service that could compete with the Company's radio stations for listeners, but the effect upon the Company cannot be predicted. FCC Regulation The FCC regulates radio stations under the Communications Act of 1934, as amended (the "Communications Act") which, together with FCC rules and policies promulgated thereunder, governs the issuance, renewal and assignment of licenses, technical operations, employment practices and, to a limited extent, business and program practices of radio stations and other communications entities. The rules also generally prohibit the acquisition of ownership in, or control of, a television station and either an AM or a FM radio station serving the same market. Such so-called "cross-ownership" prohibition is subject to waiver for stations in the 25 largest television markets under certain conditions. There are also prohibitions relating to ownership in or control of a daily newspaper and a broadcast 5 7 station in the same market and limitations on the extent to which aliens may own an interest in broadcast stations. Over the past five years, broadcasters such as Faircom have entered into what have commonly been referred to as "Local Market Agreements," or "LMAs." While these agreements may take varying forms, under a typical LMA, separately owned and licensed radio stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with the FCC's rules and policies. Under these types of arrangements, separately owned stations could agree to function cooperatively in terms of programming, advertising sales, etc., subject to the licensee of each station maintaining independent control over the programming and station operations of its own station. One typical type of LMA is a programming agreement among two separately owned radio stations serving a common service area, whereby the licensee of one station programs substantial portions of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments. Such arrangements are an extension of the concept of "time brokerage" agreements, under which a licensee of a station sells blocks of time on its station to an entity or entities which program the blocks of time and which sell their own commercial advertising announcements during the time periods in question. In the past, the FCC has determined that issues of joint advertising sales should be left to antitrust enforcement and has specifically revised its so-called "cross- interest" policy to make that policy inapplicable to time brokerage arrangements. Under the cross-interest policy, the FCC may prohibit one party from acquiring certain economic interests in two broadcast stations in the same market. Furthermore, the staff of the FCC's Mass Media Bureau has, over the past five years, held that LMAs are not contrary to the Communications Act provided that the licensee of the station which is being substantially programmed by another entity maintains complete responsibility for and control over operations of its broadcast station and assures compliance with applicable FCC rules and policies. However, LMAs in which one station programs more than 15% of the weekly broadcast time of another local radio station are prohibited under FCC rules if the programming station could not own the programmed station under the FCC's so-called "multiple ownership" rules. On February 8, 1996, the President signed into law the Telecommunications Act of 1996. This legislation (a) permits foreign nationals to serve as officers and directors of broadcast licensees and their parent companies, (b) directs the FCC to eliminate its national ownership limits on radio station ownership, (c) requires the FCC to relax its numerical restrictions on local radio ownership, (d) extends the FCC's radio and television cross ownership waiver policy to the top 50 markets, (e) extends the license renewal period for radio and television stations to eight years and (f) affords renewal applicants significant new projections from competing applications for their broadcast licenses. 6 8 The Telecommunications Act's provisions regarding local radio ownership limits create a sliding scale of permissible ownership, depending on market size. In radio markets with 45 or more commercial radio stations, a license may own up to eight stations, no more than five of which can be in a single radio service (i.e. no more than five AM or five FM). In radio markets with 30 to 44 commercial radio stations, a license may own up to seven stations, no more than four of which are in a single radio service. In radio markets having 15 to 29 commercial radio stations, a licensee may own up to six radio stations, no more than four of which are in a single radio service. Finally, with respect to radio markets having 14 or fewer commercial radio stations, a licensee may own up to five radio stations, no more than three of which are in the same service; provided that the licensee may not own more than one half of the radio stations in the market. The Telecommunications Act affords renewal applicants additional protection from renewal challenges by (a) changing the standard for grant of license renewal and (b) precluding the FCC from considering the relative merits of a competing applicant in connection with making its determination on a licensee's renewal application. The new standard for license renewal is that a station's license will be renewed if (x) the station has served the public interest, convenience and necessity, (y) there have been no serious violations of the Communications Act or FCC rules by the licensee and (z) there have been no other violations of the Communications Act or FCC rules which, taken together, would establish a pattern of abuse by the licensee. The Communications Act limits the ownership of broadcast licenses by "aliens." Faircom's voting securities contain a legend which states that the securities are subject to certain restrictions on transfer to "aliens" (as defined in the Communications Act) as set forth in the By-laws of Faircom. Faircom's By-laws provide that shares of voting securities held by aliens which cause Faircom to be in violation of any provisions of the Communications Act shall not be entitled to vote, to receive dividends or have any other rights, and the holders of such securities will be required to transfer them to Faircom or another person whose ownership of such shares would not be in violation of the Communications Act. The foregoing does not purport to be a complete summary of all of the provisions of the Communications Act, the Telecommunications Act or the regulations or policies of the FCC thereunder. Reference is made to such Acts, regulations, and policies for further information. Licenses Faircom's license for its Tuscola station, WWBN(FM), was to expire October 1, 1996, and was renewed for a term through October 1, 2003. Pursuant to regulations adopted by the FCC in January 1997, as provided by the Telecom Act, the license renewal term was extended to October 1, 2004, a period of eight years. Faircom's licenses for its Flint stations, WCRZ(FM) and WFNT(AM), also were to expire on October 1, 1996. Timely license renewal applications for the stations were 7 9 filed, and, as part of the FCC's review process, the Equal Employment Opportunity ("EEO") Branch of the FCC's Mass Media Bureau requested additional written information regarding Faircom's EEO recruitment efforts at these stations. Such additional information was furnished, and on September 30, 1997, the FCC released a Memorandum Opinion and Order and Notice of Apparent Liability. The Opinion found that there was no evidence that the licensee engaged in employment discrimination, but that the overall EEO recruitment effort was deficient because the licensee failed to recruit actively for some of its vacancies and to engage in meaningful self-assessment of its EEO program. The Order granted renewal of the stations' licenses for a term expiring October 1, 2004, subject to an admonishment and reporting requirements with respect to EEO recruitment performance for the 12 month periods ending June 1, 1998, 1999 and 2000. A Notice of Apparent Liability was issued in the amount of $11,000. The management of Faircom and its FCC counsel believe that the factual assumptions on which the FCC Opinion, Order and Notice are based are incorrect, and incomplete. On October 30, 1997, Faircom filed with the FCC a Petition for Reconsideration in this matter, Faircom and its FCC counsel are unable to predict the ultimate outcome of this matter, but, in the opinion of both, a rejection a Faircom's Petition would not have a material adverse effect on Faircom. The licenses of WMAN(AM) and WYHT(FM) in Mansfield, Ohio, and WSWR(FM), in Shelby, Ohio, were renewed October 1, 1996 and expire October 1, 2004. Employees At the corporate level, Faircom employs its President and Treasurer, Joel M. Fairman, and John E. Risher, its Senior Vice President, who also utilize the services of consultants, a bookkeeping service and Faircom's attorneys. Faircom's President and Senior Vice President assist the general managers of Faircom's stations in developing strategies to increase the profitability of Faircom's broadcasting properties and in the operation of the stations. Faircom plans to continue its present policy of utilizing only a small number of persons at the corporate level. Each market in which Faircom owns and operates radio stations has its own complement of employees, including a general manager, a sales manager, a business manager, advertising sales staff, on-air personalities and engineering and operating personnel. In the aggregate, Faircom's subsidiaries employ 64 people on a full-time basis and 32 people on a part-time basis. Faircom has never experienced a strike or work stoppage and believes that its relations with its employees are good. ITEM 2. PROPERTIES Faircom leases approximately 780 square feet of office space for its corporate offices in Old Brookville, New York. The lease expires February 28, 2001. Annual rent is currently $22,200. 8 10 The Flint stations occupy studio and office space in a building of approximately 6,000 square feet located on 10 acres in southeastern Flint, Michigan. The AM towers and antennas are also located on this land. An FM tower, antenna and transmitter building and equipment are located on 19 acres of land located nearby. The land, buildings, towers, antennas and equipment are owned by a subsidiary of Faircom. The Tuscola station occupies studio and office space in leased premises in Frankenmuth, Michigan, at an annual rental of $1,800 under a lease that expires in September 1998. The station's tower, antenna and transmitter building and equipment are owned by a subsidiary of Faircom. Those facilities are located on leased land in Millington, Michigan. The lease expires in June 2002 and has renewal options through June 2042. Current rental is $2,112 annually. The Mansfield stations occupy studio and office space in a building of approximately 6,600 square feet located on six acres in Mansfield, Ohio. An auxiliary AM tower is located at this site. An adjoining property of approximately 10 acres is the site of a building of approximately 6,000 square feet that contains AM and FM transmitters and equipment and storage space. The AM and FM towers and antenna are located on this property. The land, buildings, towers, antennas and equipment are owned by a subsidiary of Faircom. All operations of WSWR(FM) in Shelby have been moved to the Mansfield studio and office space. The tower, antenna and transmitter building and equipment of WSWR(FM) are located on approximately one-half acre in Plymouth Township, Ohio, northeast of Shelby. The tower site is leased through September 2002 at a current rental of $1,200 annually, with four five-year term renewal options, each at a 10% increase in annual rent over the prior term. WSWR(FM) also leases approximately 1,000 square feet for office, sales, and broadcast use in Willard, Ohio. The lease is at a current annual rental of $3,600 and expires in August 2002. The lease contains an option to renew for an additional five-year term at an annual rental of $4,200. Faircom owns substantially all of its studio and general office equipment. Faircom believes that its properties are in good condition and are adequate for its operations, although opportunities to upgrade facilities are constantly reviewed. All the tangible and intangible property of the Company's subsidiaries is pledged as security for senior debt of the subsidiaries. See Notes 3 and 5 to the Company's 1997 Consolidated Financial Statements for a description of encumbrances against the Company's properties and the Company's rental obligations. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any lawsuit or legal proceeding that, in the opinion of the Company, is likely to have a material adverse effect on the Company. 9 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 10 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market For Common Stock The Company's common stock is quoted on the OTC Bulletin Board under the symbol "FXCM" and is traded on the over-the-counter market. The following table reflects the reported high and low bid quotations for Faircom Common Stock on the OTC Bulletin Board for each quarter during 1996 and 1997. Such quotations reflect interdealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. Fiscal Year High Low 1996 First Quarter....................... $.25 $.13 Second Quarter...................... $.25 $.13 Third Quarter....................... $.25 $.13 Fourth Quarter...................... $.19 $.13 1997 First Quarter....................... $.22 $.13 Second Quarter...................... $.28 $.22 Third Quarter....................... $.63 $.28 Fourth Quarter...................... $.94 $.56 On March 20, 1998, the bid and asked prices of the Company's Common Stock on the OTC Bulletin Board were $.81 and $.94, respectively. There were 329 holders of record of the Company's Common Stock on March 20, 1998. Dividend Policy The Company has never paid dividends on its Common Stock. It is the Company's current policy to retain future earnings for the capital requirements of its business. The Company and its subsidiaries are subject to certain restrictions under existing agreements with their lenders which limit dividends on their Common Stock. See Note 3 to the Company's 1997 Consolidated Financial Statements. 11 13 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Year Ended December 31,
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- OPERATING RESULTS: Net Broadcasting Revenues $ 5,993,291 $ 4,873,954 $ 5,113,582 $ 4,983,513 $ 5,015,265 Income from Operations 1,015,144 1,222,829 1,511,481 1,470,355 854,514 Income (Loss) Before Extraordinary Items (362,537) 278,840 244,816 992,079 (796,843) Extraordinary Items (4,333,310) 787,201 3,216,605 Net Income (Loss) (4,695,847) 278,840 244,816 1,779,280 2,419,762 Basic Income (Loss) Per Common Share: Income (Loss) Before Extraordinary Items (.05) .04 .03 .13 (.11) Extraordinary Items (.59) .11 .44 Basic Net Income (Loss) Per Common Share (.64) .04 .03 .24 .33 Diluted Income (Loss) Per Common Share: Income (Loss) Before Extraordinary Items (.05) .02 .02 .06 (.11) Extraordinary Items (.59) .05 .44 Diluted Net Income (Loss) Per Common share (.64) .02 .02 .11 .33 BALANCE SHEET DATA AT YEAR END: Total Current Assets 1,919,232 1,305,585 1,311,916 1,246,104 1,771,069 Total Current Liabilities 859,631 1,068,021 1,037,239 1,150,537 2,771,126 Total Assets 13,010,554 4,326,453 4,546,508 4,488,913 4,515,236 Long-Term Debt and Obligations Under Capital Leases 21,911,661 7,276,884 7,828,883 8,367,345 6,010,018 Redeemable Preferred Stock of Subsidiaries at Liquidation Value 1,968,544 Total Capital Deficit (10,181,788) (5,485,941) (5,764,781) (6,009,597) (11,624,571)
The Company has not declared or paid Common Stock cash dividends since inception. 12 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Year ended December 31, 1997 compared to year ended December 31, 1996 The results of the Company's operations for the year ended December 31, 1997 compared to the year ended December 31, 1996 are not comparable or necessarily indicative of results in the future due to the significance of acquisitions. As of June 30, 1997, the Company, through a wholly-owned subsidiary, Faircom Mansfield Inc. ("Faircom Mansfield"), acquired the assets and operations of two radio stations, WMAN-AM and WYHT-FM, both located in Mansfield, Ohio (the "Mansfield Stations") for aggregate cash consideration of $7,650,000. The acquisition has been accounted for as a purchase, and accordingly the operating results of the Mansfield Stations have been included in the Consolidated Statements of Operations from the acquisition date. The increase in the Company's net broadcasting revenues in 1997 as compared with 1996 resulted principally from the ownership and operation of the Mansfield Stations during 1997. Net broadcasting revenues increased to $5,993,000 from $4,874,000, or 23.0%, in 1997 as compared with 1996. Programming and technical expenses and selling, general and administrative expenses increased in 1997 as compared with 1996, principally as a result of the acquisition of the Mansfield Stations. Such increases were to $1,591,000 from $1,218,000, or 30.6%, and to $2,270,000 from $1,775,000, or 27.9%, respectively. Operating expenses before depreciation, amortization and corporate expenses also increased in 1997 as compared with 1996, primarily as a result of the acquisition of the Mansfield Stations. Such increase was to $3,860,000 from $2,993,000, or 29.0%, in 1997 as compared with 1996. Net broadcasting revenues in excess of operating expenses before depreciation, amortization and corporate expenses ("broadcast cash flow") increased 13.4% to $2,133,000 in 1997 from $1,881,000 in 1996. This increase resulted from the acquisition of the Mansfield Stations as described above, offset in part by lower broadcast cash flow from the Company's radio stations in Flint, Michigan. Depreciation and amortization and interest expense increased in 1997 as compared with 1996 as a result of the addition of assets and debt incurred in connection with the acquisition of the Mansfield Stations. Taxes on income for both 1997 and 1996 related principally to state income taxes. There were no current federal income taxes in 1997, as a result of a taxable loss. Current federal income taxes in 1996 were offset in full by the utilization 13 15 of net operating loss carryforwards. The Company has provided valuation allowances equal to its deferred tax assets because of uncertainty as to their future utilization. The deferred tax assets relate principally to net operating loss carryforwards. Although the Company was marginally profitable in 1994 through 1996, the loss in 1997 along with substantial historical losses caused management to conclude that it was still premature to reduce the valuation allowance. As a result principally of an extraordinary loss from debt extinguishment of $4,703,000, offset in part by an extraordinary gain from debt extinguishment of $370,000, net loss was $4,696,000 for 1997 compared to net income of $279,000 in 1996. Year ended December 31, 1996 compared to year ended December 31, 1995 The Company's net broadcasting revenues decreased 4.7% in 1996 compared to 1995 (to $4,874,000 from $5,114,000), primarily due to lower regional and national advertising activity in the Flint, Michigan radio market and resulting lower regional and national advertising revenues in the Company's Flint radio stations. Programming and technical expenses decreased by 0.9% in 1996 compared to 1995 (to $1,218,000 from $1,229,000) and selling, general and administrative expenses increased by 3.4% (to $1,775,000 from $1,717,000). Operating expenses before depreciation, amortization and corporate expenses increased by 1.6% in 1996 compared to 1995 (to $2,993,000 from $2,946,000). Net broadcasting revenues in excess of operating expenses before depreciation, amortization and corporate expenses ("broadcast cash flow") decreased 13.2% (to $1,881,000 from $2,167,000) in 1996 compared to 1995, principally as a result of the lower net broadcasting revenues in Flint. Corporate expenses increased by 10.5% in 1996 from 1995 (to $337,000 from $305,000) primarily as a result of higher employee compensation, professional fees and related expense. Such employee compensation in 1996 included incentive payments indexed to 1995 operating results. Interest expense decreased by 26.9% in 1996 from 1995 (to $914,000 from $1,249,000) due