<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
NOTE EXCHANGE ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONCENTRIC NETWORK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4813 65-0257497
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
10590 NORTH TANTAU AVENUE
CUPERTINO, CA 95014
(408) 342-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
HENRY R. NOTHHAFT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONCENTRIC NETWORK CORPORATION
10590 NORTH TANTAU AVENUE
CUPERTINO, CA 95014
(408) 342-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID J. SEGRE
CHRISTOPHER K. SADEGHIAN
PAUL B. SHINN
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO TO BE PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED PER UNIT(1) PRICE(2) FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New 12 3/4% Senior Notes
due 2007................. $150,000,000 108% $162,000,000 $47,790
===============================================================================
</TABLE>
(1) Based on the bid price of $1,080 per $1,000 principal amount of the
Existing Notes (as defined) at close of business on January 26, 1998.
There was no ask price for the Existing Notes on such date.
(2) Estimated solely for the purpose of calculating the registration fee
calculated pursuant to Rule 457(f) under the Securities Act of 1933 as the
market value of the securities to be canceled in the exchange.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. NEITHER THIS PROSPECTUS NOR THE LETTER OF TRANSMITTAL +
+SHALL CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR +
+SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 28, 1998
PROSPECTUS
$150,000,000
[CONCENTRIC NETWORK LOGO APPEARS HERE]
OFFER TO EXCHANGE
NEW 12 3/4% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ALL OUTSTANDING
12 3/4% SENIOR NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1998, UNLESS EXTENDED.
Concentric Network Corporation, a Delaware corporation ("Concentric" or the
"Company") hereby offers upon the terms and subject to the conditions set forth
in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal") (the offering pursuant to the
Prospectus together with the Letter of Transmittal herein the "Exchange Offer")
to exchange up to an aggregate principal amount of $150,000,000 of its new 12
3/4% Senior Notes due 2007 (as defined in that certain indenture dated December
18, 1997 by and among the Company and Chase Manhattan Bank and Trust Company,
National Association ("Chase Manhattan") as Trustee (the "Indenture"))
(capitalized terms followed by the parenthetical remark "(as defined)" and not
otherwise defined herein shall have the meanings given to them in the
Indenture) (herein the "Exchange Notes") for up to an aggregate principal
amount of $150,000,000 of the Company's outstanding 12 3/4% Senior Notes due
2007 (herein the "Existing Notes"). The terms of the Exchange Notes are
substantially identical in all material respects to those of the Existing
Notes, respectively, except that the Exchange Notes (i) will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and therefore will not be subject to certain restrictions on transfer
applicable to the Existing Notes and (ii) will not be entitled to registration
or other rights under the Registration Rights Agreement (as defined) including
the provision in the Registration Rights Agreement for payment of Liquidated
Damages (as defined) upon failure by the Company to consummate the Exchange
Offer or the occurrence of certain other events. See "Description of Notes."
The Exchange Notes will be issued pursuant to, and the holders thereof (herein
the "New Holders") will be entitled to the benefit of, the Indenture governing
the Existing Notes. In the event that the Exchange Offer is consummated, any
Existing Notes which remain outstanding after consummation of the Exchange
Offer and the Exchange Notes issued in the Exchange Offer will vote together as
a single class for purposes of determining whether Holders of the requisite
percentage in outstanding principal amount of Notes (as defined below) have
taken certain actions or exercised certain rights under the Indenture. See
"Description of Exchange Notes", "The Exchange Offer." Holders of Existing
Notes are referred to herein as "Existing Holders", and Existing Holders
together with New Holders are referred to herein collectively as "Holders". The
Exchange Notes together with the Existing Notes are referred to herein
collectively as the "Notes".
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED
TO EXISTING HOLDERS ON OR ABOUT , 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH EXISTING HOLDERS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE
LETTER OF TRANSMITTAL. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1998
<PAGE>
(continuation of cover page)
The Existing Notes were offered in connection with the issuance of 150,000
units (collectively, the "Units"), each consisting of $1,000 principal amount
of 12 3/4% Senior Notes due 2007 of the Company and one warrant (a "Warrant"),
each Warrant entitling the holder thereof to purchase 6.34 Shares of Common
Stock, par value $0.001 per share (the "Common Stock"), of the Company (the
"Existing Notes Offering"), to fund potential acquisitions and to support the
Company's general working capital purposes. See "Description of Units."
Interest on the Exchange Notes will be payable semi-annually in arrears on
June 15 and December 15 of each year, commencing June 15, 1998.
The Exchange Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after December 15, 2002, at the redemption
prices set forth herein, plus accrued interest to the date of redemption. In
addition, on or prior to December 15, 2000, the Company may redeem up to 35%
of the original aggregate principal amount of Notes at a redemption price of
112.750% of the principal amount, together with accrued and unpaid interest to
the date of redemption with the net cash proceeds of one or more Public Equity
Offerings (as defined) or the sale of Common Stock to a Strategic Investor (as
defined), provided that at least 65% of the original aggregate principal
amount of the Notes remain outstanding. See "Description of Notes--Optional
Redemption."
Following the occurrence of a Change of Control (as defined below), the
Company will be required to make an offer to purchase the Exchange Notes at a
purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase. The Company may not have
available sufficient funds or the financial resources necessary to satisfy its
obligations to repurchase the Notes and other debt that may become repayable
upon a Change of Control. See "Risk Factors--Change of Control" and
"Description of the Notes--Change of Control."
The Exchange Notes will be senior unsecured obligations of the Company,
ranking pari passu in right of payment with all existing and future unsecured
and unsubordinated indebtedness of the Company and senior in right of payment
to all existing and future Subordinated Indebtedness (as defined) of the
Company. The Notes will be effectively subordinated to all secured
indebtedness of the Company to the extent of the value of the assets securing
such indebtedness and to permitted indebtedness of subsidiaries of the
Company. As of September 30, 1997, on an as adjusted basis after giving effect
to the Existing Notes Offering, there would have been approximately $196.9
million of indebtedness of which $51.3 million would have been secured long-
term indebtedness (consisting entirely of capital lease obligations)
outstanding to which holders of the Notes would have been effectively
subordinated in right of payment. See "Description of Notes--Ranking."
On December 15, 1997, the Company issued $150.0 million aggregate principal
amount of Existing Notes. The Existing Notes were issued pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. The
Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement by and
among the Company and UBS Securities LLC, Bear, Stearns & Co., Inc. and Wheat,
First Securities, Inc. as the initial purchasers (the "Initial Purchasers") of
the Existing Notes. The Exchange Offer is intended to satisfy the Company's
obligations under the Registration Rights Agreement. Once the Exchange Offer
is consummated, the Company generally will have no further obligations to
register any of the Existing Notes not tendered by Existing Holders for
exchange. See "Risk Factors--Consequences to Non-Tendering Holders of Existing
Notes."
The Exchange Notes generally will be issued in the form of Global Notes (as
defined) which will be deposited with, or on behalf of, the Depositary (as
defined) and registered in its name or in the name of a nominee of the
Depositary. Beneficial interests in the Global Notes representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by DTC and its participants. See "Book-Entry; Delivery and
Form."
i
<PAGE>
The Company will accept for exchange any and all Existing Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City
time, on , 1998 (20 business days after effectiveness of the registration
statement on Form S-4 of which this Prospectus is a part (the "Exchange Offer
Registration Statement", which term shall encompass all amendments, exhibits,
annexes and schedules thereto)), unless extended by the Company in its sole
discretion (the "Expiration Date"). The Expiration Date will not in any event
be extended to a date later than , 1998 (30 business days after
effectiveness of the Exchange Offer Registration Statement). Tenders of
Existing Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. In the event the Company terminates the Exchange
Offer and does not accept for exchange any Existing Notes with respect to the
Exchange Offer, the Company will promptly return the Existing Notes to the
Existing Holders. The Exchange Offer is not conditioned upon any minimum
principal amount of Existing Notes being tendered for exchange, but is subject
to certain events and conditions that may be waived by the Company and to the
terms and provisions of the Registration Rights Agreement. The Existing Notes
may be tendered in whole or in part solely in integral multiples of $1,000.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance (the "Staff") of the Securities
and Exchange Commission (the "Commission") as set forth in the Staff's Exxon
Capital Holdings Corporation no-action letter (available May 13, 1988) (the
"Exxon Capital No-Action Letter"), Morgan Stanley & Co. Incorporated no-action
letter (available June 5, 1991) (the "Morgan Stanley No-Action Letter"),
Shearman & Sterling no-action letter (available July 2, 1993) (the "Shearman &
Sterling No-Action Letter"), and other interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter addressing such matters and there can be no assurance that
the Staff would make a similar determination with respect to the Exchange
Offer as it has in such interpretive letters to third parties. Based on these
interpretations by the Staff, and subject to the two immediately following
sentences, the Company believes that Exchange Notes issued pursuant to this
Exchange Offer in exchange for Existing Notes may be offered for resale,
resold and otherwise transferred by such New Holder (other than a New Holder
who is a broker-dealer) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such New Holder's
business and that such New Holder is not participating, and has no arrangement
or understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such Exchange Notes. However, any Existing
Holder who (i) is an "affiliate" of the Company (within the meaning of Rule
405 under the Securities Act), (ii) does not acquire such Exchange Notes in
the ordinary course of its business, (iii) intends to participate in the
Exchange Offer for the purpose of distributing Exchange Notes, or (iv) is a
broker-dealer who purchased such Existing Notes directly from the Company, (a)
will not be able to rely on the interpretations of the Staff set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Existing Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Existing Notes unless such
sale is made pursuant to an exemption from such requirements. In addition, as
described below, if any broker-dealer holds Existing Notes acquired for its
own account as a result of market-making or other trading activities and
exchanges such Existing Notes for Exchange Notes (a "Participating Broker-
Dealer"), then such Participating Broker-Dealer may be deemed a statutory
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resales of such Exchange Notes. See "Plan of Distribution".
Each Existing Holder who wishes to exchange Existing Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not
an affiliate of the Company, (ii) any Exchange Notes to be received by it are
being acquired in the ordinary course of its business, and (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Existing Notes for its
own account as a result of market-making activities or other trading
activities (and not directly from the Company) and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will
ii
<PAGE>
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the Staff in the interpretive
letters referred to above, the Company believes that Participating Broker-
Dealers may fulfill their prospectus delivery requirements with respect to the
Exchange Notes received upon exchange of such Existing Notes with a prospectus
meeting the requirements of the Securities Act, which may be the prospectus
prepared for an exchange offer so long as it contains a description of the
plan of distribution with respect to the resale of such Exchange Notes.
Accordingly, this Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer during the period
referred to below in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired by such
Participating Broker-Dealer for its own account as a result of market-making
or other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Company shall use its best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented
and amended to the extent necessary to ensure that it is available for sales
of Exchange Notes by Participating Broker-Dealers, and to ensure that the
Exchange Offer Registration Statement conforms with the requirements of the
Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period expiring approximately 180 days from the date
on which the Exchange Offer Registration Statement is declared effective. See
"Plan of Distribution." Any Participating Broker-Dealer who is an affiliate of
the Company may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer-Resales of
Exchange Notes."
Each Participating Broker-Dealer who surrenders Existing Notes pursuant to
the Exchange Offer will be deemed to have agreed, by execution of the Letter
of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any
material respect or which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made,
not misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of Exchange Notes pursuant to this Prospectus until the Company has
amended or supplemented this Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemented Prospectus to
such Participating Broker-Dealer or the Company has given notice that the sale
of the Exchange Notes may be resumed, as the case may be.
