EXHIBIT 10.9
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. MINNEAPOLIS TIME DECEMBER 31, 2000
Certificate for 1,679,234 Class A Warrants
2,840,967 Class B Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
NETCO COMMUNICATIONS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES that THE HOLDER INC., ("Holder") or assigns, is the owner of
the number of Warrants set forth above, each of which represents the right to
purchase from Netco Communications Corporation, a Minnesota corporation (the
"Company"), at any time on or before 5:00 Minneapolis time, December 31, 2000,
upon compliance with and subject to the conditions and limitations set forth
herein, one share (subject to adjustments referred to below) of the Common Stock
of the Company, par value $.0l per share (such shares or other securities or
property purchasable upon exercise of the Warrants being herein called the
"Shares").
Upon any exercise of less than all the Warrants evidenced by this Warrant
Certificate, there shall be issued to the Holder a new Warrant Certificate in
respect of the Warrants as to which this Warrant Certificate was not exercised.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability. The rights represented by this Warrant may
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be exercised by the Holder hereof, in whole or in part (but not as to a
fractional share of Common Stock), by written notice of exercise delivered to
the Company ten (10) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and by paying in full, as provided herein, the purchase
price of $19.50 per share (the "Initial Exercise Price" is subject to
adjustments as noted subsequently. For purposes hereof, "Current Exercise
Price" means the Initial Exercise Price as may be adjusted from time to time in
accordance with the provisions hereof).
Payment upon exercise of the rights represented by this Warrant may be made
at the option of the Holder (a) in cash or by certified or official bank check
payable to the order of the Company, (b) by surrendering to the Company for
cancellation and retirement any number of shares of Class A Preferred Shares,
par value $10.00 per share, which shares shall each be valued for purposes
hereof at their par value of
$10.00 plus the sum of any then accumulated and unpaid dividends thereon, (c) by
cancellation and discharge of the Company from all or any portion of any debt in
the amount then owed by the Company to the Holder on a dollar for dollar basis,
including principal whether or not then due and payable together with any
interest accrued and unpaid thereon, or (d) by any combination of any or all of
the foregoing.
This Warrant may not be transferred or divided into two or more Warrants of
smaller denominations, nor may any Common Stock issued pursuant to exercise of
this Warrant be transferred unless this Warrant or shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") and applicable
state laws, or unless the Holder of the certificate obtains an opinion of
counsel satisfactory to the Company and its counsel that the proposed transfer
may be effected without registration pursuant to exemptions under the Securities
Act and applicable state laws.
2. Issuance of Shares. The Company agrees that the shares purchased
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hereby shall be deemed to be issued to the record Holder hereof as of the close
of business on the date on which this Warrant shall have been surrendered and
the payment made for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of stock so purchased
shall be delivered to the Holder hereof within a reasonable time, not exceeding
ten (10) days after the rights represented by this Warrant shall have been so
exercised, and, unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be delivered to the Holder hereof within such
time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for shares of stock upon exercise of this Warrant,
except in accordance with the provisions, and subject to the limitations, of
paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all shares
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which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized and issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be required to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then effective purchase price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. The Class A and B Warrants; Adjustments. The above provisions are,
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however, subject to the following provisions:
(a) The Class A Warrants. The total number of shares which may be
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purchased by the Holder upon exercise of the Class A Warrants shall be
the number set forth above, subject to adjustment as set forth in
Sections 4(e) and (h). The Class A Warrants may be exercised at any
time prior to expiration as set forth herein.
(b) The Class B Warrants. The total number of shares which may be
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purchased upon exercise of The Class B Warrants shall be a maximum of
the number set forth above, subject to adjustment as set forth in
Sections 4(e) and (h). The number of Class B Warrants which shall
accrue to the Holder hereunder shall be based on the maximum amount of
the Outstanding Balance, as defined in Section 4(c), which is
outstanding at any time during months 25-36 of the First Chicago
Facility prior to the time the First Chicago Facility is paid in full,
and based on the time when the Outstanding Balance is repaid by
Qualified Repayments, as defined in Section 4(d). Exhibit A hereto
contains a number of examples illustrating the determination of the
Outstanding Balance and the number of Class B Warrants to which the
Holder will be entitled hereunder. The Holder shall obtain the number
of Class B Warrants determined as follows:
(i) Determine the highest Outstanding Balance at any time
outstanding during months 25-36 ("Highest OB") and multiply the
amount thereof up to $25,000,000, times a factor of .06313259
and for any amount above $25,000,000 by a factor of .12626518
and credit the Holder with the number of Class B Warrants which
is the total of these calculations;
(ii) Reduce the number of Class B Warrants credited to the Holder by
virtue of Subsection (i) by that number of Class B Warrants
which is determined as follows: Determine the Net Qualified
Repayment ("NQR"), as defined in Subsection (iii), during months
25-30 (herein referred to as "NQRX") and the Net Qualified
Repayment during months 31-36 (herein referred to as "NQRY").