to lower principal amounts of interest bearing debt outstanding, lower interest rates during 1996 and a lower provision for appraisal rights. Taxes on income for both 1996 and 1995 related principally to state income taxes. Current federal income taxes in 1996 and 1995 and a portion of state income taxes in 1995 were offset by the utilization of net operating loss carryforwards. The Company has provided valuation allowances equal to its deferred tax assets because of uncertainty as to their future utilization. The deferred tax assets relate principally to net operating loss carryforwards. Although the Company was marginally 14 16 profitable in 1994 through 1996, substantial historical losses caused management to conclude that it was still premature to reduce the valuation allowance. As a result principally of lower provision for appraisal rights and interest expense in 1996 compared with 1995, offset by lower income from operations, net income increased to $279,000 in 1996 from $245,000. Liquidity and Capital Resources In 1997, net cash provided by operating activities was $418,000 compared with $379,000 provided by operating activities in 1996. Net increase in cash and cash equivalents was $412,000 in 1997 compared with a net decrease of $240,000 in 1996. In January 1998, Faircom Mansfield purchased substantially all of the assets and operations of radio station WSWR-FM in Shelby, Ohio for $1,125,000 in cash. The acquisition was financed with internal funds and a loan to the Company of $1,100,000. The loan is in the form of a subordinated note, matures on the first to occur of April 1, 1999 or the closing of the merger with Regent Communications, Inc. ("Regent"), discussed below, and bears accrued interest at 14% per annum, payable at maturity. Based upon current interest rates, and assuming the merger with Regent is not consummated, the Company believes its interest payments for 1998 will be approximately $1,213,000. Scheduled debt principal payments are $430,000. Corporate expenses and capital expenditures for 1997 are estimated to be approximately $410,000 and $200,000, respectively. The Company expects to be able to meet such interest expense, debt repayment, corporate expenses and capital expenditures, aggregating $2,253,000, from net cash provided by operations and current cash balances. For the years 1999 through 2001, currently scheduled debt principal payments average $685,000 yearly. Interest payments, corporate expenses and capital expenditures are expected to be approximately the same as projected for 1998, adjusted for inflation. The Company expects to be able to meet such cash requirements from net cash provided by operations and cash balances. The Company believes its $1,100,000 loan maturing April 1, 1999, and the balance of its long-term debt in the amount of $19,858,000, maturing July 1, 2002, will be refinanced at their respective maturity dates either from its current lenders or from other sources, if still outstanding. The terms of the Securities Purchase Agreement applicable to the Company's Convertible Subordinated Promissory Class A and Class B Notes (the "Notes"), as amended, provide that if the Company does not, on or before April 1, 1999, consummate a merger of the Company with another corporation on terms acceptable to the holders of the Notes, then upon notice from such holders, the Company shall take all action necessary to liquidate the Company and each of its subsidiaries on terms and conditions acceptable to such holders, such approval not to be unreasonably withheld. As indicated below, the Company expects to complete a merger with Regent in the second quarter of 1998. If, however, such merger should not occur, the Company 15 17 believes there are a number of alternatives available to it which would be acceptable to the holders of the Notes. On December 5, 1997, the Company announced that it had signed an agreement to merge with Regent, another group radio broadcaster. The Company anticipates a closing of the merger in the second quarter of 1998. The closing of the merger is subject to the effectiveness of a registration statement and delivery of a related proxy statement to the Company's stockholders, satisfaction of the conditions of the merger agreement and the approval of the Company's stockholders. The Company estimates the fees and expenses of this transaction, for which the Company is responsible, to be approximately $543,000. Of this amount, approximately $233,000 is payable only if the merger is consummated. Of the balance of $310,000, the Company expects to pay such fees and expenses from net cash provided by operations and current cash balances, and, with respect to the amount payable on consummation of the merger, from such balances at the time of the closing of the merger. Inflation The Company does not believe the effects of inflation have had a significant impact on its consolidated financial statements. Compliance with Year 2000 Management has initiated a Company-wide program to prepare the Company's computer systems and applications for year 2000 compliance. The Company expects to incur internal staff costs as well as other expenses necessary to prepare its systems for the year 2000. The Company expects to both replace some systems and upgrade others. Maintenance or modification costs will be expensed as incurred. The total cost of this effort is still being evaluated, but is not expected to be material to the Company. Cautionary Statement Concerning Forward-Looking Statements This Form 10-K, including this Management's Discussion and Analysis, includes or may include certain forward-looking statements with respect to Faircom that involve risks and uncertainties. This Form 10-K contains certain forward-looking statements concerning financial position, business strategy, budgets, projected costs, and plans and objectives of management for future operations, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "project" and other similar expressions. Although Faircom believes its expectations reflected in such forward-looking statements are based on reasonable assumptions, readers are cautioned that no assurance can be given that such expectations will prove correct and that actual results and developments may differ materially from those conveyed in such forward-looking statements. For these statements, Faircom claims the protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 16 18 Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements herein include changes in general economic, business and market conditions, as well as changes in such conditions that may affect the radio broadcast industry or the markets in which Faircom operate, in particular, increased competition for attractive radio properties and advertising dollars, fluctuations in the costs of operating radio properties, and changes in the regulatory climate affecting radio broadcast companies. Such forward-looking statements speak only as of the date on which they are made, and Faircom undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-K. If Faircom does update or correct one or more forward-looking statements, readers should not conclude that Faircom will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data required pursuant to this Item begin on page F-1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 17 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The names of the directors and executive officers of Faircom Inc. (the "Company") and certain information about them are set forth below:
Principal Occupation Name Age for Past Five Years - - ---- --- -------------------- Joel M. Fairman 69 Founder, President, Treasurer and Chairman of the Board of the Company since its inception in April 1984. From September 1965 until June 1984, Mr. Fairman was employed in an executive capacity by investment banking firms. Anthony Pantaleoni 58 Secretary and director of the Company since its inception in April 1984. Mr. Pantaleoni has been a partner in the law firm of Fulbright & Jaworski L.L.P. for more than five years. Mr. Pantaleoni also currently serves as a director of Universal Health Services, Inc., AAON Inc. and Westwood Corporation. Stephen C. Eyre 75 Director of the Company since May 1984. From July 1985 to December 1997, Dr. Eyre was Executive Director of The John A. Hartford Foundation. From March 1983 through June 1985 he was Distinguished Professor, Citicorp Chair of Finance at Pace University, New York City. Prior to March 1983, Dr. Eyre was a director of Citibank, N.A. (December 1981 - March 1983), Senior Vice-President and Secretary (1980 - 1983) and Comptroller (1973 - 1980) of Citibank and Citicorp. Dr. Eyre currently serves as a director or trustee of various Prudential Global Equity and Money Market Funds. John C. Jansing 72 Director of the Company since May 1984. From January 1975 to February
18 20 1992, Mr. Jansing was Chairman of the Board of Directors of The Independent Election Corporation of America, a proxy solicitation, tabulation and services firm. Mr. Jansing also serves as a director of Vestaur Securities, Inc. and Alpine Group Corporation. In addition, Mr. Jansing currently serves as a director of the following investment funds: Affiliated Fund, Inc.; Lord Abbett Value Appreciation Fund, Inc.; Lord Abbett Bond-Debenture Fund, Inc.; Lord Abbett Cash Reserve Fund, Inc.; Lord Abbett Development Growth Fund, Inc.; Lord Abbett Income Fund, Inc.; and the Lord Abbett Tax Free Income Fund, Inc. John H. Wyant 52 Director of the Company since September 1997. Mr. Wyant has served since its formation in 1992 as President of Blue Chip Venture Company, a venture capital investment firm which, together with its affiliates, manages an aggregate of approximately $180 million of committed capital for investment in privately held high growth companies. From 1991 to 1992, Mr. Wyant served as Executive Vice President, Corporate Finance, of Gradison & Co., a financial services firm, where his primary activity was the development and formation of Blue Chip Venture Company. Mr. Wyant was initially trained in marketing with The Proctor & Gamble Company and served in marketing and general management positions with Taft Broadcasting Company. Subsequently, he was Chief Executive Officer of Home Entertainment Network and Nutrition Technology Corporation, both venture capital-backed companies. Mr. Wyant is also a director of Zaring National Corporation, Ciao Cucina Corporation and a number of privately held companies.
19 21 John E. Risher 58 Senior Vice President of the Company since January 1996 and Vice President of the Company from July 1991 to January 1996. Mr. Risher is also President and General Manager, since January 1996, of the Company's subsidiary, Faircom Flint Inc. Prior to January 1996, Mr. Risher was Vice President and General Manager of the subsidiary since its acquisition of the Company's radio stations in Flint, Michigan in December 1986. For 20 years prior to 1986, Mr. Risher was employed in sales, sales management and as a general manager for radio stations.
Directors of the Company are elected annually and hold office until the Annual Meeting of stockholders or until their successors have been elected and have duly qualified. Executive officers of the Company are elected annually and hold office until the first meeting of the Board of Directors following the Annual Meeting of stockholders or until their successors have been elected and have duly qualified. Compensation Pursuant to Stock Option Plan On September 18, 1984 the Board of Directors of the Company adopted a stock option plan (the "Plan"), which was subsequently approved by the stockholders of the Company on September 12, 1985. The Plan provides for the granting of incentive stock options as well as options not qualifying as incentive stock options (non-statutory stock options). Under the terms of the Plan, the Company's right to grant additional incentive stock options terminated September 18, 1994, ten years from the date the Plan was adopted by the Company's Board of Directors. The Plan was adopted for the purpose of advancing the interests of the Company and furthering its growth and development by encouraging and enabling directors, officers and key employees of the Company and its subsidiaries and other persons, who are presently making and are expected to continue to make substantial contributions to the successful growth of the Company, to acquire an increased and proprietary interest in its continued success and progress. Incentive stock options granted pursuant to the Plan provide certain restrictions concerning to whom and upon what basis the grant and exercise of options may be made and on the disposition of stock issued upon exercise of options as required by the tax laws. 20 22 An aggregate of 900,000 shares of the Common Stock, par value $.01 per share, is available and reserved for issuance under the Plan. Eligibility Employees (either full or part-time), directors and consultants to the Company and its subsidiaries, who are deemed to have the potential to contribute to the future success of the Company, are eligible to receive non-statutory stock options under the Plan. Until September 1994, full-time and part-time employees (including employees who are also directors of the Company or a subsidiary) and salaried directors, were eligible to receive incentive stock options. Approximately 97 employees of the Company and its subsidiaries are entitled to participate in the Plan. Administration of the Plan The Plan may be administered by the Board of Directors or by a committee appointed by the Board of Directors of the Company (the "Committee"). Currently, the Board of Directors is administering the Plan. Subject to the provisions of the Plan, either the Board of Directors or the Committee, whichever is then acting with respect to the Plan, possesses the authority in its discretion (i) to determine, upon review of relevant information, the fair market value of the Common Stock; (ii) to determine the exercise price per share of stock options to be granted; (iii) to determine the Eligible Participants to whom, and time or times at which, awards shall be granted and the number of shares to be represented by each stock option; (iv) to construe and interpret the Plan; (v) to prescribe, amend and rescind rules and regulations relating to the Plan; (vi) to determine the terms and provisions of each award (which need not be identical) and (vii) to make all other determinations necessary to or advisable for the administration of the Plan. The Plan provides for the issuance of shares of Common Stock for any nature of consideration, including a promissory note, as determined by the Board of Directors or the Committee. The Board of Directors or the Committee may also determine the conditions which it deems appropriate to assure that such consideration will be received by, or accrued to, the Company. The consideration may be different for different options. Grants and Exercises under the Plan and Other Stock Options During the fiscal year ended December 31, 1997, options to purchase an aggregate of 69,000 shares of Common Stock at a weighted average exercise price of $.53 per share were granted pursuant to the Plan. As of March 20, 1998, no options granted pursuant to the Plan had been exercised. On that date the bid and asked prices for the Common Stock as quoted on the OTC Bulletin Board were $.81 and $.94, respectively. At June 30, 1997, in connection with the issuance of its Class A and Class B Convertible Subordinated Promissory Notes ("Notes"), the Company issued options 21 23 to purchase 958,886 and 159,814 shares of its common stock at an exercise price of $.53 per share to its President and Senior Vice President, respectively. These options are exercisable through July 1, 2002 to the extent the Notes are converted to common stock. If less than all of the Notes are ultimately converted, the number of options will be reduced proportionately. 22 24 ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION Summary of Cash and Certain Other Compensation The following table sets forth certain summary information concerning compensation paid or accrued by the Company and its subsidiaries to, or on behalf of, the Company's Chief Executive Officer for the fiscal years ended December 31, 1995, 1996 and 1997.
SUMMARY COMPENSATION TABLE -------------------------- Long Term Compensation ------------------------------------------------ Annual Compensation Awards Payouts -------------------------------------------------- ------------------------------- ----------- Other Number of Long Term Annual Restricted Securities Incentive Name and Compen- Stock Underlying Plan Principal Position Year Salary($) Bonus ($) sation ($) Award(s) ($) Options Payouts ($) - - ------------------ ---- --------- --------- ---------- ------------ ----------- ----------- Joel M. Fairman, 1997 $125,438 $28,000 $2,459(1) --- 958,886 --- Chairman of the Board, President and 1996 $102,672 $28,000 $2,024(1) --- 118,182 --- Treasurer 1995 $90,000 $15,000 $1,040(1) --- 181,818 ---
(RESTUBBED TABLE CONTINUED FROM ABOVE)
All Other Name and Compensa- Principal Position tion ($) - - ------------------ -------- Joel M. Fairman, 29,574(2) Chairman of the Board, President and 26,639(2) Treasurer 28,960(2)
(1) Represents tax "gross up" for use of motor vehicle. (2) Represents tax "gross up" for premiums paid by the Company for a "key man" life insurance policy owned by Mr. Fairman. 23 25 The following table sets forth certain information concerning stock options granted to Joel M. Fairman and John E. Risher in the fiscal year ended December 31, 1997. OPTION GRANTS IN LAST FISCAL YEAR
Number of Securities Percent of Total Underlying Options Granted Exercise or Potential Realizable Value at Name and Options to Employees in Base Expiration Assumed Annual Rates of Stock Price Principal Position Granted Fiscal Year Price ($/Sh)(1) Date Appreciation for Option Term(2) - - ------------------ ---------- ---------------- --------------- ---------- ----------------------------------- 5% ($) 10% ($) ------ ------- Joel M. Fairman, 958,886 83.5% .53 7/1/2002 $139,326 $307,994 Chairman of the Board, President and Treasurer John E. Risher, 30,000 2.6% .53 7/1/2002 $4,359 $23,221 Senior Vice President 159,214 17.9% .53 7/1/2002 $9,636 $51,332
(1) The exercise price per share under each option was at least equal to the fair market value of the Common Stock on the date of grant. (2) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and 10% compounded annually from the date the respective options were granted to their expiration date and are not presented to forecast possible future appreciation, if any, in the price of the Common Stock. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise of the options or the sale of the underlying shares. The actual gains, if any, on the stock option exercises will depend on the future performance of the Common Stock, the optionee's continued employment through applicable vesting periods and the date on which the options are exercised. 24 26 The following table sets forth certain information concerning unexercised stock options granted to Joel M. Fairman and John E. Risher: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Value of Unexercised In- Number of Unexercised the-Money Options Options FY-End at FY-End(1) --------------------- ------------------------ Value Realized Shares (Market Price at Acquired on Exercise Less Name Exercise Exercise Price) Exercisable Unexercisable Exercisable Unexercisable - - ---- --------- ------------------ ----------- ------------- ----------- ------------- Joel M. Fairman None --- 300,000 958,886 $204,670 $304,686 John E. Risher None --- 131,000 253,814 $78,645 $113,742
(1) The "Value" set forth in this column is based on the difference between the fair market value at December 31, 1997 ($.84 per share as quoted on the OTC Bulletin Board), and the option exercise price, multiplied by the number of shares underlying the option. 25 27 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 20, 1998, certain information with respect to all stockholders known to Faircom to beneficially own more than 5% of the Faircom Common Stock, and information with respect to Faircom Common Stock beneficially owned by each director of Faircom, the President of Faircom and all directors and executive officers of Faircom as a group. Except as otherwise specified, the stockholders listed in the table have sole voting and investment power with respect to Faircom Common Stock owned by them.