The Exchange Notes will be a new issue of securities for which there
currently is no established trading market. Although the Initial Purchasers
have informed the Company that they currently intend to make a market in the
Exchange Notes, they are not obligated to do so, and any such market making
may be discontinued at any time without notice. As the Existing Notes were
issued and the Exchange Notes are being issued to a limited number of
institutions who typically hold similar securities for investment, the Company
does not expect that an active public market for the Exchange Notes will
develop. Accordingly, there can be no assurance as to the development,
liquidity or maintenance of any market for the Exchange Notes. The Existing
Notes have been approved for trading in the Private Offerings, Resale and
Trading through Automatic Linkages (PORTAL) market. The Company does not
currently intend to apply for listing of the Exchange Notes on any securities
exchange or for quotation through the Nasdaq Stock Market. See "Risk Factors--
Restrictions on Resale; Absence of Public Market for the Existing Notes."
Any Existing Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the Existing Holders will
continue to be subject to the existing restrictions upon transfer thereof and
the Company will have no further obligation to such Existing Holders (except
for limited instances involving Existing Holders that are not eligible to
participate in the Exchange Offer) to provide for registration under the
Securities Act of the Existing Notes held by them. To the extent that Existing
Notes are tendered and accepted in the Exchange Notes Offering, an Existing
Holder's ability to sell untendered Existing Notes could
iii
<PAGE>
be adversely affected. See "Summary--Certain Consequences of a Failure to
Exchange Existing Notes" and "Risk Factors".
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF EXISTING NOTES ARE URGED TO READ THIS PROSPECTUS AND
THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER.
The Company has agreed to pay all expenses of the Exchange Offer. See "The
Exchange Offer--Fees and Expenses." Each Exchange Note will bear interest from
the most recent date to which interest has been paid or duly provided for on
the Existing Note surrendered in exchange for such Exchange Note or, if no
such interest has been paid or duly provided for on such Existing Note, from
December15, 1997. Holders of the Existing Notes whose Existing Notes are
accepted for exchange will not receive accrued interest on such Existing Notes
for any period from and after the last Interest Payment Date (as defined
below) to which interest has been paid or duly provided for on such Existing
Notes prior to the original issue date of the Exchange Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Existing Notes, and will be deemed to have waived the right
to receive any interest on such Existing Notes accrued from and after such
Interest Payment Date or, if no such interest has been paid or duly provided
for, from and after December 15, 1997.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE
NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS
IN CONNECTION WITH SUCH TRANSACTION.
iv
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the Exchange Notes offered hereby (the "Exchange Offer
Registration Statement"). This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further
information with respect to the Company and the Exchange Offer, reference is
made to the Exchange Offer Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are necessarily incomplete. With respect to each such contract,
agreement or other document filed as an exhibit to the Exchange Offer
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy and information statements
and other information with the Commission. Copies of such materials can be
obtained by mail from the Public Reference Section of the Commission, at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such reports, proxy and information statements and other
information can be inspected and copied at the public reference facility
referenced above and at the SEC's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World
Trade Center, Suite 1300, New York, New York 10048. The Commission maintains a
web site (http:www.sec.gov) that contains reports, proxy and information
statements and other information regarding Company, such as the Company, that
file electronically with the Commission. In addition, for so long as any of
the Notes remain outstanding, the Company has agreed to make available to any
prospective purchaser of the Notes or beneficial owners of the Notes, in
connection with the sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act. The Common Stock of the Company is traded on the
Nasdaq National Market. Reports of the Company may also be inspected at the
offices of the Nasdaq National Market, Nasdaq Operations, 1735 K Street, N.W.
Washington, D.C. 20006. Any such request and requests for the agreements
summarized herein should be directed to Peter Bergeron, Secretary, at the
Company's principal executive offices, 10590 N. Tantau Road, Cupertino,
California 95014, telephone number (408) 342-2800.
v
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TABLE OF CONTENTS
<TABLE>
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PROSPECTUS SUMMARY.......................................................... 1
RISK FACTORS................................................................ 10
USE OF PROCEEDS............................................................. 24
DIVIDEND POLICY............................................................. 24
THE EXCHANGE OFFER.......................................................... 25
CAPITALIZATION.............................................................. 38
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA................... 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................. 40
BUSINESS.................................................................... 47
MANAGEMENT.................................................................. 63
CERTAIN TRANSACTIONS........................................................ 73
PRINCIPAL STOCKHOLDERS...................................................... 77
DESCRIPTION OF CAPITAL STOCK................................................ 79
DESCRIPTION OF UNITS........................................................ 82
DESCRIPTION OF NOTES........................................................ 82
DESCRIPTION OF WARRANTS..................................................... 111
PROVISIONS GENERALLY APPLICABLE TO ALL SECURITIES........................... 114
PLAN OF DISTRIBUTION........................................................ 116
LEGAL MATTERS............................................................... 116
EXPERTS..................................................................... 116
GLOSSARY OF TERMS........................................................... G-1
INDEX TO FINANCIAL STATEMENTS............................................... F-1
Annex A: Form of Letter of Transmittal...................................... A-1
Annex B: Form of Notice of Guaranteed Delivery.............................. B-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including "Risk Factors" and
the Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus. Certain terms used in this Prospectus are defined in the Glossary
of Terms beginning on page G-1.
THE COMPANY
Concentric provides tailored, value-added Internet Protocol ("IP") based
network services for businesses and consumers. To provide these services, the
Company utilizes its low/fixed latency, high-throughput network, employing its
advanced network architecture and the Internet. Concentric's service offerings
for enterprises include virtual private networks ("VPNs"), dedicated access
facilities ("DAFs"), remote access services and Web hosting services. These
services enable enterprises to take advantage of standard Internet tools such
as browsers and high-performance servers for customized data communications
within an enterprise and between an enterprise and its suppliers, partners and
customers. These services combine the cost advantages, nationwide access and
standard protocols of public networks with the customization, high performance,
reliability and security of private networks. Among the current enterprise
customers are Acer America Corporation, Inc., Intuit, Inc. ("Intuit"), Netscape
Communications Corporation ("Netscape"), WebTV Networks, Inc. ("WebTV") and
Ziff-Davis Publishing Co. Concentric's service offerings for consumers and
small office/home office customers include local Internet dial-up access and
applications hosting services.
Industry analysts expect the market size for both value-added IP data
networking services and Internet access to grow rapidly as businesses and
consumers increase their use of the Internet, intranets and privately managed
IP networks. The total market for these services is projected to grow from $1.2
billion in 1996 to approximately $22.7 billion in the year 2000, with
approximately $10.4 billion in the enterprise market segment and $12.3 billion
in the consumer market segment.
The Concentric network employs an advanced, geographically dispersed ATM and
frame relay backbone, SuperPOPs in 15 major metropolitan areas and 137
secondary and tertiary POPs in other cities, allowing dial-up network access in
the U.S. and Canada. In addition, the Company can provide analog dial-up, frame
relay, fractional T-1, T-1 and DS3 access to the network. The Concentric
network is engineered and managed to provide superior quality of service,
balancing several key performance criteria. The Company provides guaranteed
levels of service for DAFs to enterprise customers, and targets performance
benchmarks for connection success rates, latency levels and throughput for all
of its service offerings.
In addition to strong network performance capabilities, the Company believes
that several factors distinguish its ability to provide value-added network
services. These factors include: (i) excellent service quality; (ii) rapid
development time and flexibility in meeting custom applications requirements;
(iii) responsive customer support and effective account management, available
24 hours per day, seven days per week through the Company's 148 customer
service personnel; and (iv) the Company's technical expertise in devising cost-
effective network solutions for customers.
The Company was incorporated in Florida in 1991 under the name Engineered
Video Concepts, Inc., changed its name to Concentric Research Corporation in
1992 and commenced network operations in 1994. In 1995, the Company changed its
name to Concentric Network Corporation and reincorporated into Delaware in
1997. Unless the context otherwise requires, "Concentric" and the "Company"
refer to Concentric Network Corporation. The address of the Company's principal
executive offices is 10590 N. Tantau Avenue, Cupertino, CA 95014, and its
telephone number at that address is (408) 342-2800.
Concentric Network Corporation, The Concentric Network, Concentric
RemoteLink, ConcentricView, ConcentricHost, FlexChannel, FullChannel, Powered
by Concentric Network, and PremierConnect are among the trademarks of the
Company. This Prospectus contains other product names, trade names and
trademarks of the Company and of other organizations.
1
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... $150.0 million aggregate principal amount of new
12 3/4% Senior Notes due 2007 (the "Exchange
Notes").
The Exchange Offer.......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
$150.0 million aggregate principal amount of 12
3/4% Senior Notes due 2007 previously issued by
the Company in December 1997 (the "Existing
Notes"). As of the date hereof, $150.0 million
aggregate principal amount of Existing Notes are
outstanding. The Company will issue the Exchange
Notes to New Holders on or promptly after the
Expiration Date.
Based on an interpretation by the Staff set forth
in no-action letters issued to third parties, the
Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for
Existing Notes may be offered for resale, resold
and otherwise transferred by such New Holder
(other than any such New Holder which is an
affiliate of the Company or is a broker-dealer
which acquired such Existing Notes directly from
the Company) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such New Holder's business and that
such New Holder does not intend to participate
and has no arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes. Each Participating Broker-Dealer
that acquired such Existing Notes as a result of
market making or other trading activity and that
receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan
of Distribution."
Any Existing Holder who (i) is an affiliate of
the Company, (ii) does not acquire such Exchange
Notes in the ordinary course of its business,
(iii) tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes, or (iv) is a broker-dealer which acquired
such Existing Notes directly from the Company,
could not rely on the position of the Staff
enunciated in the Exxon Capital No-Action Letter,
the Morgan Stanley No-Action Letter or similar
no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the
resale of the Exchange Notes. Failure to comply
with such requirements in such instance may
result in such Holder incurring liability under
the Securities Act for which the Holder is not
indemnified by the Company.
No federal or state regulatory requirements must
be complied with or approval obtained in
connection with the Exchange Offer, other than
registration requirements under the Securities
Act.
2
<PAGE>
Expiration Date............. 5:00 p.m., New York City time, on , 1998 (20
business days after effectiveness of the Exchange
Offer Registration Statement), unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term
"Expiration Date" means the latest date and time
to which the Exchange Offer is extended.
Interest on the Exchange
Notes and the Existing
Notes....................... Each Exchange Note will bear interest from the
most recent date to which interest has been paid
or duly provided for on the Existing Note
surrendered in exchange for such Exchange Note
or, if no such interest has been paid or duly
provided for on such Existing Note, from December
15, 1997. Holders of the Existing Notes whose
Existing Notes are accepted for exchange will not
receive accrued interest on such Existing Notes
for any period from and after the last Interest
Payment Date to which interest has been paid or
duly provided for on such Existing Notes prior to
the original issue date of the Exchange Notes or,
if no such interest has been paid or duly
provided for, will not receive any accrued
interest on such Existing Notes, and will be
deemed to have waived the right to receive any
interest on such Existing Notes accrued from and
after such Interest Payment Date or, if no such
interest has been paid or duly provided for, from
and after December 15, 1997.
Conditions to the Exchange
Offer....................... The Exchange Offer is subject to certain
customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions."
Procedures for Tendering
Existing Notes.............. Each Existing Holder wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver the Letter of
Transmittal, or such facsimile, together with the
Existing Notes and any other required
documentation to the Exchange Agent (as defined)
at the address set forth in the Letter of
Transmittal. Persons holding Existing Notes
through the Depositary (initially the Depository
Trust Company ("DTC")) and wishing to accept the
Exchange Offer must do so pursuant to DTC's
Automated Tender Offer Program ("ATOP"), by which
each tendering participant will agree to be bound
by the Letter of Transmittal. By executing or
agreeing to be bound by the Letter of
Transmittal, each Existing Holder will represent
to the Company that, among other things, the
Existing Holder or the person receiving such
Exchange Notes, whether or not such person is the
Existing Holder, is acquiring the Exchange Notes
in the ordinary course of business and that
neither the Existing Holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes within the meaning of the
Securities Act.