Multiply the amount of NQRX representing the net reduction of
the amount of the Highest OB in excess of $25,000,000 by
.0842189 and the remainder of NQRX by .04210944. Multiply the
amount of NQRY representing the net reduction of the amount of
the Highest OB in excess of $25,000,00 by .0420463 and the
remainder of NQRY by .02102316. The number of Class B Warrants
credited to the Holder by virtue of Subsection (i) shall be
reduced by the aggregate of these four calculations.
(iii) For all purposes of this Section in calculating the Warrants
accruing to the Holder, the NQR shall be determined as the
amount, if any, by which the Highest OB, if it has been reached
prior to the end of that period, has been reduced as of the end
of that particular time period by Qualified Repayments; the sum
of NQRX and NQRY cannot exceed the Highest OB and will not equal
the Highest OB unless the Company repays all obligations under
the First Chicago Facility with Qualified Repayments; any
increases in the Outstanding Balance during months 31-36 shall
be deemed to offset dollar for dollar any Qualified Repayments
occurring during months 25-30; and obtaining the absolute
release of the WorldCom, Inc. Guaranty of the First Chicago
Facility shall be deemed to be a Qualified Repayment of the
Outstanding Balance at that time.
(iv) The accrued Class B Warrants may be exercised at any time after
they have accrued, prior to expiration as set forth herein.
(c) Determination of the Outstanding Balance.
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The Outstanding Balance shall be calculated at any relevant point in
time as the aggregate of all draws by the Company against the First
Chicago Facility, all other amounts advanced or for which the Company
becomes obligated thereunder, including all accrued interest,
compounded monthly, reduced by Qualified Repayments, as hereinafter
defined in Section 4(d).
(d) Qualified Repayments. Repayments of the First Chicago Facility shall
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be considered Qualified Repayments if the Company repays amounts
borrowed under the First Chicago Facility using EBITDA, as defined
herein, and not funds from loans, sale of Company assets or equity
invested in the Company, except that the proceeds of a public offering
of the securities of the Company which is used to repay the First
Chicago Facility may be considered as Qualified Repayments.
Furthermore, if the Company obtains the absolute release of the
WorldCom, Inc. Guaranty of the First Chicago Facility, it shall be
deemed to be a Qualified Repayment of the Outstanding Balance at that
time. "EBITDA" shall mean earnings before interest, taxes,
depreciation and amortization or is otherwise stated as gross revenue,
less cost of goods sold, less operating expenses, determined in
accordance with generally accepted accounting principles applied on a
consistent basis.
(e) In case the Company shall at any time hereafter subdivide or combine
the outstanding shares of Common Stock or declare a dividend payable
in Common Stock, the exercise price of this Warrant in effect
immediately prior to the subdivision,, combination or record date for
such dividend payable in Common Stock shall forthwith be
proportionately increased, in the case of combination, or decreased,
in the case of subdivision or dividend payable in Common Stock, and
each share of Common Stock purchasable upon exercise of the Warrant
shall be changed to the number determined by dividing the Current
Exercise Price by the exercise price as adjusted after the
subdivision, combination, or dividend payable in Common Stock.
(f) If the Company shall at any time issue any Common Stock, or any
option, warrant, right or interest excercisable or convertible into
Common Stock, at a price per share that is less than the then Current
Exercise Price, then and in each such case such Current Exercise Price
shall be adjusted to the equivalent price of the Common Stock or
exercise of conversion price, as the case may be.
(g) No fractional shares of Common Stock are to be issued upon the
exercise of the Warrant, but the Company shall pay a cash adjustment
in respect of any fraction of a share which would otherwise be
issuable in an amount equal to the same fraction of the market price
per share of Common Stock on the date of exercise as determined in
good faith by the Company.
(h) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock then, as a condition
of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provision shall be made whereby the Holder
hereof shall hereafter have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Warrant and
in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivables upon the exercise of the
rights represented hereby, such shares of stock, securities or assets
as may be issued and payable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to the number
of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the
number of shares purchasable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation, merger, or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the registered
Holder hereof at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to purchase.