Name and Address of Number of Shares Beneficial Owners Beneficially Owned(a) Percent of Class ------------------- --------------------- ---------------- Blue Chip Capital Fund II Limited.......................... 14,492,085(b) 66.3% Partnership 2000 PNC Center 201 East Fifth Street Cincinnati, Ohio 45202 Miami Valley Venture Fund L.P.............................. 2,557,427(c) 25.7% 2000 PNC Center 201 East Fifth Street Cincinnati, Ohio 45202 John H. Wyant.............................................. 17,049,512(d) 69.8% c/o Blue Chip Venture Company, Ltd. 2000 PNC Center 201 East Fifth Street Cincinnati, Ohio 45202 PNC Bank, National Association, Trustee.................... 1,962,488(e) 21.0% 201 East Fifth Street Cincinnati, Ohio 45202 Joel M. Fairman............................................ 2,458,886(f) 28.5% 333 Glen Head Road Old Brookville, New York 11545 Don G. Hoff and Sandra Hoff................................ 430,000 5.8% 1 Via Capistrano Tiburon, California 94920 Ido Klear.................................................. 380,000 5.2% 111 Great Neck Road Great Neck, New York 11021 Anthony Pantaleoni......................................... 110,000(g) 1.5% 666 Fifth Avenue New York, New York 10103 Stephen C. Eyre............................................ 139,000(g) 1.9% 69 Dogwood Lane Locust Valley, New York 11560
26 28
Name and Address of Number of Shares Beneficial Owners Beneficially Owned(a) Percent of Class ------------------- --------------------- ---------------- John C. Jansing............................................ 153,500(g) 2.1% 162 South Beach Road Hobe Sound, Florida 33455 All officers and directors as a group (6 persons).......... 20,227,212(h) 77.0%
- - ------------------------ (a) The Securities and Exchange Commission has defined "beneficial ownership" to include sole or shared voting or investment power with respect to a security or the right to acquire beneficial ownership within 60 days. The number of shares indicated are owned with sole voting and investment power unless otherwise noted and includes certain shares held in the name of affiliated companies as to which beneficial ownership may be disclaimed. (b) Represents: (A) 8,431,875 shares issuable upon conversion of Faircom's Class A Convertible Subordinated Promissory Note held by Blue Chip Capital Fund II Limited Partnership in the principal amount of $3,750,000; and (b) 6,060,210 shares issuable upon conversion of Faircom's Class B Convertible Subordinated Promissory Note held by Blue Chip Capital Fund II Limited Partnership in the aggregate principal amount of $3,900,000. See note (d) below. (c) Represents: (A) 1,487,979 shares issuable upon conversion of Faircom's Class A Convertible Subordinated Promissory Note held by Miami Valley Venture Fund L.P., in the principal amount of $661,765; and (b) 1,069,448 shares issuable upon conversion of Faircom's Class B Convertible Subordinated Promissory Note held by Miami Valley Venture Fund L.P. in the principal amount of $688,235. See note (d) below. (d) John H. Wyant, a director of Fairman, is a beneficial owner and manager of Blue Chip Venture Company Ltd., which is the general partner of Blue Chip Capital Fund II Limited Partnership, and Blue Chip Venture Company of Dayton, Ltd., an investment manager for Miami Valley Venture Fund L.P. Mr. Wyant disclaims beneficial ownership of the securities held by Blue Chip Capital Fund II Limited Partnership and Miami Valley Venture Fund L.P. See notes (b) and (c) above. (e) Represents 1,322,646 shares issuable upon conversion of Faircom's Class A Convertible Subordinated Promissory Notes held by PNC Bank, National Association, Trustee in the principal amount of $588,235 and 639,842 shares issuable upon conversion of Faircom's Class B Convertible Subordinated Promissory Notes held by PNC Bank, National Association, Trustee in the principal amount of $411,765. (f) Includes 1,258,886 shares issuable pursuant to stock options held by Mr. Fairman, including options granted under Faircom's Stock Option Plan (the "Plan") and outside the Plan. 27 29 (g) Includes 100,000 shares issuable pursuant to stock options held by each of Messrs. Pantaleoni, Eyre and Jansing under the Plan. (h) Includes 1,849,700 shares issuable pursuant to stock options held by officers and directors of Faircom, including options granted under the Plan and outside the Plan, and 17,049,512 shares issuable upon conversion of Faircom's Class A and Class B Convertible Subordinated Promissory Notes held by Blue Chip Capital Fund II Limited Partnership and Miami Valley Fund L.P. See note (d) above. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the fiscal year ended December 31, 1997, Anthony Pantaleoni, Secretary and a Director of the Company, was a partner in the law firm of Fulbright & Jaworski L.L.P., which firm was retained by the Company during such fiscal year. As of June 30, 1997, the Company sold $10,000,000 aggregate principal amount of its convertible subordinated notes to Blue Chip Capital Fund II Limited Partnership ("Blue Chip") and Miami Valley Fund L.P. ("Miami Valley"). John H. Wyant, who was elected a director of Faircom on September 16, 1997, is a beneficial owner and manager of Blue Chip Venture Company Ltd., which is the general partner of Blue Chip, and Blue Chip Venture Company of Dayton, Ltd., an investment manager for Miami Valley. 28 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1 and 2. Index to financial statements and related schedules. See the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules beginning on page F-1 of this report. (a) 3. Exhibits. * 3.1 Certificate of Incorporation, as amended. * 3.2 By-Laws of the Company. * 21 Subsidiaries of the registrant. 27 Financial Data Schedule. (b) No reports on Form 8-K were filed during the period October 1, 1997 through December 31, 1997. - - -------- * Previously filed as an exhibit to the Company's registration of securities on Form 10, dated February 12, 1987, pursuant to Section 12(g) of the Securities Exchange Act of 1934. 29 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FAIRCOM INC. By /s/ Joel M. Fairman ------------------- Joel M. Fairman President March 30, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- By /s/ Joel M. Fairman President, Treasurer March 30, 1998 ----------------------- and Chairman of the Board Joel M. Fairman (Chief Executive, Financial and Accounting Officer) By /s/ Anthony Pantaleoni Secretary and Director March 30, 1998 ----------------------- Anthony Pantaleoni By /s/ Stephen C. Eyre Director March 30, 1998 ---------------------- Stephen C. Eyre By ---------------------- Director March , 1998 John C. Jansing By /s/ John H. Wyant Director March 30, 1998 ---------------------- John H. Wyant 30 32 FAIRCOM INC. CONSOLIDATED FINANCIAL STATEMENTS FORM 10-K - ITEM 8 AND ITEMS 14 (A) (1) AND (2) YEAR ENDED DECEMBER 31, 1997 F-1 33 FAIRCOM INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3 CONSOLIDATED BALANCE SHEETS: December 31, 1997 and 1996 F-4 CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1997: Statements of operations F-5 Statements of capital deficit F-6 Statements of cash flows F-7 SUMMARY OF ACCOUNTING POLICIES F-8 - F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-12 - F-27 F-2 34 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Faircom Inc. We have audited the consolidated balance sheets of Faircom Inc. as of December 31, 1997 and 1996 and the related consolidated statements of operations, capital deficit, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Faircom Inc. at December 31, 1997 and 1996 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Mitchel Field, New York /s/ BDO Seidman, LLP January 21, 1998 --------------------- BDO Seidman, LLP F-3 35 FAIRCOM INC. CONSOLIDATED BALANCE SHEETS
December 31, 1997 1996 - - --------------------------------------------------------------------------------------------------------------------- ASSETS (NOTE 3) CURRENT ASSETS: Cash and cash equivalents $ 535,312 $ 123,221 Accounts receivable, less allowance of $32,000 and $20,000 for possible losses 1,358,002 1,169,772 Prepaid expenses 25,918 12,592 - - --------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,919,232 1,305,585 - - --------------------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, less accumulated depreciation and amortization (Note 1) 2,156,244 1,184,554 - - --------------------------------------------------------------------------------------------------------------------- INTANGIBLE ASSETS, net of accumulated amortization of $784,791 and $515,670 (Note 2) 7,701,341 1,627,767 OTHER ASSETS: Deferred financing costs 837,411 167,222 Escrow deposit for purchase of radio station (Note 13) 100,000 - Other 296,326 41,325 - - --------------------------------------------------------------------------------------------------------------------- 8,935,078 1,836,314 - - --------------------------------------------------------------------------------------------------------------------- $13,010,554 $4,326,453 ===================================================================================================================== LIABILITIES AND CAPITAL DEFICIT CURRENT LIABILITIES: Accounts payable $ 87,280 $ 76,853 Accrued expenses and liabilities 163,805 199,054 Taxes payable 70,150 10,150 Current portion of interest payable (Note 3 (a)) 108,391 226,417 Current portion of long-term debt (Note 3) 430,005 552,000 Current portion of obligations under capital leases - 3,547 - - --------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 859,631 1,068,021 LONG-TERM DEBT, less current portion (including $10,000,000 to a related party in 1997) (Note 3) 21,911,661 7,276,884 INTEREST PAYABLE, less current portion (Note 3 (a)) 353,063 350,494 DEFERRED RENTAL INCOME (Note 4) 67,987 101,995 APPRAISAL RIGHT LIABILITY (Note 3 (b)) - 1,015,000 - - --------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 23,192,342 9,812,394 - - --------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (Notes 3 (b) and 5)
F-4 36
CAPITAL DEFICIT (Notes 3 (b), 7 and 8): Common stock - $.01 par value, 35,000,000 shares authorized; 7,378,199 shares issued and outstanding 73,782 73,782 Additional paid-in capital 2,605,813 2,605,813 Deficit (12,861,383) (8,165,536) - - ---------------------------------------------------------------------------------------------------------- TOTAL CAPITAL DEFICIT (10,181,788) (5,485,941) - - ---------------------------------------------------------------------------------------------------------- $ 13,010,554 $ 4,326,453 ==========================================================================================================
See accompanying summary of accounting policies and notes to consolidated financial statements. F-5 37 FAIRCOM INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 1997 1996 1995 - - --------------------------------------------------------------------------------------------------------------------------------- BROADCASTING REVENUES: Gross broadcasting revenues $ 6,696,564 $5,517,586 $5,785,963 Less: agency commissions (703,273) (643,632) (672,381) - - --------------------------------------------------------------------------------------------------------------------------------- NET BROADCASTING REVENUES 5,993,291 4,873,954 5,113,582 - - --------------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Programming and technical expenses 1,590,531 1,218,160 1,229,333 Selling, general and administrative expenses 2,269,800 1,775,059 1,716,858 Depreciation and amortization 726,564 321,263 351,257 Corporate expenses 391,252 336,643 304,653 - - --------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 4,978,147 3,651,125 3,602,101 - - --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 1,015,144 1,222,829 1,511,481 Interest expense (including provision for appraisal rights of $215,000 in 1996 and $438,000 in 1995 (Note 3(b)) (1,330,676) (913,643) (1,249,298) Other income 24,537 7,346 10,633 - - --------------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE TAXES ON INCOME AND EXTRAORDINARY ITEMS (290,995) 316,532 272,816 TAXES ON INCOME (Note 9) 71,542 37,692 28,000 - - --------------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (362,537) 278,840 244,816 - - --------------------------------------------------------------------------------------------------------------------------------- EXTRAORDINARY ITEMS: Gain from debt extinguishment (Note 3(a)) 370,060 - - Loss from debt extinguishment (Note 3(b)) (4,703,370) - - - - --------------------------------------------------------------------------------------------------------------------------------- Extraordinary items - net (4,333,310) - - - - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $(4,695,847) $ 278,840 $ 244,816 =================================================================================================================================== BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK - ASSUMING NO DILUTION (Note 10): Income (loss) before extraordinary items $(.05) $.04 $.03 Extraordinary items (.59) - - - - --------------------------------------------------------------------------------------------------------------------------------- BASIC NET INCOME (LOSS) PER COMMON SHARE $(.64) $.04 $.03 =================================================================================================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 7,378,199 7,378,199 7,378,199 =================================================================================================================================== DILUTED INCOME (LOSS) PER COMMON SHARE - ASSUMING ISSUANCE OF ALL DILUTIVE CONTINGENT SHARES (Note 10): Income (loss) before extraordinary items $(.05) $.02 $.02 Extraordinary items (.59) - - - - --------------------------------------------------------------------------------------------------------------------------------- DILUTED NET INCOME (LOSS) PER COMMON SHARE $(.64) $.02 $.02 =================================================================================================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 7,378,199 16,459,701 16,459,701 ===================================================================================================================================
See accompanying summary of accounting policies and notes to consolidated financial statements. F-6 38 FAIRCOM INC. CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT FOR THE THREE YEARS ENDED DECEMBER 31, 1997
Common Stock --------------------------------- Additional Shares Amount paid-in capital Deficit Total - - --------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 7,378,199 $73,782 $2,605,813 $(8,689,192) $(6,009,597) Net income for the year ended December 31, 1995 - - - 244,816 244,816 - - --------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 7,378,199 73,782 2,605,813 (8,444,376) (5,764,781) Net income for the year ended December 31, 1996 - - - 278,840 278,840 - - --------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 7,378,199 73,782 2,605,813 (8,165,536) (5,485,941) NET LOSS FOR THE YEAR ENDED DECEMBER 31,1997 - - - (4,695,847) (4,695,847) - - --------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 7,378,199 $73,782 $2,605,813 $(12,861,383) $(10,181,788) ===================================================================================================================================
See accompanying summary of accounting policies and notes to consolidated financial statements. F-7 39 FAIRCOM INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 12)
Year ended December 31, 1997 1996 1995 - - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4,695,847) $278,840 $244,816 - - ------------------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 726,564 323,474 351,257 Amortization of deferred rental income (34,008) (34,005) (34,000) Provision for doubtful accounts 46,308 23,449 16,428 Provision for appraisal rights - 215,000 438,000 Net loss from debt extinguishments 4,333,310 - - Increase (decrease) in cash flows from changes in operating assets and liabilities, net of effects of purchase of radio stations: Accounts receivable (234,538) (250,620) (2,708) Prepaid expenses (13,326) (6,809) 31,724 Other assets - (1,325) - Accounts payable 10,427 17,907 13,907 Accrued expenses and liabilities (35,249) (9,581) (77,016) Taxes payable 60,000 (10,000) (100,918) Interest payable 254,603 (167,714) (61,978) - - ------------------------------------------------------------------------------------------------------------------------------- TOTAL ADJUSTMENTS 5,114,091 99,776 574,696 - - ------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 418,244 378,616 819,512 - - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Assets related to purchase of radio stations (7,650,000) - - Capital expenditures (131,701) (63,440) (172,805) Acquisition of intangible assets (81,180) - - Escrow deposit for purchase of radio station (100,000) - - - - ------------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (7,962,881) (63,440) (172,805) - - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment for deferred financing costs (834,137) (44,985) (235) Proceeds from long-term debt 23,000,000 - - Principal payments on long-term debt (7,805,588) (493,249) (515,556) Purchase of convertible and exchangeable debt (5,385,000) - - Payment of appraisal right liability (1,015,000) - - Principal payments under capital lease obligations (3,547) (17,253) (19,660) - - ------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,956,728 (555,487) (535,451) - - ------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 412,091 (240,311) 111,256 CASH AND CASH EQUIVALENTS, beginning of year 123,221 363,532 252,276
F-8 40 Year ended December 31, 1997 1996 1995 - - ------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of year $ 535,312 $123,221 $363,532 ===============================================================================================================================