Special Procedures for
Beneficial Owners........... Any beneficial owner whose Existing Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
3
<PAGE>
nominee and who wishes to tender should contact
such registered Existing Holder promptly and
instruct such registered Existing Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Existing Notes, either make
appropriate arrangements to register ownership of
the Existing Notes in such owner's name or obtain
a properly completed bond power from the
registered Existing Holder. The transfer of
registered ownership may take considerable time.
Guaranteed Delivery
Procedures.................. Existing Holders who wish to tender their
Existing Notes and whose Existing Notes are not
immediately available or who cannot deliver their
Existing Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to
the Expiration Date must tender their Existing
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date pursuant to the procedures described under
"The Exchange Offer--Withdrawals of Tenders."
Acceptance of Existing
Notes and Delivery of
Exchange Notes.............. The Company will accept for exchange any and all
Existing Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Certain Federal Income Tax
Consequences................ The exchange of the Existing Notes for the
Exchange Notes pursuant to the Exchange Offer
should not be taxable to the Holders thereof for
federal income tax purposes. See "Certain Federal
Income Tax Consequences."
Effect on Holders of
Existing Notes.............. As a result of the making of this Exchange Offer,
the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and Existing Holders who do not tender
their Existing Notes, except for limited
instances involving the Existing Holders that are
not eligible to participate in the Exchange
Offer, will not have any further registration
rights under the Registration Rights Agreement or
otherwise. See "The Exchange Offer--Purposes and
Effect of Exchange Offer." Such Existing Holders
will continue to hold the untendered Existing
Notes and will be entitled to all the rights and
subject to all the limitations applicable thereto
under the Indenture, except to the extent such
rights or limitations, by their terms, terminate
or cease to have further effectiveness as a
result of
4
<PAGE>
the Exchange Offer. All untendered Existing Notes
will continue to be subject to certain
restrictions on transfer. Accordingly, if any
Existing Notes are tendered and accepted in the
Exchange Offer, the trading market for the
untendered Existing Notes could be adversely
affected. See "Risk Factors--Consequences of
Failure to Exchange."
Exchange Agent.............. Chase Manhattan Bank and Trust Company, National
Association
5
<PAGE>
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Existing Notes (which they replace) except that (i) the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) the New Holders, except for
limited instances involving the Initial Purchasers and certain Existing Holders
that are not eligible to participate in the Exchange Offer, will not be
entitled to further registration rights under the Registration Rights
Agreement, which rights will be satisfied when the Exchange Offer is
consummated, and will not be entitled to any payments of Liquidated Damages (as
defined) for failure to satisfy such rights. The Exchange Notes will evidence
the same debt as the Existing Notes and will be entitled to the benefits of the
Indenture. From time to time in this Prospectus, the Exchange Notes and the
Existing Notes are collectively referred to as the "Notes". See "Description of
Notes".
Notes Offered:.............. $150.0 million aggregate principal amount of New
12 3/4% Senior Notes due 2007 (the "Exchange
Notes").
Maturity:................... December 15, 2007.
Escrow Proceeds:............ Approximately $52.4 million of the net proceeds
from the issuance of the Existing Notes have been
invested in U.S. Government Securities (as
defined) to be held in an Escrow Account (as
defined) for the benefit of the Holders of the
Notes to fund, when due, the first six scheduled
interest payments on the Notes, with any balance
to be retained by the Company. The Notes will be
collateralized by a first priority security
interest in the Escrow Account. See "Description
of Notes--Escrow Account."
Interest Payment Dates:..... The Exchange Notes will bear interest at the rate
of 12 3/4% per annum, payable semiannually in
arrears on June 15 and December 15, commencing
June 15, 1998.
Ranking:.................... The Exchange Notes will be senior unsecured
obligations of the Company, ranking pari passu in
right of payment with all existing and future
unsecured and unsubordinated indebtedness of the
Company and senior in right of payment to all
existing and future Subordinated Indebtedness (as
defined) of the Company. The Exchange Notes will
be effectively subordinated to all secured
indebtedness of the Company to the extent of the
value of the assets securing such indebtedness
and to permitted indebtedness of subsidiaries of
the Company. As of September 30, 1997, on an as
adjusted basis after giving effect to the
Existing Notes Offering, there would have been
approximately $196.9 million of indebtedness of
which $51.3 million would have been secured long-
term indebtedness (consisting entirely of capital
lease obligations) outstanding to which holders
of the Notes would have been effectively
subordinated in right of payment. See
"Description of Notes--Ranking."
Sinking Fund................ None
Optional Redemption:........ The Exchange Notes will be redeemable at the
option of the Company, in whole or in part, at
any time on or after December 15,
6
<PAGE>
2002, at the redemption prices set forth herein,
plus accrued interest to the date of redemption.
In addition, on or prior to December 15, 2000,
the Company may redeem up to 35% of the original
aggregate principal amount of Notes at a
redemption price of 112.750% of the principal
amount, together with accrued and unpaid interest
to the date of redemption with the net cash
proceeds of one or more Public Equity Offerings
or the sale of Common Stock to a Strategic
Investor; provided that at least 65% of the
original aggregate principal amount of Notes are
outstanding following such redemption. See
"Description of Notes--Optional Redemption."
Change of Control:.......... Following the occurrence of a Change of Control
(as defined below), the Company will be required
to make an offer to purchase the Exchange Notes
at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase. The
Company may not have available sufficient funds
or the financial resources necessary to satisfy
its obligations to repurchase the Exchange Notes
and other debt that may become repayable upon a
Change of Control. See "Risk Factors--Change of
Control" and "Description of the Notes--Change of
Control."
Certain Covenants:.......... The indenture under which the Existing Notes are
and the Exchange Notes will be governed (the
"Indenture") contains certain covenants,
including, among others, covenants with respect
to the following matters: (i) limitation on
indebtedness, (ii) limitation on restricted
payments, (iii) limitation on transactions with
affiliates, (iv) limitation on liens, (v)
limitation on sale of assets, (vi) limitation on
issuances of guarantees of indebtedness, (vii)
limitation on sale and leaseback transactions,
(viii) limitation on Subsidiary capital stock,
(ix) limitation on dividends and other payment
restrictions affecting Subsidiaries, (x)
limitations on unrestricted Subsidiaries, (xi)
provision of financial statements, and (xii)
limitation on business. These covenants are
subject to important exceptions and
qualifications. See "Description of Notes--
Certain Covenants."
Transfer Restrictions:...... For restrictions on transfer of the Exchange
Notes, see "The Exchange Offer--Resale of
Exchange Notes".
For a discussion of certain factors that should be considered in connection
with a decision to exchange Existing Notes for Exchange Notes, see "Risk
Factors."
7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1991
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
------------ ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $-- $ 23 $ 442 $ 2,483 $ 15,648 $ 8,215 $ 31,792
Cost of revenue......... -- 130 2,891 16,168 47,945 30,951 45,495
Network equipment
write-off(1)........... -- -- -- -- 8,321 -- --
Total operating
expenses............... 28 1,114 1,784 7,602 22,503 15,135 24,396
---- ------- ------- -------- -------- -------- --------
Loss from operations.... (28) (1,221) (4,233) (21,287) (63,121) (37,871) (38,099)
Net loss................ $(28) $(1,245) $(4,290) $(22,008) $(66,381) $(40,273) $(41,803)
==== ======= ======= ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(2)............... $(28) $(1,080) $(4,064) $(19,091) $(53,651) $(32,147) $(24,047)
Capital
expenditures(3)........ -- 817 718 17,176 39,093 22,753 17,303
Ratio of Earnings to
Fixed Charges(4)....... N/A N/A N/A N/A N/A N/A N/A
Deficiency of Earnings
Available to Cover
Fixed Charges(4)....... (28) (1,221) (4,309) (22,145) (66,995) (40,654) (43,536)
PROFORMA FINANCIAL DATA:
Proforma interest
expense(5)............. -- -- -- -- $ 23,536 -- $ 19,492
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash(7)......... $ 39,638 $184,638
Property and equipment, net........................... 56,296 56,296
Total assets.......................................... 110,165 260,165
Long term debt and capital lease obligations, net of
current portion(8)................................... 36,629 182,189
Total stockholders' equity(8)......................... 41,022 45,462
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
QUARTERLY STATEMENT OF
OPERATIONS DATA:
Revenue................. $ 1,533 $ 2,489 $ 4,193 $ 7,433 $ 9,154 $ 10,814 $ 11,824
Cost of revenue......... 7,256 11,782 11,913 16,994 15,744 14,913 14,838
Network equipment
write-off(1)........... -- -- -- 8,321 -- -- --
Total operating
expenses............... 4,196 5,475 5,464 7,368 7,021 8,421 8,954
-------- -------- -------- -------- -------- -------- --------
Loss from operations.... (9,919) (14,768) (13,184) (25,250) (13,611) (12,520) (11,968)
Net loss................ $(10,380) $(15,420) $(14,473) $(26,108) $(14,681) $(12,904) $(14,218)
======== ======== ======== ======== ======== ======== ========
</TABLE>
8
<PAGE>
- --------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 2 of Notes to Financial Statements.
(2) EBITDA is loss from operations before interest, taxes, depreciation and
amortization. EBITDA is included herein because management believes that
certain investors find it to be a useful tool for measuring a company's
ability to service its debt; however, EBITDA does not represent cash flow
from operations, as defined by generally accepted accounting principles,
should not be considered as a substitute for net loss as an indicator of
the Company's operating performance or cash flow as a measure of liquidity,
and should be examined in conjunction with the Financial Statements and
Notes thereto of the Company included elsewhere in this Prospectus.
(3) Capital expenditures include assets acquired through capital lease
financing and other debt.
(4) For purposes of this computation, the ratio of earnings to fixed charges
has been calculated by dividing fixed charges into loss before income
taxes, fixed charges and other income. Fixed charges consist of interest on
expense and a portion of lease rental expense considered to represent
interest cost.
(5) The proforma adjustment reflects the interest that would have been incurred
had the Existing Notes been outstanding as of the beginning of each period
presented. In addition, interest expense and related charges of bridge
financings have been excluded since such bridge financings would not have
occurred.
(6) The as adjusted data gives effect to the sale by the Company of the Units
in the Existing Notes Offering as of September 30, 1997, after deduction of
estimated offering expenses and the discount to the Initial Purchasers. See
"Use of Proceeds" and "Capitalization."
(7) The as adjusted data includes estimated restricted cash of $52.4 million
held in the Escrow Account.
(8) For purposes of this presentation, a value of $4.44 million has been
assigned to the Warrants. The value of the Warrants was determined using
the Black-Scholes option pricing method.
9
<PAGE>
RISK FACTORS
Holders of Existing Notes should carefully consider the risk factors set
forth below, as well as the other information appearing in this Prospectus,
before tendering any Existing Notes for exchange into Exchange Notes. Certain
matters set forth below also apply to the Existing Notes and will continue to
apply to any Existing Notes remaining outstanding after the Exchange Offer.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Those statements appear in a number of places in this
Prospectus and include statements regarding the intent, belief or current
expectations of the Company or its directors or officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operation; and (ii)the Company's business and growth strategies.
Prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those projected, expressed
or implied, in the forward-looking statements as a result of various factors.
The accompanying information contained in this Prospectus, including without
limitation the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," identifies important factors that could cause such
differences. Such forward-looking statements speak only as of the date of this
Prospectus, and the Company cautions potential investors not to place undue
reliance on such statements.