(i) If the Company shall at any time or from time to time (i) distribute
(otherwise than as a dividend in cash or in Common Stock or securities
convertible into or exchangeable for Common Stock) to the holders of
Common Stock any property or other securities, or (ii) declare a
divide upon the Common Stock (to the extent payable otherwise than out
of earnings or earned surplus, as indicated by the accounting
treatment of such dividend in the books of the Company, and otherwise
than in Common Stock or securities convertible into or exchangeable
for Common Stock), the Company shall reserve and the Holder of this
Warrant shall thereafter upon exercise hereof be entitled to receive,
with respect to each share of Common Stock purchased hereunder,
without any change in, or payment in addition to, the exercise price,
the amount of any property or other securities which would have been
distributable to such holder had such holder been a holder of one
share of Common Stock on the record date of such distribution or
dividend (or if no record date was established by the Company, the
date such distribution or dividend was paid).
(j) Upon any adjustment of the Current Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the registered holder of
this Warrant at the address of such holder as shown on the books of
the Company, which notice shall state the exercise price resulting
from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
5. Common Stock. As used herein, the term "Common Stock" means the
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Company's presently authorized shares of Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
6. No Voting Rights. This Warrant shall not entitle the Holder hereof to
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any voting rights or other rights as a stockholder of the Company.
7. Notice of Transfer of Warrant or Resale of Shares. The Holder of this
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Warrant, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, or transferring any Common Stock issued upon
the exercise hereof, of such holder's intention to do so, describing briefly the
manner of any proposed transfer. Promptly upon receiving such written notice
the Company shall present copies thereof to the Company counsel and if in the
opinion of such counsel the proposed transfer complies with federal and state
securities laws and may be effected without registration or qualification (under
any Federal or State law), the Company, as promptly as practicable, shall notify
such holder of such opinion, whereupon such holder shall be entitled to transfer
this Warrant or to dispose of shares of Common Stock received upon the previous
exercise of this Warrant, provided that an appropriate legend may be endorsed on
this Warrant or the certificates for such shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel to the Company
to prevent further transfers which would be in violation of Section 5 of the
Securities Act of 1933.
If in the opinion of Company's counsel referred to in this paragraph 7
hereof, the proposed transfer or disposition of shares described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of Common Stock
issued on the exercise hereof, the Company shall promptly give written notice
thereof to the Holder hereof, and the Holder will limit its activities in
respect to such as, in the opinion of such counsel, are permitted by law.
8. Registration Rights. If the Company, at any time after three (3) years
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from the date hereof until two (2) years after the complete exercise of this
Warrant, but in any event no later than March 31, 2003, proposes to claim an
exemption under Section 3(b) for a public offering of any of its securities or
to register under the Securities Act of 1933 (except by a Form S-8 or other
inappropriate Form for registration) any of its securities, it will give written
notice to all registered holders of Warrants, and all registered holders of
shares of Common Stock acquired upon the exercise of Warrants, of its intention
to do so and, on the written request of any registered holders given within
twenty (20) days after receipt of any such notice (which request shall specify
the Warrants or shares of Common Stock intended to be sold or disposed of by
such registered holder and describe the nature of any proposed sale or other
disposition thereof), the Company will use its best efforts to cause all such
Warrants and/or shares, the registered holders of which shall have requested the
registration or qualification thereof, to be included in such notification or
registration statement proposed to be filed by the Company; provided, however,
that no such inclusion shall be required (i) if the Shares may then be sold by
the holder thereof without limitation under Rule 144(k), or comparable successor
rule of the Securities and Exchange Commission, or (ii) if the managing
underwriter of such
offering reasonably determines that including such Shares would unreasonably
interfere with such offering. The Company will pay all expenses of registration.
The Warrant holders shall pay all commissions or discounts applicable to the
sale of the included Shares, together with any expenses of counsel retained by
them in connection with their sale of the Shares.
9. Related Agreement. The Class A Warrants and the Class B Warrants
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provided herein are being issued pursuant to, and in connection with a certain
Guaranty Agreement ("Guaranty Agreement") of even date herewith between the
Company and the Holder. Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Guaranty Agreement.
IN WITNESS WHEREOF, Netco Communications Corporation, Inc. has caused this
Warrant to be signed by its duly authorized officer and this Warrant to be dated
September 26, 1997.
NETCO COMMUNICATIONS CORPORATION
By: /s/ Edward J. Driscoll, III
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Edward J. Driscoll, III
President