See accompanying summary of accounting policies and notes to consolidated financial statements. F-9 41 FAIRCOM INC. SUMMARY OF ACCOUNTING POLICIES ORGANIZATION AND Faircom Inc. (the "Company") owns and operates BUSINESS radio stations through its wholly-owned subsidiaries in Flint, Michigan and, effective June 30, 1997, in Mansfield, Ohio. PRINCIPLES OF The consolidated financial statements of the CONSOLIDATION Company include the accounts of Faircom Inc. and its subsidiaries, Faircom Flint Inc. ("Flint"), and Faircom Mansfield Inc. ("Mansfield"), all of whose common stock is owned by the Company. All intercompany accounts and transactions are eliminated. Prior to January 1997, Mansfield was named Faircom Evansville Inc. and was inactive. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH For purposes of the statement of cash flows, EQUIVALENTS the Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount reported in the consolidated balance sheets for cash and cash equivalents approximates its fair value. PROPERTY AND Property and equipment are stated at cost. EQUIPMENT For financial reporting purposes, depreciation is determined using the straight-line method based upon the estimated useful lives of the various classes of assets, ranging from three to fifteen years. Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases. Both straight-line and accelerated methods are used for federal and state income tax purposes. F-10 42 FAIRCOM INC. SUMMARY OF ACCOUNTING POLICIES INTANGIBLE ASSETS Intangible assets consist principally of the excess of the purchase price (including related acquisition costs) over the fair value of tangible assets of acquired radio stations, a substantial portion of which represents the value of Federal Communications Commission licenses. These assets are amortized on a straight-line basis over lives ranging from 15 to 40 years. Management evaluates the continuing realizability of the intangible assets by assessing projected future undiscounted cash flows of its radio stations. LONG-LIVED ASSETS The Company follows Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires, among other things, that losses resulting from impairment of assets expected to be held, and gains or losses from assets expected to be disposed of, be included as a component of income from continuing operations before taxes on income. DEFERRED FINANCING Deferred financing costs are amortized on a COSTS AND OTHER straight-line basis over the term of the ASSETS related debt. Non-compete agreements, comprising substantially all of the category "other assets", are amortized over the terms of the related agreements. APPRAISAL RIGHT The value of the appraisal right given to Citicorp Venture Capital, Ltd. ("CVC") in connection with its subordinated exchangeable note (see Note 3 (b)) was accrued at a discounted amount, based on the interest rate of the related note and the date on which the appraisal right was to become exercisable. Adjustments were made to this accrual based on the passage of time and changes in appraisal values. The appraisal right liability was extinguished as of June 30, 1997, the time that the related underlying debt was purchased (see Note 3(b)). TAXES ON INCOME Income taxes are calculated using the liability method specified by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". F-11 43 FAIRCOM INC. SUMMARY OF ACCOUNTING POLICIES REVENUE Revenue from radio advertisements, including RECOGNITION barter transactions (advertising provided in exchange for goods and services), is recognized as income when the advertisements are broadcast. Revenue from barter transactions is recorded based on the estimated fair value of the goods and services received. The merchandise or services received as barter for advertising are charged to expense when used or provided. Any merchandise or services received prior to the broadcast of the related advertisements are recorded as a liability; if the advertisement is broadcast first, a receivable is recorded. Barter liabilities and receivables were not material at December 31, 1997 and 1996. STOCK-BASED In 1996, the Company adopted the disclosure COMPENSATION provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a fair value method of accounting for stock-based compensation, through either recognition or disclosure. The disclosure provisions require the Company to disclose pro forma information regarding net income (loss) and net income (loss) per share as if compensation cost for stock options granted by the Company had been determined in accordance with the fair value method prescribed by SFAS No. 123. ADVERTISING COSTS Advertising costs are charged to expense as incurred and amounted to $75,858, $68,345 and $149,469 for the years ended December 31, 1997, 1996 and 1995, respectively. NET INCOME (LOSS) In February 1997, the Financial Accounting PER COMMON SHARE Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 establishes a different method of computing earnings per share than was previously required under the provisions of Accounting Principles Board Opinion No. 15 ("APB 15"). Under SFAS No. 128, the Company is required to report both basic net income (loss) per common share and diluted net income (loss) per common share for all periods presented. The adoption of SFAS No. 128 had no effect on the per share amounts previously reported by the Company under APB 15. F-12 44 FAIRCOM INC. SUMMARY OF ACCOUNTING POLICIES Net income (loss) per common share is based on the weighted average number of shares of common stock outstanding during each period. The effects of the assumed conversion of convertible debt on per share data have been reflected in the diluted calculation only for 1996 and 1995; such effects were not dilutive for 1997 (see Note 3 (b)). The effects of the assumed exercise of outstanding options were not dilutive and, accordingly, have been excluded from the diluted per share calculations (see Notes 7 and 8). RECENT ACCOUNTING In June 1997, the FASB issued SFAS No. 130, PRONOUNCEMENTS "Reporting Comprehensive Income." This Statement establishes standards for reporting and displaying comprehensive income and its components in the financial statements. It does not, however, require a specific format for the statement, but requires the Company to display an amount representing total comprehensive income for the period of the financial statement. The Company is in the process of determining its preferred format. This Statement is effective for fiscal years beginning after December 15, 1997. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Statement establishes standards for the manner in which public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to stockholders. This Statement is effective for financial statements for periods beginning after December 15, 1997, and the Company has not yet determined the impact, if any, of the Statement on its financial reporting.
1. PROPERTY AND Property and equipment consist of the following: EQUIPMENT 1997 1996 - - ----------------------------------------------------------------------------------------- Land $ 285,000 $ 116,000 Buildings and improvements 958,583 636,581 Towers and antenna systems 1,457,564 1,182,526 Studio, technical and transmitting equipment 3,819,910 3,467,747 Office equipment, furniture and fixtures 1,043,648 941,665
F-13 45 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - ----------------------------------------------------------------------------------------- 7,564,705 6,344,519 Less: accumulated depreciation and amortization (5,408,461) (5,159,965) - - ----------------------------------------------------------------------------------------- Net property and equipment $2,156,244 $1,184,554 =========================================================================================
2. INTANGIBLE ASSETS Intangible assets consist of the following:
1997 1996 - - ----------------------------------------------------------------------------------------- Excess of purchase price over fair value of tangible assets of acquired radio stations (substantially related to the value of Federal Communications Commission licenses) $8,255,940 $1,994,425 Related acquisition costs 216,209 135,029 Other 13,983 13,983 - - ----------------------------------------------------------------------------------------- 8,486,132 2,143,437 Less: accumulated amortization (784,791) (515,670) - - ----------------------------------------------------------------------------------------- $7,701,341 $1,627,767 =========================================================================================
3. LONG-TERM DEBT Long-term debt consists of the following: AND FAIR VALUE DISCLOSURES 1997 1996 - - --------------------------------------------------------------------------------------- Senior secured term and time notes (see (a) below) $12,341,666 $7,147,254 Convertible and exchangeable subordinated promissory notes (see (b) below) 10,000,000 681,630 - - --------------------------------------------------------------------------------------- 22,341,666 7,828,884 Less: Current portion of long-term debt (430,005) (552,000)
F-14 46 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - --------------------------------------------------------------------------------------- $21,911,661 $7,276,884 =======================================================================================
(a) Senior secured term and time notes In connection with the June 1997 Mansfield acquisition described in Note 12, the Company repaid its outstanding senior secured term and time notes, which had an aggregate principal balance of $7,371,000 at that time, and borrowed $12,500,000 from the same lender under an amended and restated loan agreement (the "1997 loan agreement"). The term notes under the 1997 loan agreement mature July 1, 2002 with optional renewal by the Company under certain circumstances for an additional five years. The principal balance is payable in varying monthly installments, ranging from $31,667 to $72,500, from August 1, 1997 through June 1, 2002, with the balance due on the maturity date. Interest on the term notes initially is at the rate of 4.50% over 30 day commercial paper rates. The borrowings are secured by all tangible and intangible property of Flint and Mansfield and all outstanding Flint and Mansfield common stock held by the Company, and are guaranteed by the Company. F-15 47 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 1997 loan agreement contains certain financial and restrictive covenants, including maintenance of minimum operating income levels and debt coverage ratios, and limitations on capital expenditures, corporate expenses, additional indebtedness, mergers and dividend payments. As of the date that the Company entered into the 1997 loan agreement, certain accrued interest was extinguished, resulting in an extraordinary gain of $370,060. (b) Convertible and exchangeable subordinated promissory notes As of June 30, 1997, the Company completed the sale of $10,000,000 aggregate principal amount of its convertible subordinated promissory notes due July 1, 2002 (the "Notes"). The Notes consist of Class A and Class B convertible subordinated promissory notes, each in the aggregate principal amount of $5,000,000. The Class A Notes are convertible into 11,242,500 shares of the Company's common stock, and the Class B Notes into 7,769,500 shares of common stock. The aggregate 19,012,000 of such shares on full conversion of the Notes would represent 67.1% of the Company's outstanding common stock on a fully diluted and adjusted basis. The Notes bear interest at 7% per annum, compounded quarterly, payable at the maturity of the Notes. The terms of the Securities Purchase Agreement applicable to the Class A and Class B Notes, as amended, provide that if the Company does not, on or before April 1, 1999, consummate a merger of the Company with another corporation on terms acceptable to the holders of the Notes, then upon notice from such holders, the Company shall take all action necessary to liquidate the Company and each of its subsidiaries on terms and conditions acceptable to such holders, such approval not to be unreasonably withheld. Subsequent to the sale of the Notes, an individual who is a beneficial owner and manager of the general partner of one of the holders of the Notes and of the investment manager of the other holder of the Notes became a director of the Company. F-16 48 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The proceeds from the sale of the Notes were used (i) to purchase for $6,400,000 from Citicorp Venture Capital, Ltd. ("Citicorp") the Company's 8.65% Senior Convertible Note ("Convertible Note") in the principal amount of $181,630 due December 1, 2004 and the Company's 10% Senior Exchangeable Note ("Exchangeable Note") in the principal amount of $500,000 due December 1, 2004, representing all of Citicorp's interests in the Company, and (ii) to pay a portion of the purchase price for the Mansfield acquisition, described in Note 12, and the legal and other fees and expenses of such acquisition. The Convertible Note was convertible into 9,081,502 shares of Common Stock, which would have represented 52.5% of the Company's fully diluted outstanding Common Stock prior to the acquisition and the financing activities described herein. The Exchangeable Note gave Citicorp the right to request, at any time after December 1, 1999, that $350,000 principal amount of such Note be exchanged for a payment equal to 19.99% of the appraised value, as defined, of the Company's subsidiary which owns and operates radio stations in Flint, Michigan. In connection with the purchase for $6,400,000 of the Citicorp notes, which had a principal amount aggregating $681,630, the Company's appraisal right liability of $1,015,000 was also extinguished. This debt extinguishment resulted in an extraordinary loss of $4,703,370. Minimum annual maturities of the Company's long-term debt for the next five years are approximately as follows: 1998 - $430,000; 1999 - $554,000; 2000 - $688,000; 2001 - $812,000; and 2002 - $19,858,000. F-17 49 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company estimates that the carrying amounts of its senior secured term and time notes, $12,341,666 and $7,147,254 at December 31, 1997 and 1996, respectively, approximated their fair values at those dates, based on rates available to the Company for debt with similar terms and remaining maturities. The fair values of the convertible and exchangeable subordinated promissory notes are not readily determinable. Such debt was carried at $10,000,000 at December 31, 1997 and $1,696,630 (including a related appraisal right liability of $1,015,000) at December 31, 1996. The 1997 debt is convertible into common stock with a market value of approximately $16,000,000 at December 31, 1997. The 1996 debt was convertible into common stock with a market value of approximately $1,540,000 at December 31, 1996, and $350,000 of the debt was exchangeable into the aforementioned appraisal right. The Company believes that an undetermined discount for lack of liquidity would be appropriate due to the large amounts of stock that would be issuable upon conversion. 4. DEFERRED RENTAL Effective January 1995, Flint, as lessor, INCOME entered into an operating lease agreement with a telecommunications company. The lessee agreed to arrange for the construction of a new radio tower and antenna at one of Flint's tower sites, at lessee's expense, and transfer title to those assets to Flint, in exchange for the right to use a portion of the new tower and related building facilities in its operations on a rent-free basis for five years. The lessee has three successive five-year renewal options, providing for no rent in the sixth year, a total of $18,000 rent in the seventh year, and annual increases of 4% beginning with the eighth year. Flint has recorded as an advance minimum lease payment an amount equal to the fair value of the tower and antenna constructed for its benefit, based on the lessee's construction costs, aggregating approximately $170,000. The assets received were capitalized, the advance lease payment is being amortized as rental income on a straight-line basis over the five year initial lease term, and the unamortized portion of the lease payment is recorded as deferred rental income. F-18 50 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. COMMITMENTS The Company has entered into an operating lease agreement for office space. The following is a schedule of approximate future minimum lease payments required under this lease: 1998 $22,200 1999 22,200 2000 22,200 2001 3,700 ------------------------------------------- $70,300 =========================================== Rent expense was approximately $56,000, $46,000 and $32,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 6. RETIREMENT PLANS Effective January 1, 1995, the Company established a qualified salary reduction plan under Section 401(k) of the Internal Revenue Code for eligible employees. Under the plan, the Company may, but is not required to, make matching and discretionary contributions to participants' accounts. Matching contributions charged against operations amounted to $6,800 and $4,600 for the years ended December 31, 1996 and 1995, respectively. No matching contributions were made for the year ended December 31, 1997. F-19 51 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. STOCK OPTION PLAN The Company has a stock option plan (the AND OTHER STOCK "Plan") under which 900,000 shares of common OPTIONS stock have been reserved for issuance. Under this Plan, the Company may grant options to purchase up to 900,000 shares of common stock in the form of either nonqualified stock options or incentive stock options ("ISOs"). The Plan provides that the option price for the nonqualified options be determined by the Board of Directors at or prior to the time the option is granted (but in no event at a price below par value of the common stock) and for ISOs, at a price not less than 100% of the fair market value of the common stock at the date the option is granted, except for those individuals possessing more than 10% of the total combined voting power of all classes of stock of the Company or its subsidiaries, for whom the price is not less than 110% of the fair market value of the common stock. The term of each option granted shall be determined by the Board of Directors, provided that the term for each ISO granted under the Plan not be more than 10 years from the date of the grant and the term for each option granted to an individual owning more than 10% of the combined voting power, as described above, not be more than five years. Under the terms of the Plan, the Company's right to grant additional ISOs terminated September 18, 1994, 10 years from the date the Plan was adopted by the Company's Board of Directors. The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees", and related Interpretations in accounting for the Plan. Under APB 25, for options granted to employees at exercise prices equal to the fair market value of the underlying common stock at the date of grant, no compensation cost is recognized. F-20 52 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At June 30, 1997, in connection with the issuance of its Class A and Class B Convertible Subordinated Notes ("Notes"), the Company issued options to purchase 958,886 and 159,814 shares of its common stock at an exercise price of $.53 per share to its President and Senior Vice President, respectively. These options are exercisable through July 1, 2002 to the extent the Notes are converted to common stock. If less than all of the Notes are ultimately converted, the number of options will be reduced proportionately. At the time when any portion of the Notes is converted and the proportionate number of options become exercisable, the Company will record a nonrecurring charge to operations based on the difference between the exercise price and the market value of the Company's common stock at that time. If all of the Notes had been converted and all of the options had been exercised at December 31, 1997, the charge to operations would have been approximately $355,000. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") requires the Company to provide, beginning with 1995 grants, pro forma information regarding net income and net income per common share as if compensation costs for the Company's stock option plans had been determined in accordance with the fair value based method prescribed in SFAS No. 123. Such pro forma information is as follows:
1997 1996 1995 - - ----------------------------------------------------------------------------------------- Pro forma net income (loss) $(4,865,688) $257,255 $220,071 Pro forma basic net income (loss) per common share $(.66) $.03 $.03 - - -----------------------------------------------------------------------------------------
F-21 53 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The weighted-average fair value per share for options granted was $.08, $.09 and $.08 in 1997, 1996 and 1995, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for 1997, 1996 and 1995 grants: Dividends: None Volatility: 46.5% Risk-free interest rate: Ranging from 6.28% to 6.38% Expected term: 5 years Transactions involving options are summarized below:
1997 1996 1995 ------------------------------------------------------------------------------------ WEIGHTED- Weighted- Weighted- AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price - - --------------------------------------------------------------------------------------------------------------- Outstanding, January 1 825,000 $.16 800,000 $.14 533,882 $.11 Granted 1,187,700 .53 234,182 .19 309,318 .16 Cancelled 69,000 .13 209,182 .13 43,200 .31