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE DEBT
The Company is and will continue to be highly leveraged, with significant
debt service requirements. At September 30, 1997, as adjusted to give effect
to the sale of $150.0 million of the Existing Notes and the application of the
net proceeds therefrom as described in "Use of Proceeds," the Company's total
debt would have been $196.9 million and stockholders' equity would have been
$45.5 million. The degree to which the Company is leveraged has important
consequences to holders of the Notes, including the following: (i) the
Company's ability to obtain additional financing in the future, whether for
working capital, capital expenditures, acquisitions or other purposes, may be
impaired; (ii) a substantial portion of the Company's cash flow from
operations is required to be dedicated to the payment of interest on its debt,
thereby reducing funds available to the Company for other purposes; (iii) the
Company's flexibility in planning for or reacting to changes in market
conditions may be limited; and (iv) the Company may be more vulnerable in the
event of a downturn in its business.
The ability of the Company to meet its debt service obligations, including
with respect to the Notes, will depend on the future operating performance and
financial results of the Company, which will be subject in part to factors
beyond the control of the Company. Although the Company believes that its cash
flow will be adequate to meet its interest payments, there can be no assurance
that the Company will continue to generate sufficient cash flow in the future
to meet its debt service requirements including those with respect to the
Notes. If the Company is unable to generate cash flow in the future sufficient
to cover its fixed charges and is unable to borrow sufficient funds from other
sources, it may be required to refinance all or a portion of its existing debt
or to sell all or a portion of its assets. There can be no assurance that a
refinancing would be possible, nor can there be any assurance as to the timing
of any asset sales or the proceeds which the Company could realize therefrom.
In addition, the terms of certain of the Company's debt restrict its ability
to sell assets and the Company's use of the proceeds therefrom.
LIMITED OPERATING HISTORY; CONTINUING OPERATING LOSSES
The Company was incorporated in 1991, commenced network operations in 1994
and completed initial deployment of its current network architecture and use
of an advanced ATM backbone network in late 1996. Accordingly, the Company has
a limited operating history upon which an evaluation of the Company and its
prospects can be based. In addition, a majority of the Company's senior
management team have been working
10
<PAGE>
together at the Company for less than two years. The Company's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies in new and rapidly evolving markets. To address these
risks, the Company must, among other things, respond to competitive
developments, continue to attract, retain and motivate qualified persons, and
continue to upgrade its technologies and commercialize its network services
incorporating such technologies. There can be no assurance that the Company
will be successful in addressing such risks and the failure to do so could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company has incurred net losses and experienced
negative cash flow from operations since inception and expects to continue to
operate at a net loss and experience negative cash flow at least through 1998,
although the Company's ability to achieve profitability and positive cash flow
from operations is dependent upon the Company's ability to substantially grow
its revenue base and achieve other operating efficiencies. The Company
experienced net losses of approximately $4.3 million, $22.0 million and $66.4
million for the years ended December 31, 1994, 1995 and 1996, respectively,
and a net loss of $41.8 million for the nine months ended September 30, 1997.
At September 30, 1997, the Company had an accumulated deficit of approximately
$135.8 million. There can be no assurance that the Company will be able to
achieve or sustain revenue growth, profitability or positive cash flow on
either a quarterly or an annual basis. At December 31, 1996, the Company had
approximately $37.0 million of gross deferred tax assets comprised primarily
of net operating loss carryforwards. The Company believes that, based on a
number of factors, the available objective evidence creates sufficient
uncertainty regarding the realizability of the deferred tax assets such that a
full valuation allowance has been recorded. These factors include the
Company's history of net losses since its inception and the fact that the
market in which the Company competes is intensely competitive and
characterized by rapidly changing technology. The Company believes that, based
on the current available evidence, it is more likely than not that the Company
will not generate taxable income through 1998, and possibly beyond, and
accordingly will not realize the Company's deferred tax assets through 1998
and possibly beyond. In addition, the utilization of net operating losses may
be subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The Company will continue to assess the realizability of the deferred tax
assets based on actual and forecasted operating results. The Company's above
estimates of the periods of time in which the Company expects to continue to
operate at a net loss, experience negative cash flow and not generate taxable
income are forward-looking statements that involves risks and uncertainties,
and actual results could vary materially as a result of a number of factors,
including those set forth above in this paragraph. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 8 of Notes to Financial Statements.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have fluctuated in the past and may in the
future fluctuate significantly depending upon a variety of factors, including
the timely deployment and implementation of expansion of the Concentric
network and new network architectures, the incurrence of related capital
costs, the receipt of new value-added network services and consumer services
subscriptions and the introduction of new services by the Company and its
competitors. Additional factors that may contribute to variability of
operating results include: the pricing and mix of services offered by the
Company; customer retention rate; market acceptance of new and enhanced
versions of the Company's services; changes in pricing policies by the
Company's competitors; the Company's ability to obtain sufficient supplies of
sole- or limited-source components; user demand for network and Internet
access services; balancing of network usage over a 24-hour period; and general
access services. In response to competitive pressures, the Company may take
certain pricing or marketing actions that could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, the Company's expense levels are relatively fixed in the short term
and are based, in part, upon the Company's estimates of growth of its
business. As a result, variations in the timing and amounts of revenues could
have a material adverse effect on the Company's quarterly operating results.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance. In
the event that the Company's operating results in any future period fall below
the expectations of securities analysts and investors, the trading price of
the Company's Common Stock would likely be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
11
<PAGE>
CUSTOMER CONCENTRATION
The Company currently derives a substantial portion of its total revenue
from a single customer. For the year ended December 31, 1996 and the nine
months ended September 30, 1997, revenue from WebTV represented approximately
10.1% and 33.9%, respectively, of the Company's revenue. The Company's current
agreement to provide services to WebTV is terminable at will after October 1,
1999. While the Company expects revenue from WebTV to decrease as a percentage
of revenue in future periods, the Company believes that revenue derived from a
limited number of current and future customers may continue to represent a
significant portion of its revenue. As a result, the loss of one or more of
the Company's major customers could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, there can be no assurance that revenue from customers that have
accounted for significant revenue in past periods, individually or as a group,
will continue, or if continued, will reach or exceed historical levels in any
future period. See Note 1 of Notes to Financial Statements.
MANAGEMENT OF POTENTIAL GROWTH AND EXPANSION
As of December 31, 1995, the Company had 96 employees and 47 independent
contractors, as of December 31, 1996, the Company had 246 employees and 46
independent contractors, and as of December 31, 1997, the Company had 320
employees and 64 independent contractors. The growth and expansion of the
Company's business and its service offerings have placed, and are expected to
continue to place, a significant strain on the Company's management,
operational and financial resources. The Company has recently expanded and
upgraded its network to use an ATM backbone. The Company plans to continue to
substantially expand its network in the future. There can be no assurance that
the Company will be able to add services at the rate or according to the
schedule presently planned by the Company. To manage its growth, the Company
must, among other things, (i) continue to implement and improve its
operational, financial and management information systems, including its
billing, accounts receivable and payable tracking, fixed assets and other
financial management systems; (ii) hire and train additional qualified
personnel; and (iii) continue to expand and upgrade its network
infrastructure. Demands on the Company's network infrastructure and technical
support resources have grown rapidly with the Company's expanding customer
base, and the Company may in the future experience difficulties meeting the
demand for its access services and technical support. There can be no
assurance that the Company's technical support or other resources will be
sufficient to facilitate the Company's growth. As the Company strives to
increase total network utilization and to optimize this utilization by
targeting both business and consumer users to balance the network's usage
throughout a 24-hour period, there will be additional demands on the Company's
customer support, sales and marketing resources. Any failure of the Company to
manage its growth effectively could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company may seek to acquire assets or businesses complementary to its
operations. Any such future acquisitions would be accompanied by the risks
commonly encountered in acquisitions of companies. Such risks include, among
other things, the difficulty of assimilating the operations and personnel of
the acquired companies, the additional financial resources that may need to be
applied to fund the operations of the acquired entity, the potential
disruption of the Company's business, the inability of the Company's
management to maximize the financial and strategic position of the Company by
the incorporation of acquired technology or business into the Company's
service offerings, the difficulty of maintaining uniform standards, controls,
procedures and policies, the potential loss of key employees of acquired
companies, and the impairment of relationships with employees and customers as
a result of changes in management. No assurance can be given that any
acquisition by the Company will or will not occur, that if an acquisition does
occur it will not materially and adversely affect the Company or that any such
acquisition will be successful in enhancing the Company's business. If the
Company proceeds with one or more significant acquisitions in which the
consideration consists of cash, a substantial portion of the Company's
available cash, including proceeds of the Existing Notes Offering, could be
used to consummate the acquisitions. If the Company were to consummate one or
more acquisitions in which the consideration consisted of stock, stockholders
of the Company could suffer significant dilution of their
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interests in the Company. Many business acquisitions must be accounted for as
a purchase for financial reporting purposes. Most of the businesses that might
become attractive acquisition candidates for the Company are likely to have
significant goodwill and intangible assets, and acquisition of these
businesses, if accounted for as a purchase, would typically result in
substantial amortization of goodwill charges to the Company.
DEPENDENCE UPON NEW AND UNCERTAIN MARKETS
The markets for tailored, value-added network services for businesses and
consumers offered by the Company, including Internet access, are in the early
stages of development. Since these markets are relatively new and because
current and future competitors are likely to introduce competing services or
products, it is difficult to predict the rate at which the market will grow,
if at all, or whether new or increased competition will result in market
saturation. Certain critical issues concerning commercial use of tailored
value-added services and Internet services, including security, reliability,
ease and cost of access and quality of service, remain unresolved and may
impact the growth of such services. If the markets for the services offered by
the Company, including Internet access, fail to grow, grow more slowly than
anticipated, or become saturated with competitors, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "--Competition," "--Dependence Upon New and Enhanced Services,"
and "--Risks of Technological Change and Evolving Industry Standards."
DEPENDENCE UPON NEW AND ENHANCED SERVICES
The Company has recently introduced new enterprise service offerings,
including the introduction of value-added, IP-based communication services to
enterprises. The failure of these services to gain market acceptance in a
timely manner or at all could have a material adverse effect on the business,
financial condition and results of operations of the Company. Introduction by
the Company of new or enhanced services with reliability, quality or
compatibility problems could significantly delay or hinder market acceptance
of such services, which could adversely affect the Company's ability to
attract new customers and subscribers. The Company's services may contain
undetected errors or defects when first introduced or as enhancements are
introduced. There can be no assurance that, despite testing by the Company or
its customers, errors will not be found in new services after commencement of
commercial deployment, resulting in additional development costs, loss of, or
delays in, market acceptance, diversion of technical and other resources from
the Company's other development efforts and the loss of credibility with the
Company's customers and subscribers. Any such event could have a material
adverse effect on the Company's business, financial condition and results of
operations. Additionally, if the Company is unable to achieve balanced network
utilization over a 24-hour period, the Concentric network could become
overburdened at certain periods during the day, which could adversely affect
the quality of service provided by the Company. Conversely, due to the high
fixed cost nature of Concentric's infrastructure, under-utilization of the
Concentric network during certain periods of the day could adversely affect
the Company's ability to provide cost-efficient services of the Company to
achieve balanced network utilization, because of either over- or under-
utilization could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Services."
DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY
The Company relies on other companies to supply certain key components of
its network infrastructure, including telecommunications services and
networking equipment, which, in the quantities and quality demanded by the
Company, are available only from sole or limited sources. AT&T Corp. ("AT&T"),
WorldCom, Inc. ("WorldCom"), MCI Telecommunications, Inc. ("MCI"), which is
being acquired by WorldCom, and PacWest Telecomm, Inc. are the primary
providers to the Company of data communications facilities and capacity. AT&T
is currently the sole provider of the frame relay backbone of the Concentric
network, and MCI is currently the sole provider of the ATM backbone of the
Concentric network. The Company is also dependent upon local exchange carriers
("LECs") to provide telecommunications services to the Company and its
customers. The Company from time to time has experienced delays in receiving
telecommunications services, and there can be no assurance that the Company
will be able to obtain such services on the scale and within the time frames
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required by the Company at an affordable cost, or at all. Any failure to
obtain such services on a timely basis at an affordable cost would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The routers, switches and modems the Company uses are supplied by Bay
Networks, Inc. through Racal. In addition, Racal acts as a systems integrator.
The servers primarily used in the Company's network infrastructure are
supplied solely by Sun Microsystems, Inc. The Company purchases these
components pursuant to purchase orders placed from time to time, does not
carry significant inventories of these components and has no guaranteed supply
arrangements for such components. The Company's suppliers also sell products
to the Company's competitors and may in the future themselves become
competitors of the Company. There can be no assurance that the Company's
suppliers will not enter into exclusive arrangements with the Company's
competitors or stop selling their products or components to the Company at
commercially reasonable prices or at all.
Expansion of network infrastructures by the Company and others is placing,
and will continue to place, a significant demand on the Company's suppliers,
some of which have limited resources and production capacity. In addition,
certain of the Company's suppliers, in turn, rely on sole or limited sources
of supply of components included in their products. Failure of the Company's
suppliers to adjust to meet such increasing demand may prevent them from
continuing to supply components and products in the quantities and quality and
at the times required by the Company, or at all. The Company's inability to
obtain sufficient quantities of sole- or limited-source components or to
develop alternative sources if required could result in delays and increased
costs in expanding, and overburdening of, the Company's network
infrastructure, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also is dependent on its suppliers' ability to provide necessary
products and components that comply with various Internet and
telecommunications standards and that interoperate with products and
components from other vendors. Any failure of the Company's sole- or limited-
source suppliers to provide products or components that comply with Internet
standards or that interoperate with other products or components used by the
Company in its network infrastructure could have a material adverse effect on
the Company's business, financial condition and results of operations.
Certain of the Company's suppliers, including the regional Bell operating
companies ("RBOCs") and other LECs, currently are subject to tariff controls
and other price constraints that in the future may be changed. In addition,
regulatory proposals are pending that may affect the prices charged by the
RBOCs and other LECs to the Company. Any such regulatory changes could result
in increased prices of products and services, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Dependence Upon New and Enhanced Services" and "--Risks of
Technological Change and Evolving Industry Standards."
DEPENDENCE UPON NETWORK INFRASTRUCTURE
The Company's success will depend upon the capacity, reliability and
security of its network infrastructure. The Company currently derives a
significant portion of its revenue from customer subscriptions. The Company
expects that a substantial portion of its future revenues will be derived from
the provision of tailored value-added network services to its customers. The
Company must continue to expand and adapt its network infrastructure as the
number of users and the amount of information they wish to transfer increase,
and as customer requirements change. The Company's current projections of
utilization of the Concentric network require rapid expansion of the capacity
of the network to avoid capacity constraints that would adversely affect the
performance of the system. The expansion and adaptation of the Company's
network infrastructure will require substantial financial, operational and
management resources. There can be no assurance that the Company will be able
to expand or adapt its network infrastructure to meet additional demand or its
customers' changing requirements on a timely basis, at a commercially
reasonable cost, or at all. In addition, if demand for usage of the Concentric
network were to increase faster than projected or were to exceed the Company's
current forecasts, the network could experience capacity constraints, which
would adversely affect the performance of the system. Any failure of the
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Company to expand its network infrastructure on a timely basis or adapt it to
either changing customer requirements or evolving industry standards, or
capacity constraints experienced by the Concentric network for any reason,
could have a material adverse effect on the Company's business, financial
condition and results of operations. Currently, the Company has a transit
agreement with networkMCI, Inc. to support the exchange of traffic between the
Concentric network and the Internet. The Company connects to the MCI Internet
via a DS3 (45 Mbps) link from its Bay City Data Center and another DS3 link
from its Cupertino Data Center. The failure of the MCI Internet backbone, or
either or both data centers, or any other link in the delivery chain, and
resulting interruption in the Company's operations would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--The Concentric Network."
COMPETITION
The market for tailored value-added network services is extremely
competitive. There are no substantial barriers to entry, and the Company
expects that competition will intensify in the future. The Company believes
that its ability to compete successfully depends upon a number of factors,
including market presence; the capacity, reliability, low latency and security
of its network infrastructure; technical expertise and functionality,
performance and quality of services; customization; ease of access to and
navigation of the Internet; the pricing policies of its competitors and
suppliers; the variety of services; the timing of introductions of new
services by the Company and its competitors; customer support; the Company's
ability to support industry standards; and industry and general economic
trends.
The Company's current and prospective competitors generally may be divided
into the following five groups: (i) telecommunications companies, such as
AT&T, MCI, Sprint, Inc., WorldCom, the RBOCs and other LEC's and various cable
companies; (ii) online services providers, such as America Online, Inc.
("America Online"), CompuServe Incorporated ("CompuServe"), the Microsoft
Network ("MSN") of Microsoft, and Prodigy Services Company ("Prodigy"); (iii)
Internet service providers ("ISPs"), such as BBN Corporation ("BBN"), a
subsidiary of GTE, NETCOM On-Line Communications Services, Inc. ("NETCOM"),
which is being acquired by ICG Communications, Inc., PSINet, Inc. ("PSI"), and
other national and regional providers; (iv) nonprofit or educational Internet
connectivity providers; and (v) Web server farms such as Internet Direct and
Exodus. Many of these competitors have greater market presence, engineering
and marketing capabilities, and financial, technological and personnel
resources than those available to the Company. As a result, they may be able
to develop and expand their communications and network infrastructures more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products and services than can the Company. In addition to the companies named
above, various organizations have entered into or are forming joint ventures
or consortiums to provide services similar to those of the Company.
The Company believes that new competitors, including large computer
hardware, software, media and other technology and telecommunications
companies, will enter the tailored value-added network services market,
resulting in even greater competition for the Company. Certain of such
telecommunications companies and online services providers are currently
offering or have announced plans to offer Internet or online services or to
expand their network services. Certain companies, including America Online,
BBN and PSI, have also obtained or expanded their Internet access products and
services as a result of acquisitions. Such acquisitions may permit the
Company's competitors to devote greater resources to the development and
marketing of new competitive products and services and the marketing of
existing competitive products and services. In addition, the ability of some
of the Company's competitors to bundle other services and products with
virtual private network services or Internet access services could place the
Company at a competitive disadvantage. Certain companies are also exploring
the possibility of providing or are currently providing high-speed data
services using alternative delivery methods such as over the cable television
infrastructure, through direct broadcast satellites and over wireless cable.
As a result of increased competition and vertical and horizontal integration
in the industry, the Company could encounter significant pricing pressure,
which in turn could result in significant reductions in the average
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selling price of the Company's services. For example, certain of the Company's
competitors that are telecommunications companies may be able to provide
customers with reduced communications costs in connection with their Internet
access services or private network services, reducing the overall cost of
their solutions and significantly increasing price pressures on the Company.
There can be no assurance that the Company will be able to offset the effects
of any such price reductions with an increase in the number of its customers,
higher revenue from enhanced services, cost reductions or otherwise. In
addition, the Company believes that the Internet access and online services
businesses are likely to encounter consolidation in the near future, which
could result in increased price and other competition in these industries and,
potentially, the virtual private networks industry. Increased price or other
competition could result in erosion of the Company's market share and could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will
have the financial resources, technical expertise or marketing and support
capabilities to continue to compete successfully. See "--Management of
Potential Growth and Expansion" and "Business--Competition."
DEPENDENCE UPON THIRD-PARTY MARKETING, DISTRIBUTION AND ENGINEERING
RELATIONSHIPS
An important element of the Company's strategy is to develop relationships
with leading companies to enhance Concentric's engineering, marketing and
distribution efforts. The Company has OEM agreements with Netscape and
Microsoft pursuant to which the Company is entitled to distribute and modify
these companies' browsers. The customization of browsers by the Company is an
integral part of its current tailored VPN offerings. The Netscape agreement
expires in December 1998 and the Microsoft agreement expires in March 1999.
The Company has an agreement with Intuit for the development, operation and
maintenance of a VPN that is the integrated access, dial-up network and
infrastructure used by purchasers of Quicken, Turbo Tax and other Intuit
software products to access the Quicken Financial Network Website and upgrade
to full Internet access. The Intuit contract may be terminated at the election
of Intuit upon six months prior notice of an election to terminate. The
Company relies on these relationships for acquisition of consumer customers.
The termination of or failure to renew any of these agreements or the
inability of the Company to enter into similar relationships with others could
have a material adverse effect on the Company's business, financial condition
and results of operation. The Company has an outsourcing agreement with
Critical Technologies Incorporated ("CTI"), a subsidiary of Williams
Communications Group, Inc., that enables the Company to use CTI employees for
the operational support of the Concentric network. The Company's use of CTI
employees and CTI engineering expertise were integral to its development of
the Concentric network and continue to be integral to ongoing operation of the
Company's network operations center. Pursuant to the agreement with CTI, all
of the CTI employees currently working for Concentric will become employees of
Concentric at the termination of the agreement in December 2000. Termination
of any of these agreements or the failure of the Company to renew any of the
agreements upon termination on terms acceptable to the Company could result in
a material adverse affect on the Company's business, financial condition and
results of operations. See "Business--Key Customer Applications."
RISKS OF TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
The markets for the Company's services are characterized by rapidly changing
technology, evolving industry standards, changes in customer needs, emerging
competition and frequent new product and service introductions. The Company's
future success will depend, in part, on its ability to effectively use leading
technologies; to continue to develop its technical expertise; to enhance its
current networking services; to develop new services that meet changing
customer needs; to advertise and market its services; and to influence and
respond to emerging industry standards and other technological changes in a
timely and cost-effective basis. There can be no assurance that the Company
will be successful in effectively using new technologies, developing new
services or enhancing its existing services on a timely basis, or that such
new technologies or enhancements will achieve market acceptance. The Company's
pursuit of necessary technological advances may require substantial time and
expense, and there can be no assurance that the Company will succeed in
adapting its network service business to alternate access devices and
conduits. An integral part of the Company's strategy is to design its network
in order to meet the requirements of emerging standards such as 56.6 Kbps
modems and
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applications such as IP-based interactive video and voice conferencing
communications. Failure of the Company, for technological or other reasons, to
develop and introduce new or enhanced services that are compatible with
industry standards and that satisfy customer requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--The Concentric Network."
The Company believes that its ability to compete successfully is also
dependent upon the continued compatibility and interoperability of its
services with products and architectures offered by various vendors. Although
the Company intends to support emerging standards in the market for Internet
access, there can be no assurance that industry standards will be established
or, if they become established, that the Company will be able to conform to
these new standards in a timely fashion and maintain a competitive position in
the market. Specifically, the Company's services rely on the continued
widespread commercial use of TCP/IP. Alternative open protocol and proprietary
protocol standards have been or are being developed. If any of these
alternative protocols become widely adopted, there may be a reduction in the
use of TCP/IP, which could render the Company's services obsolete and
unmarketable. Additionally, two of the leading modem manufacturers, Rockwell
and US Robotics, a subsidiary of 3Com Incorporated, have proposed different,
incompatible standards for 56.6 Kbps modems and cable modems. The Company
currently plans to accommodate both standards to the extent it can do so cost
effectively. The failure of the Company to anticipate the prevailing standard,
or the failure of a common standard to emerge could have a material adverse
effect on the Company's business and results of operations. In addition, there
can be no assurance that services or technologies developed by others will not
render the Company's services or technology uncompetitive or obsolete.
The Company faces the risk of fundamental changes in the way Internet access
is delivered. Currently, Internet services are accessed primarily by computers
connected by telephone lines. Recently, several companies announced the
development and planned sale of cable television modems, wireless modems and
satellite modems to provide access to the Internet. Cable television,
satellite and wireless modems have the ability to transmit data at
substantially faster speeds than the modems the Company and its subscribers
currently use. In addition, wireless modems have the potential to reduce the
cost of network services. As the Internet becomes accessible through these
cable television, wireless and satellite modems and by screen-based
telephones, television or other consumer electronic devices, or subscriber
requirements change the way Internet access is provided, the Company will have
to develop new technology or modify its existing technology to accommodate
these developments. The Company's pursuit of these technological advances may
require substantial time and expense, and there can be no assurance that the
Company will succeed in adapting its Internet access business to alternate
access devices and conduits.
RISK OF SYSTEM FAILURE
As the Company expands its network and usage grows, increased stress will be
placed upon network hardware and traffic management systems. While the
Company's network has been designed with redundant backbone circuits to allow
traffic re-routing, there can be no assurance that the Company will not
experience failures relating to individual network points of presence ("POPs")
or even catastrophic failure of the entire network. Moreover, the Company's
operations are dependent upon its ability to protect its network
infrastructure against damage from fire, earthquakes, floods, mudslides, power
loss, telecommunications failures and similar events. A significant portion of
the Company's computer equipment, including critical equipment dedicated to
its Internet access services, is located at its facilities in Bay City,
Michigan, and Cupertino, California. In addition, the Company's modems and
routers that serve large areas of the United States are located in such
cities. The Company's network operations center, which manages the entire
network, is in St. Louis, Missouri. Despite precautions taken by the Company,
the occurrence of a natural disaster or other unanticipated problems at the
Company's network operations center, at its hubs (sites at which the Company
has located routers, switches and other computer equipment that make up the
backbone of the Company's network infrastructure) or at a number of the
Company's POPs has from time to time in the past caused, and in the future
could cause, interruptions in the services provided by the Company. In
addition, failure of the Company's telecommunications providers to provide the
data communications capacity in the time frame required by the Company as a
result of a natural disaster or operational disruption or for any other reason
could cause interruptions in the services provided by
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the Company. Any damage or failure that causes interruptions in the Company's
operations could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--The Concentric
Network."
SYSTEM SECURITY RISKS
Despite the implementation of network security measures, the core of the
Company's network infrastructure is vulnerable to computer viruses, break-ins
and similar disruptive problems caused by its customers or Internet users.
Computer viruses, break-ins or other problems caused by third parties could
lead to interruptions, delays or cessation in service to the Company's
customers and subscribers. Furthermore, such inappropriate use of the network
by third parties could also potentially jeopardize the security of
confidential information stored in the computer systems of the Company and its
customers, which may result in liability to the Company and also may deter
potential subscribers. Although the Company intends to continue to implement
industry-standard security measures, such measures occasionally have been
circumvented in the past, and there can be no assurance that measures
implemented by the Company will not be circumvented in the future. The costs
and resources required to eliminate computer viruses and alleviate other
security problems may result in interruptions, delays or cessation of service
to the Company's customers that could have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Management of Potential Growth and Expansion," "--Dependence upon New and
Enhanced Services," "--Risks of Technological Change and Evolving Industry
Standards," "Use of Proceeds" and "Business--Services."
DEPENDENCE UPON KEY PERSONNEL; ABILITY TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its executive management team, including Henry R. Nothhaft,
the Company's President and Chief Executive Officer, and John K. Peters, the
Company's Executive Vice President and General Manager, Network Services
Division. The loss of the services of Messrs. Nothhaft or Peters could have a
material adverse effect on the Company. The Company does not have employment
agreements with any of its senior officers, including Messrs. Nothhaft or
Peters. Nor does the Company carry key man life insurance on the life of any
such persons. The Company's success will also depend upon the continued
service of the other members of its senior management team and technical,
marketing and sales personnel. The Company's employees may voluntarily
terminate their employment with the Company at any time, and competition for
qualified employees is intense. The Company's success also depends upon its
ability to attract and retain additional highly qualified management,
technical, sales and marketing and customer support personnel. The process of
locating such personnel with the combination of skills and attributes required
to carry out the Company's strategy is often lengthy. The loss of the services
of key personnel, or the inability to attract additional qualified personnel,
could have a material adverse effect upon the Company's results of operations,
development efforts and ability to complete the expansion of its network
infrastructure. Any such event could have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Management of Potential Growth and Expansion" and "Management."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
A key component of the Company's strategy is its planned expansion into
international markets. In particular, the Company has entered into an
agreement with TMI, to establish an international network based on
Concentric's network technology and expertise and TMI's existing
telecommunications infrastructure to deliver a range of compatible network
services worldwide. If the companies are not able to successfully deploy
Concentric's technology over TMI's infrastructure, or if Concentric is
unsuccessful in transferring its knowledge to TMI employees, the Company's
international strategy may be delayed and the Company's business, results of
operation or financial condition could be materially adversely affected. To
date, the Company has only limited experience in working with TMI to develop
versions of its products and marketing and distributing its products
internationally. Additionally, the Company entered into a roaming services
agreement in June 1997 with NTT PC. The roaming services agreement allows
Concentric customers to use the NTT PC network to access their internet
accounts in Japan and allows members of the NTT PC network to access their
internet accounts in the
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United States and Canada. There can be no assurance that the Company will be
able to successfully market, sell and deliver its products in these markets.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on
an international level, such as unexpected changes in regulatory requirements,
export restrictions, export controls relating to encryption technology,
tariffs and other trade barriers, difficulties in staffing and managing
foreign operations, longer payment cycles, problems in collecting accounts
receivable, political instability, fluctuations in currency exchange rates,
seasonal reductions in business activity during the summer months in Europe
and certain other parts of the world and potentially adverse tax consequences
that could adversely impact the success of the Company's international
operations. There can be no assurance that one or more of such factors will
not have a material adverse effect on the Company's future international
operations and, consequently, on the Company's business, financial condition
and results of operations. See "Business--Sales and Marketing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that its available cash resources,
including the net proceeds of the Existing Notes Offering and existing lease
and credit facilities, and funds from operations will be sufficient to meet
its anticipated working capital and capital expenditure requirements through
at least the end of 1998. However, there can be no assurance that such
resources will be sufficient for its anticipated working capital and capital
expenditure requirements. The Company may need to raise additional funds
through public or private debt or equity financings in order to take advantage
of unanticipated opportunities, including more rapid international expansion
or acquisitions of complementary businesses or technologies, or to develop new
products or otherwise respond to unanticipated competitive pressures. The
Company may also raise additional funds through public or private debt or
equity financings if such financings become available on favorable terms. If
additional funds are raised, there can be no assurance that additional
financing will be available on terms favorable to the Company, or at all. If
adequate funds are not available or are not available on acceptable terms, the
Company may not be able to take advantage of unanticipated opportunities,
develop new products or otherwise respond to unanticipated competitive
pressures. Such inability could have a material adverse effect on the
Company's business, results of operations and financial condition. The
Company's forecast of the period of time through which its financial resources
will be adequate to support its operations is a forward looking statement that
involves risks and uncertainties, and actual results could vary materially as
a result of a number of factors, including those set forth above in this
paragraph. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
GOVERNMENT REGULATION
The Federal Communications Commission (the "FCC") currently does not
regulate value-added network software or computer equipment related services
that transport data or voice messages over telecommunication facilities. The
Company provides value-added IP-based network services, in part, through data
transmissions over public telephone lines. These transmissions are governed by
regulatory policies establishing charges and terms for wireline
communications. Operators of these types of value-added networks that provide
access to regulated transmission facilities only as part of a data services
package currently are excluded from regulations that applies to
"telecommunications carrier" and as such the Company is not currently subject
to direct regulation by the FCC or any other governmental agency, other than
regulations applicable to businesses generally. However, in the future the
Company could become subject to regulation by the FCC or another regulatory
agency as a provider of basic telecommunications services.
Currently, the FCC is reviewing its regulatory positions and could seek to
impose common carrier regulation on the network transport and communications
facilities aspects of an enhanced or information service package. Further, the
FCC could conclude that the Company's protocol conversions, computer
processing, and interaction with customer-supplied information are
insufficient to afford the Company the benefits of the enhanced or information
service classification, and thereby may seek to regulate some segments of the
Company's activities as basic telecommunications services. While state public
utility commissions generally have declined to regulate enhanced or
information services, some states have continued to regulate particular
aspects of enhanced services in limited circumstances, such as where they are
provided by LECs. Moreover, the public service commissions
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of certain states continue to review potential regulation of such services.
There can be no assurance that regulatory authorities of states within which
Concentric makes its Internet access, Intranet and VPN services available will
not seek to regulate aspects of these activities as telecommunications
services. Changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes that directly or indirectly
affect telecommunications costs or increase the likelihood or scope of
competition from the RBOCs or other telecommunications companies, could affect
the prices at which the Company may sell its services. The Company cannot
predict the impact, if any, that future regulation or regulatory changes may
have on its business and there can be no assurance that such future regulation
or regulatory changes will not have a material adverse effect on the Company's
business, results of operations and financial condition.
DEPENDENCE ON TECHNOLOGY; PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
technology, although the Company believes that its success is more dependent
upon its technical expertise than its proprietary rights. The Company
principally relies upon a combination of copyright, trademark and trade secret
laws and contractual restrictions to protect its proprietary technology. It
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization or to develop similar
technology independently, and there can be no assurance that such measures
have been, or will be, adequate to protect the Company's proprietary
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. The Company operates a material portion of its business over the
Internet, which is subject to a variety of risks. Such risks include but are
not limited to the substantial uncertainties that exist regarding the system
for assigning domain names and the status of private rules for resolution of
disputes regarding rights to domain names. There can be no assurance that the
Company will continue to be able to employ its current domain names in the
future or that the loss of rights to one or more domain names will not have a
material adverse effect on the Company's business and results of operations.
Although the Company does not believe that it infringes the proprietary
rights of any third parties, there can be no assurance that third parties will
not assert such claims against the Company in the future or that such claims
will not be successful. The Company could incur substantial costs and
diversion of management resources with respect to the defense of any claims
relating to proprietary rights, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief that
could effectively block the Company's ability to license its products in the
United States or abroad. Such a judgment would have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, the Company is obligated under certain agreements to indemnify the
other party in connection with infringement by the Company of the proprietary
rights of third parties. In the event the Company is required to indemnify
parties under these agreements, it could have a material adverse effect on the
business, financial condition and results of operations of the Company. In the
event a claim relating to proprietary technology or information is asserted
against the Company, the Company may seek licenses to such intellectual
property. There can be no assurance, however, that licenses could be obtained
on commercially reasonable terms, if at all, or that the terms of any offered
licenses would be acceptable to the Company. The failure to obtain the
necessary licenses or other rights could have a material adverse effect on the
Company's business, financial condition and results of operations.
POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH NETWORK
The law relating to the liability of online service providers, private
network operators and Internet service providers for information carried on or
disseminated through the facilities of their networks is currently unsettled.
Several lawsuits seeking a judgment of such liability are pending. In one case
brought against an Internet service provider, Religious Technology Center v.