F-22 54 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - --------------------------------------------------------------------------------------------------------------- Outstanding, December 31 1,943,700 $.37 825,000 $.16 800,000 $.14 =============================================================================================================== Exercisable, December 31 721,000 $.20 676,000 $.16 661,000 $.14 ===============================================================================================================
F-23 55 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable --------------------------------------- ---------------------- Weighted- Number Average Weighted- Weighted- Outstanding Remaining Average Number Average Exercise at Contractual Exercise Exercisable Exercise Price 12/31/97 Life (years) Price at 12/31/97 Price - - ------------------------------------------------------------------------------------------------- .13 112,500 .5 $.13 105,000 $.13 .16 409,318 2.1 .16 352,818 .16 .17 139,182 3.9 .17 139,182 .17 .22 95,000 3.2 .22 55,000 .22 .53 1,187,700 4.5 .53 69,000 .53 - - ------------------------------------------------------------------------------------------------ 1,943,700 2.8 $.37 721,000 $.20 =================================================================================================
Of the 1,943,700 options outstanding at December 31, 1997, 1,866,200 are nonqualified options and 77,500 are ISOs. 8. COMMON STOCK At December 31, 1997, shares of the Company's SHARES RESERVED authorized and unissued common stock were reserved for issuance upon conversion of convertible subordinated promissory notes and exercise of options, as follows: Convertible subordinated promissory notes (Note 3 (b)) 19,012,000 Stock options (Note 7) 1,943,700 - - ----------------------------------------------------------------------------- 20,955,700 ============================================================================= F-24 56 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. TAXES ON INCOME The provision for federal and state income taxes consists of the following: 1997 1996 1995 - - -------------------------------------------------------------------------------------- Current: Federal $ - $152,000 $157,000 State 71,542 37,692 70,000 - - -------------------------------------------------------------------------------------- 71,542 189,692 227,000 Benefits of net operating loss carryforwards - 152,000 199,000 - - -------------------------------------------------------------------------------------- $71,542 $ 37,692 $ 28,000 ======================================================================================
The net deferred tax asset consists of the following:
1997 1996 - - ---------------------------------------------------------------------------------------- Gross deferred asset for: Net operating loss carryforwards $2,448,000 $2,311,000 Excess gain on debt restructuring for tax reporting purposes - 186,000 Alternative minimum tax credit carryforwards 35,000 35,000 - - ---------------------------------------------------------------------------------------- Subtotal 2,483,000 2,532,000 Less: valuation allowance (2,483,000) (2,532,000) - - ---------------------------------------------------------------------------------------- Net $ - $ - - - ----------------------------------------------------------------------------------------
The Company has provided valuation allowances equal to its deferred tax assets because of the uncertainty as to future utilization. The Company and its subsidiaries file consolidated federal and separate state income tax returns. At December 31, 1997, consolidated net operating loss carryforwards ("NOLs") for income tax purposes were approximately $6,800,000. Such NOLs may be limited as to use upon a significant change in the Company's ownership. The tax NOLs expire during the years 2002 to 2012. F-25 57 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The difference between the Company's effective tax rate on income before taxes on income and the federal statutory tax rate arises from the following:
1997 1996 1995 - - ----------------------------------------------------------------------------------------- Federal tax expense at statutory rate 34.0% 34.0% 34.0% Federal taxes, based on alternative minimum calculation - - 1.8 Loss from debt extinguishment - non-deductible (34.6) - - Amortization of intangibles and other non-deductible expenses (1.0) 31.9 47.6 Benefit of net operating losses - (48.0) (72.8) Changes in valuation allowance 1.1 (13.9) - State taxes, net of federal benefit (1.0) 7.9 16.9 Prior year's federal tax overaccrual - - (17.2) - - ----------------------------------------------------------------------------------------- Effective tax rate (1.5)% 11.9% 10.3% =========================================================================================
There was no material income tax effect related to the extraordinary items described in Note 3. F-26 58 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. NET INCOME (LOSS) PER COMMON SHARE The following table sets forth the computation of basic and diluted net income (loss) per common share:
- - -------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1997 1996 1995 - - -------------------------------------------------------------------------------------------------------------------------- NUMERATOR: Income (loss) before extraordinary items - basic $(362,537) $278,840 $244,816 Addback: Interest from subordinated senior convertible note (net of tax effect) - 13,840 14,093 - - -------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS - DILUTED $(362,537) $292,680 $258,909 ========================================================================================================================== EXTRAORDINARY ITEMS - BASIC AND DILUTED $(4,333,310) $ - $ - ========================================================================================================================== DENOMINATOR: Weighted average shares outstanding Common stock - basic 7,378,199 7,378,199 7,378,199 Shares issuable upon assumed conversion of subordinated senior convertible note - 9,081,502 9,081,502 - - -------------------------------------------------------------------------------------------------------------------------- Common shares - diluted 7,378,199 16,459,701 16,459,701 ========================================================================================================================== BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK - ASSUMING NO DILUTION: Income (loss) before extraordinary items $(.05) $.04 $.03 Extraordinary items (.59) - - - - -------------------------------------------------------------------------------------------------------------------------- BASIC NET INCOME (LOSS) PER COMMON SHARE $(.64) $.04 $.03 ========================================================================================================================== DILUTED INCOME (LOSS) PER COMMON SHARE ASSUMING ISSUANCE OF ALL DILUTIVE CONTINGENT SHARES: Income (loss) before extraordinary items $(.05) $.02 $.02 Extraordinary items (.59) - - - - -------------------------------------------------------------------------------------------------------------------------- DILUTED NET INCOME (LOSS) PER COMMON SHARE $(.64) $.02 $.02 ==========================================================================================================================
Note: The effects of the assumed exercise of outstanding options were not dilutive and, accordingly, have been F-27 59 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS excluded from the diluted per share calculations. The effects of the assumed conversion of convertible debt were not dilutive for 1997. F-28 60
11. SUPPLEMENTAL CASH (a) Supplemental disclosure of cash flow information: FLOW INFORMATION Year ended December 31, 1997 1996 1995 - - ----------------------------------------------------------------------------------------- Interest paid during the year $1,076,073 $ 866,357 $ 873,276 ========================================================================================= Income taxes paid during the year $ 71,542 $ 43,592 $ 133,257 =========================================================================================
(b) Supplemental disclosures of non-cash investing and financing activities: In January 1995, Flint received a tower and antenna, valued at $170,000, as an advance lease payment under the terms of an operating lease agreement (see Note 4). In June 1997, certain accrued interest was extinguished, resulting in an extraordinary gain of $370,060 (see Note 3 (a)). 12. ACQUISITION OF RADIO As of June 30, 1997, Mansfield STATIONS acquired the assets and operations of two commercial radio stations located in Mansfield, Ohio (the "Stations"), from an unrelated company and its principals, pursuant to the terms of an Asset Purchase Agreement, made as of May 20, 1997 (the "Agreement"). Under the terms of the Agreement, the selling company received aggregate consideration of $7,350,000 in cash, which included $1 in consideration of a five-year non-compete agreement. In addition, the Company paid $300,000 in cash to one of the selling company's principals in consideration of a five year non-compete agreement. A substantial portion of the purchase price for the Stations was allocated to intangible assets, representing principally the value of the Federal Communications Commission licenses acquired. The acquisition of the Stations has been accounted for by the purchase method of accounting and, accordingly, the operating results of the Stations are included in the Company's consolidated results of operations from June 30, 1997, the date of acquisition. F-29 61 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following are the Company's estimates of selected pro forma unaudited consolidated results as if the Stations had been acquired as of the beginning of 1996:
1997 1996 - - ------------------------------------------------------------------------------------- ($000s except per share amounts) Net broadcasting revenues $7,154 $7,152 ===================================================================================== Loss before extraordinary items $ (570) $ (168) ===================================================================================== Basic loss before extraordinary items, per common share $ (.08) $ (.02) =====================================================================================
13. SUBSEQUENT (a) On September 25, 1997, Mansfield filed an ACQUISITION AND application with the Federal Communications PENDING MERGER Commission ("FCC") to acquire the assets and operations of radio station WSWR-FM, Shelby, Ohio, for $1,125,000. The net broadcasting revenues and results of operations of the Shelby station for 1997 were not material in relation to the Company's comparable amounts. Mansfield deposited $100,000 in escrow pursuant to the contract to acquire the Shelby station. The closing of this acquisition occurred in January 1998. In connection with the closing, the Company borrowed $1,100,000 from a holder of the Class A and Class B convertible subordinated promissory notes described in Note 3(b). To evidence this loan, the Company issued its Class C Subordinated Promissory Note, which bears interest at a rate of 14% per annum payable at maturity, and is payable on the earlier of April 1, 1999 or the closing of the merger described in the following paragraph. F-30 62 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (b) On December 5,1997, the Company signed an agreement to merge with Regent Communications, Inc., another group radio broadcaster. Under the terms of the agreement, Faircom will merge with and into a subsidiary of Regent. The shareholders of Faircom will receive shares of Regent Series C Convertible Preferred Stock, par value $.01 per share ("Series C Preferred Stock"). The Series C Preferred Stock has full voting rights, provides for annual cumulative dividends of 7%, and is convertible on a one-for-one basis (subject to adjustment in certain events) into the common stock, $.01 par value per share, of Regent. The Series C Preferred Stock is subject to mandatory conversion under certain circumstances. In the event of a liquidation of Regent, the Series C Preferred Stock has a preference in the amount of its stated value of $5.00 per share, together with accrued and unpaid dividends. In the merger, the outstanding shares of Faircom Common Stock will be exchanged for fully paid and nonassessable shares of Series C Preferred Stock, and each outstanding Faircom option will be converted into a Regent option entitling the holder to acquire, on equivalent terms, the same number of shares of Series C Preferred Stock as the holder would have been entitled to receive in the merger if such Faircom option had been exercised in full prior to the date of the merger. The number of shares of Series C Preferred Stock to be issued in the merger and issuable pursuant to Regent options to be received in exchange for Faircom options in the merger will be based upon an aggregate liquidation preference amount of $33,162,000, adjusted by the amount of Faircom's net working capital and decreased by its senior debt and by one-half of the prepayment premium on such senior debt to be paid at the closing of the merger, all as computed as of the last day of the month immediately preceding the closing date of the merger. As of the date of issuance of this report, the closing of the merger is still pending, subject to shareholder approval and satisfaction of certain other conditions. F-31 63 FAIRCOM INC. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES FORM 10-K - ITEM 14 (D) DECEMBER 31, 1997 S-1 64 FAIRCOM INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S-3 Consolidated financial statement schedules: Schedule I - Condensed financial information of registrant S-4 - S-7 Schedule II - Valuation and qualifying accounts S-8 S-2 65 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES The Board of Directors and Stockholders Faircom Inc. The audits referred to in our report dated January 21, 1998, relating to the consolidated financial statements of Faircom Inc., which is contained in Item 8 of this Form 10-K, included the audit of the financial statement schedules listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based upon our audits. In our opinion such financial statement schedules present fairly, in all material respects, the information set forth therein. /s/BDO Seidman, LLP -------------------- BDO Seidman, LLP Mitchel Field, New York January 21, 1998 S-3 66 FAIRCOM INC. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS (COMPANY ONLY)
December 31, 1997 1996 - - --------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,478 $ 7,014 Other current assets - 4,155 Interest receivable from subsidiary 92,944 29,004 - - --------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 104,422 40,173 OFFICE EQUIPMENT, FURNITURE AND FIXTURES - NET 630 630 NOTES RECEIVABLE FROM SUBSIDIARIES (NOTE 2) 3,673,000 1,243,000 OTHER ASSETS, INCLUDING DEFERRED FINANCING COSTS OF $629,403 AND $6,016 630,728 7,341 - - --------------------------------------------------------------------------------------------------------------------------- $ 4,408,780 $ 1,291,144 =========================================================================================================================== LIABILITIES AND CAPITAL DEFICIT CURRENT LIABILITIES: Accrued expenses and liabilities $ 30,033 $ 132,747 Taxes payable 150 150 - - --------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 30,183 132,897 LONG-TERM DEBT 10,000,000 681,630 INTEREST PAYABLE 353,063 - APPRAISAL RIGHT LIABILITY - 1,015,000 - - --------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 10,383,246 1,829,527 - - --------------------------------------------------------------------------------------------------------------------------- EXCESS OF LOSSES AND PREFERRED STOCK DIVIDENDS OF SUBSIDIARIES OVER COST (NOTE 1) 4,207,322 4,947,558 - - --------------------------------------------------------------------------------------------------------------------------- CAPITAL DEFICIT: Common stock 73,782 73,782 Additional paid-in capital 2,605,813 2,605,813 Deficit (12,861,383) (8,165,536) - - --------------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL DEFICIT (10,181,788) (5,485,941) - - --------------------------------------------------------------------------------------------------------------------------- $ 4,408,780 $ 1,291,144 ===========================================================================================================================
S-4 67 FAIRCOM INC. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS (COMPANY ONLY)
Year ended December 31, 1997 1996 1995 - - --------------------------------------------------------------------------------------------------------------------------- INCOME: Corporate overhead from subsidiaries (Note 3) $ 172,000 $ 226,498 $ 354,328 Interest 245,653 174,024 174,024 Other 319 - 367 - - --------------------------------------------------------------------------------------------------------------------------- 417,972 400,522 528,719 - - --------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Depreciation and amortization 72,514 3,035 3,035 General and administrative 391,252 336,643 304,653 Interest (including provision for appraisal rights of $215,000 in 1996 and $438,000 in 1995) 385,919 280,711 503,873 - - --------------------------------------------------------------------------------------------------------------------------- 849,685 620,389 811,561 - - --------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE EQUITY IN INCOME AND EXTRAORDINARY GAIN OF SUBSIDIARIES; TAXES ON INCOME; AND EXTRAORDINARY LOSS (431,713) (219,867) (282,842) EQUITY IN INCOME AND EXTRAORDINARY GAIN OF SUBSIDIARIES (NOTE 1) 439,236 500,399 527,658 - - --------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES ON INCOME AND EXTRAORDINARY LOSS 7,523 280,532 244,816 TAXES ON INCOME - 1,692 - - - --------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE EXTRAORDINARY LOSS 7,523 278,840 244,816 EXTRAORDINARY LOSS FROM DEBT EXTINGUISHMENT (4,703,370) - - - - --------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $(4,695,847) $ 278,840 $ 244,816 ===========================================================================================================================
S-5 68 FAIRCOM INC. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS (COMPANY ONLY)
Year ended December 31, 1997 1996 1995 - - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(4,695,847) $ 278,840 $ 244,816 - - --------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 72,514 3,035 3,035 Provision for appraisal right - 215,000 438,000 Equity in income and extraordinary gain of subsidiaries (439,236) (500,399) (527,658) Extraordinary loss from debt extinguishment 4,703,370 - - Increase (decrease) in cash flows from changes in operating assets and liabilities: Other current assets 4,155 (1,745) (2,410) Other assets - (1,325) - Interest receivable from subsidiary (63,940) (14,502) (14,502) Accrued expenses and liabilities and taxes payable (102,714) - (79,519) Interest payable 353,063 - (1,663) - - --------------------------------------------------------------------------------------------------------------------- TOTAL ADJUSTMENTS 4,527,212 (299,936) (184,717) - - --------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (168,635) (21,096) 60,099 - - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in subsidiary (301,000) - - Decrease (increase) in advances and loans to subsidiaries (2,430,000) 8,000 (8,000) - - --------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,731,000) 8,000 (8,000) - - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment for deferred financing costs (695,901) - - Proceeds from long-term debt 10,000,000 - - Purchase of convertible and exchangeable debt (5,385,000) - - Payment of appraisal right liability (1,015,000) - - Payment of loan from subsidiary - - (85,850) - - --------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,904,099 - (85,850) - - --------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,464 (13,096) (33,751) CASH AND CASH EQUIVALENTS, beginning of year 7,014 20,110 53,861 - - --------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of year $ 11,478 $ 7,014 $ 20,110 =====================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