Netcom On-Line Communication Services, Inc., the United States District Court
for the Northern District of California ruled in a preliminary phase that
under certain circumstances Internet service providers could be held liable
for copyright infringement. The case has not reached final
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judgment. Such claims have been asserted against the Company in the past, and
there can be no assurance that such claims will not be asserted in the future,
or if asserted, will not be successful. The Telecommunications Act of 1996
prohibits and imposes criminal penalties and civil liability for using an
interactive computer service for transmitting certain types of information and
content, such as obscene communications. Numerous states have adopted or are
currently considering similar types of legislation. The imposition upon the
Company, Internet service providers or Web server hosts of potential liability
for materials carried on or disseminated through their systems could require
the Company to implement measures to reduce its exposure to such liability,
which may require the expenditure of substantial resources or the
discontinuation of certain product or service offerings. Further, the costs
incurred in defending against any such claims and potential adverse outcomes
of such claims could have a material adverse effect on the Company's financial
condition and results of operations. The Company believes that it is currently
unsettled whether the Telecommunications Act of 1996 prohibits and imposes
liability for any services provided by the Company should the content of
information transmitted be subject to the statute.
LEGAL PROCEEDINGS
In late April and early May, 1997, three putative securities class action
complaints were filed in the United States District Court, Central District by
certain stockholders of Diana Corporation ("Diana"), the parent corporation of
Sattel Communications LLC ("Sattel"), alleging securities fraud related to
plaintiffs' purchase of shares of Diana Common Stock in reliance upon
allegedly misleading statements made by defendants, Diana, Sattel and certain
of their respective affiliates, officers and directors. Concentric was named
as a defendant in the complaint in connection with certain statements made by
Diana and officers of Diana related to Concentric's purchase of network
switching equipment from Diana's Sattel subsidiary. The plaintiffs seek
unspecified compensatory damages. A motion by the Company to dismiss the
complaint was denied, and the court has allowed the action to proceed against
the Company. A trial date has not yet been determined.
While the ultimate outcome of such litigation is uncertain, the Company
believes it has meritorious defenses to the claims and intends to conduct a
vigorous defense. An unfavorable outcome in this matter could have a material
adverse effect on the Company's financial condition. In addition, even if the
ultimate outcome is resolved in favor of the Company, the defense of such
litigation could entail considerable cost and the diversion of efforts of
management, either of which could have a material adverse effect on the
Company's results of operations. See "Business--Legal Proceedings" and Note 10
of Notes to Financial Statements.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will be
entitled to require the Company to purchase any or all of the Notes held by
such holder at the prices stated herein. However, the Company's ability to
repurchase the Notes upon a Change of Control may be limited by the terms of
then existing contractual obligations of the Company and its subsidiaries. In
addition, the Company may not have adequate financial resources to effect such
a purchase, and there can be no assurance that the Company would be able to
obtain such resources through a refinancing of the Notes to be purchased or
otherwise. If the Company fails to repurchase all of the Notes tendered for
purchase upon the occurrence of a Change of Control, such failure will
constitute an Event of Default under the Indenture.
With respect to the sale of assets referred to in the definition of Change
of Control, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction,
has no clearly established meaning under the relevant law and is subject to
judicial interpretation. Accordingly, in certain circumstance there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of a person
and therefore it may be unclear whether a Change of Control has occurred and
whether the Notes are subject to an offer to purchase.
The Change of Control provision may not necessarily afford the Holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving
the
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Company that may adversely affect the Holders, because such transactions may
not involve a shift in voting power or beneficial ownership or, even if they
do, may not involve a shift of the magnitude required under the definition of
Change of Control to trigger such provisions. Except as described under
"Description of the Notes--Change of Control," the Indenture does not contain
provisions that permit the Holders of the Notes to require the Company to
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
BANKRUPTCY RELATED TO ESCROW AMOUNT
The right of the Trustee (as defined) under the Indenture and the Escrow
Agreement (as defined) to foreclose upon and sell Escrow Collateral (as
defined) upon the occurrence of an Event of Default on the Notes is likely to
be significantly impaired by applicable bankruptcy law if a bankruptcy or
reorganization case were to be commenced by or against the Issuer or one or
more of its subsidiaries. Under applicable bankruptcy law, secured creditors
such as the Holders of the Notes are prohibited from foreclosing upon or
disposing of a debtor's property without prior bankruptcy court approval. See
"Description of Notes--Escrow Account."
DISCRETIONARY AUTHORITY OVER USE OF NET PROCEEDS
Approximately $52.4 million of the net proceeds from the issuance of the
Existing Notes have been invested in U.S. Government Securities to be held in
an escrow account for the benefit of the Holders of the Notes to fund, when
due, the first six scheduled interest payments on the Notes. As of the date of
this Prospectus, the Company has no other specific allocations for the net
proceeds of the Existing Notes Offering. Consequently, management retains a
significant amount of discretion over the application of the proceeds from the
Existing Notes Offering. Because of the number and variability of factors that
determine the Company's use of the net proceeds of the Existing Notes
Offering, there can be no assurance that such applications will not vary
substantially from the Company's current intentions. Pending such uses, the
Company intends to invest the net proceeds of the Existing Notes Offering in
short-term U.S. investment grade and government securities. See "Use of
Proceeds."
SUBSTANTIAL CONTROL BY OFFICERS AND DIRECTORS AND THEIR AFFILIATES
As of December 31, 1997, the Company's officers and directors and their
affiliates or the principal stockholders whom they represent beneficially
owned or controlled approximately 47% of the outstanding shares of Common
Stock. As a result, the Company's officers, directors and their affiliates
will have the ability to significantly influence the election of the Company's
Board of Directors and the outcome of corporate actions requiring stockholder
approval. See "Principal Stockholders."
RESTRICTIONS ON RESALE; ABSENCE OF PUBLIC MARKET FOR THE EXISTING NOTES
The Existing Notes are currently owned by a relatively small number of
beneficial owners. The Existing Notes have not been registered under the
Securities Act or any state securities laws and, unless so registered and to
the extent not exchanged for the Exchange Notes, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. Any Existing Notes tendered and exchanged in the Exchange
Offer will reduce the aggregate principal amount of Existing Notes
outstanding. Following the consummation of the Exchange Offer, Existing
Holders who did not tender their Existing Notes generally will not have any
further registration rights under the Registration Rights Agreement, and such
Existing Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Existing Notes
could be adversely affected. The Existing Notes are currently eligible for
sale pursuant to Rule144A through The Portal Market of the National
Association of Securities Dealers, Inc. ("PORTAL"). Because the Company
anticipates that most Existing Holders will elect to exchange such Existing
Notes for Exchange Notes due to the absence of restrictions on the resale of
Exchange Notes under the Securities Act, the Company anticipates that the
liquidity of the market for any Existing Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
The Exchange Notes will constitute a new issue of securities for which there
is currently no active trading market. If the Exchange Notes are traded after
their initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for
similar securities and other factors
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including general economic conditions and the current financial condition,
results of operations and business prospects of the Company. Although the
Exchange Notes will generally be permitted to be resold or otherwise
transferred by non-affiliates of the Company without compliance with the
registration and prospectus delivery requirements of the Securities Act, the
Company does not intend to apply for a listing or quotation of the Exchange
Notes on any securities exchange or stock market. The Initial Purchasers are
not obligated to engage in market-making activities with respect to the
Exchange Notes, and any such market-making undertaken by the Initial
Purchasers may be discontinued at any time without notice. In addition, any
market-making activity in the Notes by the Initial Purchasers will be subject
to the limits imposed under the Exchange Act. Accordingly, there can be no
assurance as to the development, liquidity or maintenance of any market for
the Exchange Notes, or, in the case of non-tendering Existing Holders, the
trading market for the Existing Notes following the Exchange Offer. If no
trading market develops or is maintained, New Holders may experience
difficulty in reselling Exchange Notes or may be unable to sell them.
The liquidity of, and trading market for, the Existing Notes or the Exchange
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects
for, the Company.
CONSEQUENCES OF FAILURE TO EXCHANGE
Any Existing Notes tendered and exchanged in the Exchange Offer will reduce
the aggregate principal amount of Existing Notes outstanding. Following the
consummation of the Exchange Offer, Existing Holders who did not tender their
Existing Notes generally will not have any further registration rights under
the Registration Rights Agreement, and such Existing Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Existing Notes could be adversely affected. The Existing Notes
are currently eligible for sale pursuant to Rule144A through PORTAL. Because
the Company anticipates that most Existing Holders will elect to exchange such
Existing Notes for Exchange Notes due to the absence of restrictions on the
resale of Exchange Notes (except for applicable restrictions on any New Holder
who is an affiliate of the Company or is a broker-dealer which acquired the
Existing Notes directly from the Company) under the Securities Act, the
Company anticipates that the liquidity of the market for any Existing Notes
remaining after the consummation of the Exchange Offer may be substantially
limited.
As a result of the making of this Exchange Offer, the Company will have
fulfilled certain of its obligations under the Registration Rights Agreement,
and Existing Holders who do not tender their Existing Notes, except for
certain instances involving the Existing Holders who are not eligible to
participate in the Exchange Offer, will not have any further registration
rights under the Registration Rights Agreement or otherwise or rights to
receive Liquidated Damages (as defined) for failure to register. Accordingly,
any Existing Holder that does not exchange that Holder's Existing Notes for
Exchange Notes will continue to hold the untendered Existing Notes and will be
entitled to all the rights and subject to all the limitations applicable
thereto under the Indenture, except to the extent that such rights or
limitations, by their terms, terminate or cease to have further effectiveness
as a result of the Exchange Offer.
The Existing Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to the Company or any of its subsidiaries, (ii)
inside the United States to a QIB in a transaction complying with Rule 144A,
(iii) inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) an
"Accredited Investor" that, prior to such transfer, furnishes (or has
furnished on its behalf by a U.S. broker-dealer) to the Trustee a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Securities (the form of which letter can be
obtained from such Trustee), (iv)outside the United States in compliance with
Rule 904 under the Securities Act, (v) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available), or
(vi) pursuant to an effective registration statement under the Securities Act.
Each Accredited Investor that is not a QIB and that is an original purchaser
of any of the Securities from the Initial Purchasers will be required to sign
a letter confirming that such person is an Accredited Investor under the
Securities Act and that such person acknowledges the transfer restrictions
summarized herein.
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USE OF PROCEEDS
EXCHANGE OFFER
The net proceeds from the Existing Notes Offering, after deducting the
Initial Purchasers' discount and estimated offering expenses, were
approximately $145.0 million. Approximately $52.4 million of such net proceeds
have been invested in U.S. Government Securities held in an Escrow Account for
the benefit of the Holders of the Notes to fund when due the first six
scheduled interest payments on the Notes.
The Company currently plans to use the net proceeds from the Existing Notes
Offering to fund operating losses and for working capital requirements or for
other general corporate purposes. Proceeds from the Existing Notes Offering
also may be used to acquire assets, technologies, or businesses complementary
to the Company's value-added enterprise network service strategy. Pending such
uses, the proceeds will be invested in short-term U.S. investment grade and
government securities.
The Company will not receive any cash proceeds from the Exchange Offer. In
consideration for issuing the Exchange Notes in exchange for Existing Notes as
described in this Prospectus, the Company will receive Existing Notes in like
principal amount. The Existing Notes surrendered in exchange for the Exchange
Notes will be retired and canceled.
DIVIDEND POLICY
The Company has not paid and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. The Company intends to retain
its earnings, if any, for use in the Company's growth and ongoing operations.
In addition, the terms of the Indenture will restrict the ability of the
Company to pay dividends on the Common Stock. See "Description of Notes--
Certain Covenants; Restricted Payments."