1997 1996 1995 - - --------------------------------------------------------------------------------------------------------------------- Interest paid during the year $ 32,856 $ 65,711 $ 67,537 =====================================================================================================================
S-6 69 FAIRCOM INC. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT 1. INVESTMENTS IN The financial statements account for SUBSIDIARIES the Company's investment in its subsidiaries by the equity method of accounting and have been prepared for the purpose of presenting the financial position and operating results of the Company as a separate entity. The Company has also prepared consolidated financial statements of the Company and its subsidiaries which represent the primary financial statements. 2. NOTES RECEIVABLE Notes receivable from subsidiaries FROM SUBSIDIARIES consist of the following:
December 31, 1997 1996 -------------------------------------------------------------------------------------- Faircom Flint Inc. $1,523,000 $1,243,000 Faircom Mansfield Inc. 2,150,000 - -------------------------------------------------------------------------------------- $3,673,000 $1,243,000 ======================================================================================
Interest on the Flint notes was at the rate of 14% per annum through June 30, 1997 and prime thereafter. Interest on the Mansfield notes is at prime. The prime rate was 8.5% at December 31, 1997. All of the notes mature on July 1, 2002. 3. CORPORATE The Company received $172,000, OVERHEAD $226,498 and $354,328 from its subsidiaries for corporate overhead, representing fees and expenses in connection with management and administrative services for the years ended December 31, 1997, 1996 and 1995, respectively. S-7 70 FAIRCOM INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at beginning charged to end of of year expense Deductions * year - - --------------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful receivables: Years ended December 31, 1997 $20,000 $46,308 $34,308 $32,000 =================================================================================================================================== 1996 $20,000 $42,449 $42,449 $20,000 =================================================================================================================================== 1995 $20,000 $16,428 $16,428 $20,000 ===================================================================================================================================
(*) Represents accounts written off against the reserve. S-8 71 [ARTICLE] 5 [MULTIPLIER] 1000 [S] [C] [PERIOD-TYPE] YEAR [FISCAL-YEAR-END] DEC-31-1997 [PERIOD-START] JAN-01-1997 [PERIOD-END] DEC-31-1997 [CASH] 535 [SECURITIES] 0 [RECEIVABLES] 1,390 [ALLOWANCES] 32 [INVENTORY] 0 [CURRENT-ASSETS] 1,919 [PP&E] 7,565 [DEPRECIATION] 5,408 [TOTAL-ASSETS] 13,011 [CURRENT-LIABILITIES] 860 [BONDS] 21,912 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 74 [OTHER-SE] (10,256) [TOTAL-LIABILITY-AND-EQUITY] 13,011 [SALES] 0 [TOTAL-REVENUES] 6,697 [CGS] 0 [TOTAL-COSTS] 2,294 [OTHER-EXPENSES] 0 [LOSS-PROVISION] 34 [INTEREST-EXPENSE] 1,331 [INCOME-PRETAX] (291) [INCOME-TAX] 72 [INCOME-CONTINUING] (363) [DISCONTINUED] 0 [EXTRAORDINARY] (4,333) [CHANGES] 0 [NET-INCOME] (4,696) [EPS-PRIMARY] (.64) [EPS-DILUTED] (.64) EX-20.B 10 EXHIBIT 20(B) 1 Exhibit 20(b) ------------- FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ................. to ................ Commission file number 0-15392 Faircom Inc. (Exact name of registrant as specified in its charter) Delaware 87-0394057 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Glen Head Road, Old Brookville, New York 11545 (Address of principal executive offices) (516) 676-2644 (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 6, 1998: Common Stock, par value $.01 7,378,199 - ---------------------------- ----------------- (Title of each class) (Number of Shares) 2 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS FAIRCOM INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Three months ended March 31, 1998 March 31, 1997 ------------------ ------------------ Gross broadcasting revenues $1,613,205 $1,030,277 Less: agency commissions (148,128) (126,097) --------- ------- Net broadcasting revenues 1,465,077 904,180 --------- ------- Operating expenses Programming and technical expenses 448,278 293,856 Selling, general and administrative expenses 650,633 436,459 Depreciation and amortization 290,548 78,624 Corporate expenses 113,528 115,534 ------- ------- Total operating expenses 1,503,087 924,473 --------- ------- Loss from operations (38,010) (20,293) Interest expense (503,770) (173,042) Other income 12,152 1,584 -------- -------- Loss before taxes on income (529,628) (191,751) Taxes on income (12,000) (16,000) -------- -------- Net Loss $ (541,628) $ (207,751) Basic and diluted net loss per common share $ (.07) $ (.03) ========== ========== Weighted average share outstanding 7,378,199 7,378,199 =========== ===========
-2- 3 FAIRCOM INC. CONSOLIDATED BALANCE SHEETS
March 31, 1998 December 31, (UNAUDITED) 1997 ----------- ----------- ASSETS $ 524,181 $ 535,312 Current assets: Cash and cash equivalents Accounts receivable, less allowance of $32,000 for possible losses in 1998 and 1997 1,086,206 1,358,002 Prepaid expenses 59,048 25,918 ----------- ----------- Total current assets 1,669,435 1,919,232 ----------- ----------- Property and equipment, at cost 7,786,383 7,564,705 Less accumulated depreciation and amortization (5,487,232) (5,408,461) ----------- ----------- Property and equipment, net 2,299,151 2,156,244 ----------- ----------- Intangible assets, net of accumulated amortization of $891,472 in 1998 and $784,790 in 1997 8,605,826 7,701,341 Other assets: Deferred financing costs 841,563 837,411 Escow deposit for purchase of radio stations 0 100,000 Other 469,584 296,326 ----------- ----------- 9,916,973 8,935,078 ----------- ----------- $13,885,559 $13,010,554 =========== =========== LIABILITIES AND CAPITAL DEFICIT - ------------------------------- Current liabilities: Accounts payable $ 102,386 $ 87,280 Accrued expenses and liabilities 354,950 163,805 Taxes payable 88,623 70,150 Current portion of interest payable 104,433 108,391 Current portion of long-term debt 460,012 430,005 ----------- ----------- Total current liabilities 1,110,404 859,631 Long-term debt, less current portion 22,886,652 21,911,661 Interest payable, less current portion 552,434 353,063 Deferred rental income 59,485 67,987 ----------- ----------- Total liabilities 24,608,975 23,102,342 ----------- ----------- Capital deficit: Common stock-$.01 par value, 35,000,000 shares authorized; 7,378,199 shares issued and outstanding 73,782 73,782 Additional paid-in capital 2,605,813 2,605,813 Deficit (13,403,011) (12,861,383) ----------- ----------- Total capital deficit (10,723,416) (10,181,788) ----------- ----------- $13,885,559 $13,010,554 =========== ===========
-3- 4 FAIRCOM INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended --------------------------------- March 31, 1998 March 31, 1997 -------------- -------------- Cash flows from operating activities: Net loss $ (541,628) $ (207,751) ----------- ---------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 290,548 78,625 Amortization of deferred rental income (8,502) (8,502) Increase (decrease) in caah flows from changes in operating assets and liabilities, net of effects of purchase of radio station: Account receivable 271,796 383,039 Prepaid expenses (33,130) (47,869) Other assets 1,325 0 Account payable 15,106 (8,695) Accrued expenses and liabilities 191,145 (6,124) Taxes payable 18,473 11,318 Interest payable 195,413 (16,972) ----------- ---------- Total adjustments 942,174 384,820 ----------- ---------- Net cash provided by operating activities $ 400,546 $ 177,069 ----------- ----------
-4- 5 FAIRCOM INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
Three Months Ended ----------------------------------- March 31, 1998 March 31, 1997 -------------- -------------- Cash flows from investing activities: Assets related to purchase of radio station $ (1,205,000) $ 0 Capital expenditures (46,898) (10,256) Acquisition of intangible assets (180,946) 0 Escrow deposits for purchase of radio stations 100,000 (400,000) ------------- ------------ Net cash used in investing activities (1,332,844) (410,256) ------------- ------------ Cash flows from financing activities: Payments for deferred financing costs (83,831) (52,618) Principal payments on long-term debt (95,002) (138,000) Principal payments under capital lease obligations 0 (3,547) Proceeds from aecured note payable 0 400,000 Proceeds from subordinated note payable 1,100,000 0 ------------- ------------ Net cash provided by financing activities 921,167 205,835 ------------- ------------ Net decrease in cash and cash equivalents (11,131) (27,352) Cash and cash equivalents, beginning of period 535,312 123,221 ------------- ------------ Cash and cash equivalents, end of period $ 524,181 $ 95,869 ============= ============
-5- 6 FAIRCOM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for completed financial statements. In the opinion of management, the statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results of operations for any interim period are not necessarily indicative of the results for a full year. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as filed with the Commission. 2. Net Loss Per Common Share The effects of the assumed conversion of the Company's Convertible Subordinated Promissory Notes and the Company's Subordinated Senior Convertible Note and the assumed exercise of outstanding options were not dilutive and, accordingly, have been excluded from the diluted per share calculations for the three months ended March 31, 1998 and March 31, 1997. -6- 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The results of the Company's operations for the three months ended March 31, 1998 compared to the three months ended March 31, 1997 are not comparable or necessarily indicative of results in the future due to the significance of acquisitions. As of June 30, 1997, the Company, through a wholly-owned subsidiary, Faircom Mansfield Inc. ("Faircom Mansfield"), acquired the assets and operations of two radio stations, WMAN-AM and WYHT-FM, both located in Mansfield, Ohio (the "Mansfield Stations") for aggregate cash consideration of $7,650,000. As of January 21, 1998, Faircom Mansfield purchased substantially all of the assets and operations of radio station WSWR-FM in Shelby, Ohio (the "Shelby Station") for $1,125,000 in cash. The acquisitions have been accounted for as purchases, and accordingly the operating results of the Mansfield Stations and the Shelby Station have been included in the Consolidated Statements of Operations from their respective acquisition dates. The operating results of the Shelby Station, as so included in such Consolidated Statements of Operations for the three months ended March 31, 1998, were not material. The increase in the Company's net broadcasting revenues in the three months ended March 31, 1998 as compared with the same period in 1997 resulted principally from the ownership and operation of the Mansfield Stations during the 1998 period. Net broadcasting revenues increased to $1,465,000 from $904,000, or 62.0%, in the 1998 period as compared with the 1997 period. Programming and technical expenses and selling, general and administrative expenses increased in the three months ended March 31, 1998 as compared with the same 1997 period, principally as a result of the acquisition of the Mansfield Stations. Such increases were to $448,000 from $294,000, or 52.6%, and to $651,000 from $436,000, or 49.1%, respectively. Operating expenses before depreciation, amortization and corporate expenses consequently increased in the three months ended March 31, 1998 as compared with the comparable period in 1997, primarily as a result of the acquisition of the Mansfield Stations. Such increase was to $1,099,000 from $730,000, or 50.5%, in the 1998 period as compared with the same period in 1997. Net broadcasting revenues in excess of operating expenses before depreciation, amortization and corporate expenses ("broadcast cash flow") increased 110.5% to $366,000 in the three months ended March 31, 1998 from $174,000 in the same period in 1997. This increase resulted from the acquisition of the Mansfield Stations as described above, offset somewhat by slightly lower broadcast cash flow from the Company's radio stations in Flint, Michigan. -7- 8 Depreciation and amortization and interest expense increased in the three months ended March 31, 1998, as compared with the same period in 1997, as a result of the addition of assets and debt incurred in connection with the acquisition of the Mansfield Stations and the Shelby Station. As a result principally of higher depreciation and amortization and interest expense in the three months ended March 31, 1998, offset in part by higher broadcast cash flow, net loss was $542,000 for the period in 1998 compared to net loss of $208,000 in the comparable 1997 period. LIQUIDITY AND CAPITAL RESOURCES In the three months ended March 31, 1998, net cash provided by operating activities was $401,000 compared with $177,000 provided by operating activities in the three months ended March 31, 1997. Net decrease in cash and cash equivalents was $11,000 in the 1998 period compared with a net decrease of $27,000 in the comparable 1997 period. Historically, the Company's net cash provided by operating activities is lower in its first and second quarters, and the Company expects such net cash to increase for the balance of 1998. In January 1998, Faircom Mansfield purchased substantially all of the assets and operations of radio station WSWR-FM in Shelby, Ohio for $1,125,000 in cash. The acquisition was financed with internal funds and a loan to the Company of $1,100,000. The loan is in the form of a subordinated note, matures on the first to occur of April 1, 1999 or the closing of the merger with Regent Communications, Inc. ("Regent"), discussed below, and bears accrued interest at 14% per annum, payable at maturity. Based upon current interest rates, and assuming the merger with Regent is not consummated, the Company believes its interest payments for the balance of 1998 will be approximately $909,000. Scheduled debt principal payments are $335,000. Corporate expenses and capital expenditures for the remainder of 1998 are estimated to be approximately $296,000 and $153,000, respectively. The Company expects to be able to meet such interest expense, debt repayment, corporate expenses and capital expenditures, aggregating $1,693,000, from net cash provided by operations and current cash balances. For the years 1999 through 2001, currently scheduled debt principal payments average $685,000 yearly. Interest payments, corporate expenses and capital expenditures are expected to be approximately the same as projected for 1998, adjusted for inflation. The Company expects to be able to meet such cash requirements from net cash provided by operations and cash balances. The Company believes its $1,100,000 loan maturing April 1, 1999, and the balance of its long-term debt in the amount of $19,858,000, maturing July 1, 2002, will be refinanced at their respective maturity dates either from its current lenders or from other sources, if still outstanding. -8- 9 The terms of the Securities Purchase Agreement applicable to the Company's Convertible Subordinated Promissory Class A and Class B Notes (the "Notes"), as amended, provide that if the Company does not, on or before April 1, 1999, consummate a merger of the Company with another corporation on terms acceptable to the holders of the Notes, then upon notice from such holders, the Company shall take all action necessary to liquidate the Company and each of its subsidiaries on terms and conditions acceptable to such holders, such approval not to be unreasonably withheld. As indicated below, the Company expects to complete a merger with Regent in the second quarter of 1998. If, however, such merger should not occur, the Company believes there are a number of alternatives available to it which would be acceptable to the holders of the Notes. On December 5, 1997, the Company announced that it had signed an agreement to merge with Regent, another group radio broadcaster. The Company anticipates a closing of the merger in the second quarter of 1998. The closing of the merger is subject to satisfaction of the conditions of the merger agreement and the approval of the Company's stockholders. The Company estimates the fees and expenses of this transaction, for which the Company is responsible, to be approximately $543,000. Of this amount, approximately $233,000 is payable only if the merger is consummated. Of the balance of $310,000, the Company expects to pay such fees and expenses from net cash provided by operations and current cash balances, and, with respect to the amount payable on consummation of the merger, from current cash balances at the time of the closing of the merger. Cautionary Statement Concerning Forward-Looking Statements This Form 10-Q includes or may include certain forward-looking statements with respect to the Company that involve risks and uncertainties. This Form 10-Q contains certain forward-looking statements concerning financial position, business strategy, budgets, projected costs, and plans and objectives of management for future operations, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "project" and other similar expressions. Although the Company believes its expectations reflected in such forward-looking statements are based on reasonable assumptions, readers are cautioned that no assurance can be given that such expectations will prove correct and that actual results and developments may differ materially from those conveyed in such forward-looking statements. For these statements, the Company claims the protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements herein include changes in general economic, business and market conditions, as well as changes in such conditions that may affect the radio broadcast industry or the markets in which the Company operates, including, in particular, increased competition for attractive radio properties and advertising dollars, fluctuations in the costs of operating radio properties, and changes -9- 10 in the regulatory climate affecting radio broadcast companies. Such forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q. If the Company does update or correct one or more forward-looking statements, readers should not conclude that the Company will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. -10- 11 PART II. OTHER INFORMATION ITEM 1. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 Financial Data Schedule All other items of this Part are inapplicable. -11- 12 SIGNATURE 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 thereunto duly authorized. FAIRCOM INC. (Registrant) /s/ Joel M. Fairman ----------------------- Joel M. Fairman Chairman of the Board President and Treasurer (Principal Executive Officer and Chief Financial Officer) Date: May 14, 1998 -12- 13 [ARTICLE] 5 [PERIOD-TYPE] 3-MOS [FISCAL-YEAR-END] DEC-31-1998 [PERIOD-END] MAR-31-1998 [CASH] 524,181 [SECURITIES] 0 [RECEIVABLES] 1,118,206 [ALLOWANCES] 32,000 [INVENTORY] 0 [CURRENT-ASSETS] 1,669,435 [PP&E] 7,786,383 [DEPRECIATION] 5,487,232 [TOTAL-ASSETS] 13,885,559 [CURRENT-LIABILITIES] 1,110,404 [BONDS] 22,886,652 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 73,782 [OTHER-SE] (10,797,198) [TOTAL-LIABILITY-AND-EQUITY] 13,885,559 [SALES] 0 [TOTAL-REVENUES] 1,613,205 [CGS] 0 [TOTAL-COSTS] 596,406 [OTHER-EXPENSES] 0 [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 503,770 [INCOME-PRETAX] (529,628) [INCOME-TAX] 12,000 [INCOME-CONTINUING] (541,628) [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] (541,628) [EPS-PRIMARY] (.07) [EPS-DILUTED] (.07)
EX-20.C 11 EXHIBIT 20(C) 1 Exhibit 20(c) EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement"), effective as of June 15, 1998 by and between REGENT COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and JOEL M. FAIRMAN ("Employee"). RECITALS WHEREAS, the Company is engaged in the business, either directly or through affiliates, of owning and operating radio broadcasting stations (the "Business"), with principal offices in Covington, Kentucky. For purposes of this Agreement, the term "Company" shall include the Company, its subsidiaries, affiliates, and assignees and any successors in interest of the Company and its subsidiaries and/or affiliates. WHEREAS, Employee has been actively engaged in the radio broadcasting business since 1985 and has extensive knowledge and a unique understanding of the operation of the Business. WHEREAS, the Company desires to employ Employee, and Employee desires to be employed by the Company, as Vice Chairman of the Board of Directors of the Company. NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. EMPLOYMENT. 1.1 ENGAGEMENT OF EMPLOYEE. The Company agrees to employ Employee and Employee agrees to accept employment as the Vice Chairman of the Board of Directors of the Company, all in accordance with the terms and conditions of this Agreement. 1.2 DUTIES AND POWERS. (a) During the Employment Period, Employee will serve as the Company's Vice Chairman of the Board of Directors and will render services of an executive and administrative character, and act in such other executive capacity for the Company, as the Company's board of directors (the "Board") shall from time to time direct. The foregoing duties and responsibilities shall include those set forth on Exhibit A attached hereto. Employee shall devote his best efforts, energies and abilities to the business and affairs of the Company. Employee shall perform the duties and carry out the responsibilities assigned to him, to the best of his ability, in a diligent, trustworthy and businesslike manner for the purpose of advancing the business of the Company and in a manner he reasonably believes to be in and not opposed to the best interests of the Company. 2 (b) Employee acknowledges that his duties and responsibilities will require his concentrated business efforts and agrees that during the Employment Period he will not engage directly or indirectly in any other business activity or have any business pursuits or interests which materially interfere or conflict with the performance of Employee's duties hereunder or which compete directly with the Company; provided, however, nothing in this Section 1.2 shall be deemed to prohibit Employee from investing in the stock of any competing corporation listed on a national securities exchange or traded in the over-the-counter market, but only if his associates (as such term is defined in Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in effect on the date hereof), collectively, do not own more than an aggregate of three percent of the stock of such corporation. Notwithstanding the foregoing or anything else in this Agreement to the contrary, Employee may serve on additional boards of directors during the Employment Period and volunteer his service to charitable, business and other public service agencies, clubs or organizations so long as such board or other service does not materially interfere or conflict with the performance of Employee's duties hereunder and so long as such activities are not rendered for a competitor of the Company. Any and all fees or remuneration paid to Employee in consideration of work and services performed outside the scope of Employee' employment hereunder shall inure to the benefit of Employee. (c) The parties hereto agree that none of Employee's duties hereunder shall require him to, and Employee agrees that he will not without the consent of the Board, which consent shall not be unreasonably withheld, change his personal residence from the Old Brookville, New York SMSA Area. 1.3 EMPLOYMENT PERIOD. Employee's employment under this Agreement shall begin on the date hereof and shall continue through and until the second anniversary of the date hereof (the "Initial Period"). Employee shall be employed as a consultant to the Company, in accordance with a standard Company consulting agreement to be executed, for a one year period (the "Consulting Period") following the end of the Initial Period. The Initial Period and the Consulting Period are hereinafter collectively referred to as the "Employment Period." Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to Section 1.4 and Section 1.5 below. 1.4 TERMINATION BY THE COMPANY. The Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, (i) for "Cause", (ii) without Cause for any or no reason, and (iii) due to the Disability of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to Section 15. This Agreement shall terminate automatically upon Employee's death. "Cause" as used herein means the occurrence of any of the following events: (a) the determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts constituting (i) a crime involving moral turpitude, dishonesty or theft, (ii) dishonesty or disloyalty with respect to the Company, or (iii) fraud; -2- 3 (b) the determination by the Board in the exercise of its reasonable judgment that Employee has committed an act that indicates alcohol or drug abuse by Employee that adversely affects his performance hereunder; (c) a material breach by Employee of any of the terms and conditions of Sections 3 or 4 of this Agreement; or (d) Employee's gross negligence, habitual neglect, or intentional misconduct in the performance of his duties hereunder. Employee shall be deemed to have a "Disability" for purposes of this Agreement if Employee shall be unable, by reason of illness or physical or mental incapacity or disability (from any cause or causes whatsoever), to perform Employee's essential job functions hereunder, whether with or without reasonable accommodation by the Company, in substantially the manner and to the extent required hereunder prior to the commencement of such Disability, for a total period of 90 days in any 180-day period. In the event Employee shall be under a Disability, the Company shall have the right to terminate Employee's employment hereunder during the continuance of such Disability upon at least thirty (30) days prior written notice to Employee. Such determination shall not be arbitrary or unreasonable, and the Board shall take into consideration the opinion of Employee's personal physician, if reasonably available, as well as applicable provisions of the Americans with Disabilities Act, but such determination by the Board, if not arbitrary or unreasonable, shall be final and binding on the parties hereto. 1.5 TERMINATION BY EMPLOYEE. Employee has the right to terminate his employment under this Agreement for any or no reason, upon ninety (90) days prior written notice to the Company. 1.6 BOARD OF DIRECTORS AND RESIGNATION. Throughout the Employment Period and for two years thereafter unless Employee's employment has been terminated for cause, the Company agrees to seek to cause Employee to be elected to the Board. Compensation for serving as a director after expiration of the Employment Period will be the same as for all other outside directors. Unless by virtue of his beneficial ownership of voting stock of the Company he has voting control over a number of shares sufficient to assure his election to the Board, upon the termination of Employee's employment with the Company for Cause, Employee shall be deemed to have automatically resigned from any position he may then hold on the Board. Such resignation shall be deemed effective immediately without the requirement that a written resignation be delivered. 1.7 INDEMNITY. The Company shall indemnify Employee and hold him harmless to the fullest extent permissible under applicable law for all acts or decisions made by him in good faith while performing services for the Company. The Company shall also use its best efforts to obtain coverage for him under any insurance policy obtained during the term of this Agreement covering the other officers and directors of the Company against lawsuits. -3- 4 2. COMPENSATION AND BENEFITS. 2.1 BASE COMPENSATION. During the Employment Period, the Company will pay Employee an annual base salary of $190,000.00 per annum (the "Base Salary") ( contingent upon Faircom Inc. corporate expenses for the fiscal year ended December 31, 1997 having been reduced by at least $27,000 annually during the Employment Period), payable in accordance with the Company's regular payroll policy for senior executive salaried employees. Employee represents and warrants that Faircom Inc. has reduced such corporate expenses by at least $27,000 annually over each of the three years by eliminating those expenses listed on Exhibit B, and the Company agrees that the elimination of such expenses satisfies such contingency. Upon termination of the Employment Period, the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which the Employment Period had continued. 2.2 DISCRETIONARY BONUS. Within seventy five (75) days following the end of each fiscal year, the Board, as part of its annual review of Employee's performance, shall consider in its sole discretion the merits of a bonus to Employee, and in the event a bonus is warranted, shall cause the Company to award to Employee a bonus (the "Discretionary Bonus") for such year in an amount to be determined by the Board in its reasonable judgment based upon the Employee's and the Company's performance and the achievement of reasonably attainable goals and objectives established by the Board in consultation with Employee for such year. 2.3 STOCK OPTIONS. In addition to and not in lieu of Discretionary Bonuses, the Company may, from time to time and on such terms and conditions as the Board shall deem appropriate, in its sole discretion, grant to Employee qualified and/or non-qualified options to acquire capital stock of the Company pursuant to the Company's 1998 Management Stock Option Plan. 2.4 BENEFITS. In addition to the Base Salary, any Discretionary Bonus and any stock options payable or granted to Employee hereunder, Employee will be entitled to the following benefits during the Employment Period: (a) payments of premiums for hospitalization, disability, life and health insurance, to the extent offered by the Company, and in amounts consistent with Company policy, for all key management employees, as reasonably determined by the Board; (b) up to four (4) weeks paid vacation each year with salary, provided that unused vacation time shall not be carried over to subsequent years; (c) reimbursement for reasonable, ordinary and necessary out-of-pocket business expenses incurred by Employee in the performance of his duties, subject to the Company's policies in effect from time to time with respect to travel, entertainment and other expenses, including without limitation, requirements with respect to reporting and documentation of such expenses; -4- 5 (d) use of an automobile at the Company's expense which shall include expenses for comprehensive insurance coverage for the automobile; (e) lease of Suite 220, Old Brookville offices, pursuant to existing lease terms, which lease will be renewed for a three (3) year term commencing March 1, 1998 and ending February 28, 2001; and (f) other benefit arrangements and perquisites, including a 401(k) or similar tax deferral plan, to the extent made generally available by the Company to its executives and key management employees. 2.5 TAXES, ETC. All compensation payable to Employee hereunder is stated in gross amount and shall be subject to all applicable withholding taxes, other normal payroll and any other amounts required by law to be withheld. 2.6 COMPENSATION AFTER TERMINATION. (a) If the Employment Period is terminated (i) by the Company without Cause; (ii) by reason of Employee's Disability; or (iii) through expiration of the Employment Period or death of Employee, then except as otherwise provided in the specific terms of the option agreement or grant, all unvested options to purchase stock of the Company held by Employee shall cease and terminate as of the date of termination; whereupon, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the termination or expiration date (except payment of Employee's current Base Salary accrued through the date of termination or expiration and any deferred payments provided for herein) and the Company shall continue to have all other rights available hereunder (including without limitation, all rights under Sections 3 and 4 at law or in equity). (b) If the Employment Period is terminated by the Company because of Employee's Disability, the Company agrees to continue to pay Employee his current Base Salary during such period of Disability, said payments to continue for a maximum of six months. Thereafter, Employee shall be paid by the Company's insurer, if any, such disability benefits as may be paid to any employee of the Company under any disability plan then in effect, if any. (c) If the Employment Period is terminated by the Company without Cause, Employee shall be entitled to receive as severance pay (in addition to the payment of the Base Salary through the date of termination as well as a prorated Discretionary Bonus) an amount equal to the greater of (i) his Base Salary for a period equal to twelve (12) months and (ii) Employee's Base Salary for the remainder of the Employment Period, such amount to be payable in regular installments in accordance with the Company's general payroll practices for salaried employees. Employee shall have no obligation to mitigate these post-employment payments by seeking other employment. Except pursuant to Section 2.6(a), the Company shall have no other obligations hereunder or otherwise with respect to Employee's employment from and after the termination or expiration date, and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under Sections 3, 4, and 6 at law or in equity). -5- 6 (d) If the Employment Period is terminated pursuant to Section 2.6(a)(iii), 2.6(b), or 2.6(c) above, Employee shall be entitled to receive, at such time it would otherwise be payable, any Discretionary Bonus which would have been payable, based upon the Company's performance over the full fiscal year, prorated for that portion of the fiscal year during which the Employee was employed by the Company. 2.7 PROFIT SHARING, PENSION AND SALARY DEFERRAL BENEFITS. It is understood by the parties to this Agreement that, during the Employment Period, Employee shall be entitled to participate in or accrue benefits under any pension, salary deferral or profit sharing plan now existing or hereafter created for employees of the Company upon terms and conditions equivalent to those which the Company may provide for other senior executive employees. 3. COVENANT NOT TO COMPETE. 3.1 NON-COMPETITION. Employee agrees that during the Employment Period and for the 18-month period immediately thereafter, he shall not, within a seventy (75) mile radius of any radio station transmission tower or studio then owned or operated, directly or indirectly, by the Company (the "Territory"), engage in any of the following activities: (a) Directly or indirectly enter into the employ or render any service to or act in concert with any person, partnership, corporation or other entity engaged in the ownership or operation of radio stations (the "Radio Business") with a radio station transmission tower or studio located within the Territory; or (b) Directly or indirectly engage in the Radio Business with a radio station transmission tower or studio located within the Territory on his own account; or (c) Become interested in any such Radio Business with a radio station transmission tower or studio located within the Territory directly or indirectly as an individual, partner, shareholder, director, officer, principal, agent, employee, consultant, creditor or in any other relationship or capacity; provided, that the purchase of a publicly traded security of a corporation engaged in the Radio Business shall not in itself be deemed violative of this Agreement so long as Employee does not own, directly or indirectly, more than 3% of the securities of such corporation. 3.2 NON-SOLICITATION. Employee agrees that during the Employment Period and for the 18-month period immediately thereafter, he shall not (other than in the regular course of the Company's business) within the Territory solicit, directly or indirectly, business of the type then being performed by the Company from any person, partnership, corporation or other entity which is a customer of the Company at the time Employee's employment with the Company terminates, or was such a customer within the one-year period immediately prior thereto, or to the knowledge of Employee at the date of termination of employment, is a person, partnership, corporation or other entity with which the Company plans to do a substantial amount of business within the one-year period after such termination of employment. -6- 7 4. NON-INDUCEMENT AND NON-DISCLOSURE. 4.1 NON-INDUCEMENT. Employee agrees that during the Employment Period and for a one-year period immediately thereafter, he shall not directly or indirectly, individually or on behalf of persons not parties to this Agreement, aid or endeavor to solicit or induce any of the Company's employees to leave their employment with the Company in order to accept employment with Employee or another person, partnership, corporation or other entity. 4.2 NON-DISCLOSURE. At no time shall Employee divulge, furnish or make accessible to anyone (other than in the regular course of the Company's business) any knowledge or information with respect to confidential information or data of the Company, or with respect to any confidential information or data of any of the customers of the Company, or with respect to any other confidential aspect of the business or products or services of the Company or its customers. Upon termination of his employment with the Company, Employee shall return to the Company all records, documents and material containing confidential information of the Company prepared by Employee or coming into his possession by virtue of his employment with the Company, including all copies thereof. 5. EFFECT OF TERMINATION WITHOUT CAUSE. Notwithstanding the provisions of Sections 3 and 4 above, the restrictions imposed upon Employee in Sections 3.1, 3.2, and 4.1 of this Agreement during the period following the termination of his employment hereunder shall not apply in the event Employee's employment hereunder is terminated by the Company without cause pursuant to Section 1.4(ii). 6. REMEDIES. Employee acknowledges and agrees that the covenants set forth in Sections 3 and 4 of this Agreement (collectively, the "Restrictive Covenants") are reasonable and necessary for the protection of the Company's business interests and compliance therewith will not deprive Employee of the ability to earn a suitable living, that irreparable injury will result to the Company if Employee breaches any of the terms of the Restrictive Covenants, and that in the event of Employee's actual or threatened breach of any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event of any actual or threatened breach by him of any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. In such event, the periods of time referred to in Sections 3 and 4 shall be deemed extended for a period equal to the respective period during which Employee is in breach thereof, in order to provide for injunctive relief and specific performance for a period equal to the full term thereof. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages which it is able to prove. The covenants contained in Section 4 and 5 shall be construed as separate covenants, and if any court shall finally determine that the restraints provided for in any such covenants are too broad as to the geographic area, activity or time covered, said area, activity or time covered may be reduced to whatever extent the court deems reasonable and such covenants shall be enforced as to such reduced area, activity or time. Employee shall indemnify and hold Company harmless from any liability, loss, damage, judgment, cost or expense -7- 8 (including reasonable attorneys' fees and expenses) arising out of any claim or suit resulting from Employee's breach of these covenants or his failure to perform a duty hereunder. 7. NO OTHER NON-COMPETE AGREEMENTS. Notwithstanding anything to the contrary contained herein, Employee hereby represents, warrants and covenants to Company that Employee (i) is not a party to nor bound by any non-competition, non-solicitation, confidentiality or other agreement of any kind which would conflict with or prevent his employment hereunder or the full performance of all of his duties hereunder, and (ii) has not, and will not, wrongfully use any confidential information or know-how taken from another employer. Employee hereby agrees to indemnify and hold the Company harmless from any claim, loss, damage and expense hereafter incurred by the Company as a result of any breach of the foregoing representations, warranties or covenants made by Employee in this Section. 8. LIFE INSURANCE. The Company may at its discretion and at any time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee shall have the privilege of purchasing any such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. Notwithstanding the foregoing, as of the date of this Agreement the ownership of Term Life Policy No. 0000263362, underwritten by William Penn Co. on the life of Employee, shall be conveyed to Employee, and the Company shall pay the premiums on such policy during the Employment Period. The Company shall have no obligation to pay insurance premiums or any other liability whatsoever with respect to Universal Life Policy No. 0700000882, underwritten by William Penn Co. on the life of Employee, and owned by Employee. 9. INCOME TAX TREATMENT. Employee and the Company acknowledge that it is the intention of the Company to deduct all amounts paid under Section 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all amounts paid hereunder as ordinary income for income tax purposes, and should he report such amounts as other than ordinary income for income tax purposes, he will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including reasonable attorneys' and accounting fees and costs, which are incurred by the Company directly or indirectly as a result thereof. 10. ASSIGNMENT. No party hereto may assign or delegate any of its rights or obligations hereunder without the prior written consent of the other party hereto, provided, however, the Company shall have the right to assign all or any part of its rights and obligations under this Agreement to (i) any affiliate of the Company to which the Business is assigned at any time or (ii) the purchaser of all or substantially all of the assets of the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement -8- 9 by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto whether so expressed or not. 11. SEVERABILITY. Whenever possible, each provision of this agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 12. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 13. DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. 14. NOTICES. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered personally to the recipient, (ii) sent to the recipient by reputable express courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, or (iii) transmitted by telecopy to the recipient with a confirmation copy to follow the next day to be delivered by overnight carrier. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Joel M. Fairman 333 Glen Head Road Suite 220 Old Brookville, New York 11545 Facsimile No.: 516/676-2631 (b) If to the Company: Regent Communications, Inc. 50 East RiverCenter Boulevard Suite 180 Covington, Kentucky 41011 Facsimile No.: 606/292-0352 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) one day after the date of delivery to the overnight courier if sent by overnight courier or (z) the next business day after the date of transmittal by telecopy. -9- 10 15. PREAMBLE; PRELIMINARY RECITALS. The Preliminary Recitals set forth in the Preamble hereto are hereby incorporated and made part of this Agreement. 16. WAIVER. No modification, termination or attempted waiver of this Agreement shall be valid unless in writing and signed by the party against whom the same is sought to be entered. Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted the parties herein are cumulative and the waiver by a party of any single remedy shall not constitute a waiver of such party's right to assert all other legal remedies available to him or it under the circumstances. 17. ADDITIONAL OBLIGATIONS. Both during and after the Employment Period, Employee shall, upon reasonable notice, furnish the Company with such information as may be in Employee's possession, and cooperate with the Company, as may reasonably be requested by the Company (and, after the Employment Period, with due consideration for Employee's obligations with respect to any new employment or business activity) in connection with any litigation in which the Company or any affiliate is or may become a party. The Company shall reimburse Employee for all reasonable expenses incurred by Employee in fulfilling Employee's obligations under this Section 17. 18. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the Commonwealth of Kentucky without giving effect to provisions thereof regarding conflict of laws. 19. ENTIRE AGREEMENT. This Agreement, together with the Exhibits hereto, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: REGENT COMMUNICATIONS, INC. By: /s/ Terri S. Jacobs ------------------- Title: Chairman and CEO ---------------- EMPLOYEE: /s/ Joel M. Fairman ----------------------- Joel M. Fairman -10- 11 EXHIBIT A TO EXECUTIVE EMPLOYMENT AGREEMENT 1. Assist in the coordination and transition of the Regent and Faircom operations to ensure a smooth merger. 2. Serve as part of acquisition committee to assist Regent's future development and growth, utilizing knowledge, resources and contacts. 3. Shareholder relations. 4. Coordination of relationships with market makers, brokerage research firms and the like relating to public shares outstanding. 5. Coordinate acquisition agreements and other related matters. 6. Assist the Chairman and CEO with investment banking, commercial banking and other financial and capital matters. 7. Other duties determined by Chairman and Board. 12 EXHIBIT B TO EXECUTIVE EMPLOYMENT AGREEMENT 1. The lease for Suite 280 in 333 Glen Head Road, Old Brookville, New York, was terminated as of February 28, 1998. The rental expense for Suite 280 contained in Faircom Inc.'s corporate expenses for the fiscal year ended December 31, 1997 was $16,322.28. 2. As of the effective date of the Merger, Regent will no longer be responsible for payment of insurance premiums on Universal Life Policy No. 0700000882, underwritten by William Penn Co. on the life of Employee, for which the premiums paid in 1997 were $17,000. In the fiscal year ended December 31, 1997 these premiums were "grossed up" to $29,573.59 and this amount was included in Faircom's corporate expenses. Regent will be responsible for Term Life Policy No. 0000263362, underwritten by William Penn Co. on the life of Employee, for which the premiums paid in 1997 were $10,810.80 and that amount was included in Faircom's 1997 corporate expenses. Since this Term Life Policy will become a so-called "key-man" life policy, the premium will be "grossed up" to $18,639.32. This would result in an addition to Faircom Inc. corporate expense of $7,828.52 ($18,639.32 minus $10,810.80) offset by the elimination of $29,573.59 corporate expense, a net saving of $21,745.07 in Faircom corporate expense. 3. The sum of $16,322.28 and $21,745.07 is $38,067.35. 4. Employee represents and warrants that since December 31, 1997, Faircom Inc. has not entered into any agreements, obligations or commitments, other than in connection with activities relating to (i) the Agreement of Merger of Faircom Inc., Regent Merger Corp., Regent Communications, Inc., Blue Chip Capital Fund II Limited Partnership and Miami Valley Venture Fund, L.P., dated as of December 5, 1997, as amended, and (ii) the Shelby acquisition, which will increase the continuing corporate expense obligations of the Faircom operations not referred to above to an aggregate amount in excess of the aggregate amount of such other expenses incurred for the year ended December 1997. The foregoing representation shall not in any manner modify the terms of this Agreement and shall in no way be deemed to restrict the level of corporate expenses of the former Faircom operations from and after the date hereof which have been approved by the appropriate officers or by the directors of the Company. EX-20.D 12 EXHIBIT 20(D) 1 Exhibit 20(d) CONSULTING AND NON-COMPETITION AGREEMENT THIS CONSULTING AND NON-COMPETITION AGREEMENT ("Agreement") is made this 15th day of June, 1998, between REGENT COMMUNICATIONS, INC., a Delaware corporation (the "Corporation") with its principal offices in Covington, Kentucky, and JAMES H. LEVY, who resides at 245 Park Lane, Atherton, California 94025 (the "Consultant"). WHEREAS, pursuant to a certain Stock Purchase Agreement dated June 16, 1997, as amended, the Corporation has purchased all of the issued and outstanding shares of capital stock of The Park Lane Group ("Park Lane"), a California corporation engaged, through its subsidiaries, in the business of owning and operating radio stations; and WHEREAS, the Consultant has served as the chief executive officer of Park Lane for over seven years, and as such, has been responsible for the day-to-day operations of Park Lane and its subsidiaries, utilizing his many years of experience in the radio industry; and WHEREAS, the Corporation wishes to have the benefits of the Consultant's services and experience in the Corporation's ongoing business activities and has requested the Consultant to serve the Corporation as a consultant on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Consulting Services. (a) The Corporation shall retain the Consultant and the Consultant will provide consulting services to the Corporation for an initial term of one (1) year, commencing June 15, 1998. The term of this Agreement shall terminate on June 14, 1999 unless extended by the written agreement of the Corporation and the Consultant. (b) The Consultant shall perform such consulting services as are reasonably requested by the Corporation and within the scope of Consultant's experience and expertise subject to the conditions set forth herein. The Consultant shall report to the Chairman and President of the Corporation or to any other person designated from time to time by the Chairman. (c) The Corporation and the Consultant agree that the Consultant will provide consulting services to the Corporation on a full time basis, provided Consultant will not be required to devote more than forty (40) hours per week on average for such consulting services. (d) All of the Consultant's obligations under this Agreement shall be fulfilled within close proximity to Consultant's residence in California or at such other locations as may be deemed necessary by the Corporation in its sole discretion; provided, however, Consultant shall not be required to relocate his current residence nor shall he be required to spend 2 more than eight (8) nights away from home per month. Consultant shall be entitled to five (5) weeks' vacation, to be taken at such times as Consultant selects, subject to reasonable advance notice to the Corporation and consent of the Corporation, not to be unreasonably withheld. (e) Consultant's services shall be considered, for federal income tax reporting purposes, to be personal services income, and the total of all consulting fees paid hereunder during each calendar year of the term of this Agreement shall be reported by Corporation to Consultant by use of Internal Revenue Service Information Report Form 1099. Consultant acknowledges the character of consulting fee income so reported is income from personal services, and Corporation shall treat such payments as ordinary and necessary business expenses for federal income tax purposes. 2. Consulting Fees, Expenses. (a) For the consulting services furnished by the Consultant pursuant to this Agreement and for his agreement not to compete, the Corporation shall pay the Consultant $200,000.00, payable in twelve equal monthly installments during the term of this Agreement due in advance on the first day of each monthly period during said term. (b) The Consultant shall be reimbursed for all authorized reasonable expenses incurred by him in connection with the performance of his responsibilities hereunder upon presentation of expense statements, vouchers or other appropriate evidence of expense. An expense shall be deemed reasonable if it is an expense for which Consultant would have been reimbursed in connection with the performance of his responsibilities as chief executive officer of Park Lane. 3. Proprietary Information. Consultant acknowledges that in the course of his engagement by the Corporation, he has, is or may be making use of, acquiring or adding to confidential information of a special and unique nature and value relating to such matters as the Corporation's trade secrets, contracts, prices, know how, systems, programs and programming strategies, developments, designs, procedures, manuals, confidential reports and communications and lists of customers and clients. Further, any information and materials received by the Corporation or Consultant at any time from third parties in confidence (or subject to nondisclosure or similar covenants) shall also be deemed to be and shall be confidential information. Consultant hereby confirms that he has not and shall not, except with the prior written consent of the Corporation, or except when he is acting as a consultant of the Corporation solely for the benefit of the Corporation in connection with the Corporation's business and in accordance with, and as authorized by, the Corporation's business practices and employee practices, including without limitation those relating to the protection of confidential information, at any time during or following the termination of this Agreement, directly or indirectly, disclose, divulge, reveal, report, publish, transfer or use, for any purposes whatsoever, any of such confidential -2- 3 information which has been obtained or created by or disclosed to him as a result of his previous employment by Park Lane or engagement hereunder by the Corporation. Upon the termination of this Agreement, Consultant shall deliver to the Corporation all contracts, documents, books and records, memoranda, notes, work papers, manuals, computer software programs, and all other similar and dissimilar repositories containing information relating to the Corporation, including without limitation, confidential information and all copies thereof, in his possession or under his control. 4. Covenant Not To Compete. During the term of this Agreement, and for a period of one (1) year thereafter, the Consultant shall not, directly or indirectly, (a) engage as an employee, agent, partner, owner, officer, director, consultant, service provider or principal of or for any entity or enterprise which owns or operates a radio station whose transmitter site is located within a seventy-five (75) mile radius of any transmitter site of any radio station owned by the Corporation during the term of this Agreement and at the time of termination of this Agreement, or (b) individually or on behalf of any other person or entity aid or endeavor to solicit or induce any of the Corporation's employees to leave their employment with the Corporation in order to accept employment with Consultant or another person, partnership, corporation or other entity. 5. General. (a) This Agreement shall be governed by and construed and enforced in accordance with the internal substantive laws of the State of California. (b) This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof. (c) This Agreement, and the Consultant's obligations hereunder, may not be assigned by the Consultant. The Corporation may assign its rights in connection with any sale, transfer or other disposition of all or substantially all of its business or assets. In any event, the obligations of the Corporation hereunder shall be binding on its successors or assigns, whether by merger, consolidation or acquisition of all or substantially all of its business or assets. (d) This Agreement may be amended, modified, superseded, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. (e) Consultant, in performing his services hereunder, is doing so in an advisory capacity and Consultant will be held harmless from any actions taken by Corporation as a result of the consulting services rendered hereunder. -3- 4 (f) The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. The Consultant acknowledges that in the event he breaches this Agreement, the Corporation may terminate this Agreement without further notice or liability and recover from Consultant all damages, including attorneys' fees, resulting from his breach. In addition to any other rights or remedies the Corporation may have, the Corporation may obtain a restraining order or injunction against any threatened or actual breach of Sections 3 and 4 of this Agreement by Consultant or a court order requiring specific performance of this Agreement. (g) Consultant has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon the Corporation under this Agreement, and hereby acknowledges and agrees that such covenants are reasonable, are designed to prevent irreparable damage to the Corporation, are required to protect the Corporation's legitimate interests, and do not confer a benefit upon the Corporation disproportionate to the detriment to Consultant. Consultant represents to the Corporation that, based on Consultant's experience and abilities, Consultant's observance of the covenants set forth in Section 4 above, including without limitation the geographic area and time period covered, will not cause undue hardship to Consultant or unreasonably interfere with Consultant's ability to earn a livelihood. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. REGENT COMMUNICATIONS, INC. By: William L. Stakelin --------------------- Name: William L. Stakelin ------------------- Title: President ------------------- James H. Levy -------------------------- JAMES H. LEVY -4- -----END PRIVACY-ENHANCED MESSAGE-----