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
Exchange Offer, including those set forth in the Letter of Transmittal
distributed with this Prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the Exchange Offer
(including the Indenture and the Registration Rights Agreement), which are
exhibits to the Exchange Offer Registration Statement.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Existing Notes were sold by the Company to the Initial Purchasers on
December 15, 1997, and were subsequently resold to qualified institutional
buyers pursuant to Rule 144A under the Securities Act. In connection with the
Existing Notes Offering, the Company entered into the Registration Rights
Agreement, which requires, among other things, that within 45 days following
December 15, 1997 (the "Issue Date") (i.e. on or before January 29, 1998) the
Company (i) file with the Commission a registration statement under the
Securities Act with respect to an issue of Exchange Notes of the Company
identical in all material respects (other than transfer restrictions,
registration rights and the requirement, under certain circumstances, to pay
Liquidated Damages) to the Existing Notes (which obligation has been satisfied
by the filing of the Exchange Offer Registration Statement), (ii) use their
best efforts to cause such registration statement to become effective under
the Securities Act by the date which is 105 days after the Issue Date (the
"Target Effectiveness Date") and (iii) to consummate the Exchange Offer within
30 days after the Target Effectiveness Date, and offer to the Existing Holders
the opportunity to exchange their Existing Notes for a like principal amount
of Exchange Notes, which would be issued without a restrictive legend and may
generally be reoffered and resold by the New Holder without restrictions or
limitations under the Securities Act, subject to the terms and conditions of
the Exxon Capital, Morgan Stanley and Shearman & Sterling No-Action Letters.
See Outside Front Cover, "Prospectus Summary--The Exchange Offer", and "--
Resale of Exchange Notes."
Any Existing Notes tendered and exchanged in the Exchange Offer will reduce
the aggregate principal amount of Existing Notes outstanding. Following the
consummation of the Exchange Offer, Existing Holders who did not tender their
Existing Notes generally will not have any further registration rights under
the Registration Rights Agreement, and such Existing Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Existing Notes could be adversely affected. The Existing Notes
are currently eligible for sale pursuant to Rule 144A through PORTAL. Because
the Company anticipates that most Existing Holders will elect to exchange such
Existing Notes for Exchange Notes due to the absence of restrictions on the
resale of Exchange Notes under the Securities Act, the Company anticipates
that the liquidity of the market for any Existing Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
As a result of the making of this Exchange Offer, the Company will have
fulfilled certain of its obligations under the Registration Rights Agreement,
and Existing Holders who do not tender such Existing Notes, except for certain
instances involving the Initial Purchasers or Existing Holders who are not
eligible to participate in the Exchange Offer, will not have any further
registration rights under the Registration Rights Agreement or otherwise or
rights to receive Liquidated Damages for failure to register. Accordingly, any
Existing Holder that does not exchange that Holder's Existing Notes for
Exchange Notes will continue to hold the untendered Existing Notes and will be
entitled to all the rights and subject to all the limitations applicable
thereto under the Indenture, except to the extent that such rights or
limitations, by their terms, terminate or cease to have further effectiveness
as a result of the Exchange Offer.
The Existing Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to the Company or any of its subsidiaries, (ii)
inside the United States to a QIB in a transaction complying with Rule 144A,
(iii) inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) an
"Accredited Investor" that, prior to such transfer, furnishes (or has
furnished on its behalf by a U.S. broker-dealer) to the Trustee a signed
letter containing certain representations and agreements relating to
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the restrictions on transfer of the Securities (the form of which letter can
be obtained from such Trustee), (iv) outside the United States in compliance
with Rule 904 under the Securities Act, (v) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available), or
(vi) pursuant to an effective registration statement under the Securities Act.
Each Accredited Investor that is not a QIB and that is an original purchaser
of any of the Securities from the Initial Purchasers will be required to sign
a letter confirming that such person is an Accredited Investor under the
Securities Act and that such person acknowledges the transfer restrictions
summarized herein.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Existing
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time on the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding
Existing Notes accepted in the Exchange Offer. Existing Holders may tender
some or all of their Existing Notes pursuant to the Exchange Offer. However,
Existing Notes may be tendered only in integral multiples of $1,000. The form
and terms of the Exchange Notes are the same as the form and terms of the
Existing Notes except that (i) the Exchange Notes have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) New Holders generally will not be entitled to certain rights
under the Registration Rights Agreement or Liquidated Damages, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the Existing Notes and will be entitled
to the benefits of the Indenture.
Existing Holders do not have any appraisal or dissenters' rights under the
Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder, including Rule 14e-1.
The Company shall be deemed to have accepted validly tendered Existing Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering
Existing Holders for the purpose of receiving the Exchange Notes from the
Company.
If any tendered Existing Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Existing Notes will be
returned, without expense, to the tendering Existing Holder thereof as
promptly as practicable after the Expiration Date.
Existing Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 (20 business days after the effective date of the Exchange Offer
Registration Statement), unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. In no event will the
Expiration Date be extended to a date more than 30 business days after
effectiveness of the Exchange Offer Registration Statement.
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The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Existing Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by a
public announcement thereof.
INTEREST ON EXCHANGE NOTES
Each Exchange Note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Existing Note surrendered
in exchange for such Exchange Note or, if no such interest has been paid or
duly provided for on such Existing Note, from December 15, 1997. Holders of
the Existing Notes whose Existing Notes are accepted for exchange will not
receive accrued interest on such Existing Notes for any period from and after
the last Interest Payment Date to which interest has been paid or duly
provided for on such Existing Notes prior to the original issue date of the
Exchange Notes or, if no such interest has been paid or duly provided for,
will not receive any accrued interest on such Existing Notes, and will be
deemed to have waived the right to receive any interest on such Existing Notes
accrued from and after such Interest Payment Date or, if no such interest has
been paid or duly provided for, from and after December 15, 1997. Interest on
the Notes will be payable semi-annually in arrears on each June 15 and
December 15, commencing on June 15, 1998.
PROCEDURES FOR TENDERING
Only Existing Holders may tender such Existing Notes in the Exchange Offer.
To tender in the Exchange Offer, an Existing Holder must complete, sign and
date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Existing Notes and any other required documents, to the Exchange Agent so
as to be received by the Exchange Agent at the address set forth below prior
to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the
Existing Notes may be made by book-entry transfer in accordance with the
procedures described below. Confirmation of such book-entry transfer must be
received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Existing Holder will make to
the Company the representation set forth below in the second paragraph under
the heading "--Resale of Exchange Notes."
The tender by an Existing Holder and the acceptance thereof by the Company
will constitute an agreement between such Existing Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Existing Holder promptly and instruct
such registered Existing Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Existing Notes tendered pursuant thereto (i) are signed by the
registered Existing Holder, unless such Existing Holder has completed the box
entitled "Special Exchange
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Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) are tendered for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by a member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
Existing Holder of any Existing Notes listed therein, such Existing Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered Existing Holder as such registered Existing Holder's name appears
on such Existing Notes, with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Existing Notes and withdrawal of tendered
Existing Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Existing Notes not properly tendered or any
Existing Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Existing Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Existing Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify Existing Holders of defects or irregularities with respect to
tenders of Existing Notes, none of the Company, the Exchange Agent or any
other person shall incur any liability for failure to give such notification.
Tenders of Existing Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Existing Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering Existing Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
TENDER OF EXISTING NOTES HELD THROUGH DTC
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for ATOP, the DTC Automated Tender Offer Program. Accordingly, DTC
participants may, in lieu of physically completing and signing the applicable
Letter of Transmittal and delivering it to the Exchange Agent, electronically
transmit their acceptance of the Exchange Offer by causing DTC to transfer
Existing Notes to the Exchange Agent in accordance with DTC's ATOP procedures
for transfer. DTC will then send an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which
states that DTC has received an expressed acknowledgment from a participant in
DTC that is tendering Existing Notes which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the applicable Letter of Transmittal (or, in the case of an Agent's
Message relating to guaranteed delivery, that such participant has received
and agrees to be bound by the applicable Notice of Guaranteed Delivery), and
that the Company may enforce such agreement against such participant.
BOOK-ENTRY DELIVERY PROCEDURES
Within two business days after the date hereof, the Exchange Agent will
establish accounts with respect to the Existing Notes at DTC (the "Book-Entry
Transfer Facility") for purposes of the Exchange Offer. Any
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financial institution that is a participant in the Book-Entry Transfer
Facility systems may make book-entry delivery of the Existing Notes by causing
DTC to transfer such Existing Notes into the Exchange Agent's account at such
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. Timely book-entry delivery of
Existing Notes pursuant to the Exchange Offer, however, requires receipt of a
Book-Entry Confirmation prior to the Expiration Date. In addition, although
delivery of Existing Notes may be effected through book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility, the Letter
of Transmittal (or a manually signed facsimile thereof), together with any
required signature guarantees and any other required documents, or an Agent's
Message in connection with a book-entry transfer, must, in any case, be
delivered or transmitted to and received by the Exchange Agent at its address
set forth on the back cover page of this Prospectus prior to the Expiration
Date to receive Exchange Notes for tendered Existing Notes, or the guaranteed
delivery procedure described below must be complied with. Tender will not be
deemed made until such documents are received by the Exchange Agent. Delivery
of documents to the Book-Entry Transfer Facility does not constitute delivery
to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Existing Holders who wish to tender their Existing Notes and (i) whose
Existing Notes are not immediately available, (ii) who cannot deliver their
Existing Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Existing Holder, the certificate
number(s) of such Existing Notes and the principal amount of Existing Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof), together
with the certificate(s) representing the Existing Notes (or a confirmation
of book-entry transfer of such Existing Notes into the Exchange Agent's
account at DTC) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at DTC)
and all other documents required by the Letter of Transmittal, are received
by the Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Existing Holders who wish to tender their Existing Notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Existing Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at the address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Existing Notes to be withdrawn (the
"Depositor"), (ii) identify the Existing Notes to be withdrawn (including the
certificate number(s) and principal amount of such Existing Notes, or, in the
case of Existing Notes transferred by book-entry transfer, the name and number
of the account at DTC to be credited), (iii) be signed by the Existing Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Existing Notes were tendered (including any required signature
guarantees) or be accompanied by documents of
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transfer sufficient to have the Trustee register the transfer of such Existing
Notes into the name of the person withdrawing the tender and (iv) specify the
name in which any such Existing Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time or receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Existing
Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Existing Notes so withdrawn are validly retendered.
Any Existing Notes which have been tendered but which are not accepted for
exchange will be returned to such Existing Holder without cost to such
Existing Holder as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Existing Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to Exchange Notes for any Existing
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Existing Notes, if:
(a) in the opinion of counsel to the Company, the Exchange Offer or any
part thereof contemplated herein violates any applicable law or
interpretation of the Staff;
(b) any action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development shall have occurred in any existing action or
proceeding with respect to the Company;
(c) any governmental approval has not been obtained, which approval the
Company shall deem necessary for the consummation of the Exchange Offer as
contemplated hereby;
(d) any cessation of trading on the Nasdaq Stock Market or any exchange,
or any banking moratorium, shall have occurred, as a result of which the
Company is unable to proceed with the Exchange Offer; or
(e) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Exchange Offer
Registration Statement or proceedings shall have been initiated or, to the
knowledge of the Company, threatened for that purpose.
If the Company determines in its reasonable judgment that any of the
foregoing conditions are not satisfied, the Company may (i) refuse to accept
any Existing Notes and return all tendered Existing Notes to the tendering
Existing Holders, (ii) extend the Exchange Offer and retain all Existing Notes
tendered prior to the expiration of the Exchange Offer, subject, however, to
the rights of Existing Holders to withdraw such Existing Notes (see "--
Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Existing Notes
which have not been withdrawn.
EXCHANGE AGENT
Chase Manhattan Bank and Trust Company, National Association will act as
Exchange Agent for the Exchange Offer with respect to the Existing Notes.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Existing Notes and
requests for copies of the Notice of Guaranteed Delivery should be directed to
the Exchange Agent, addressed as follows:
By Hand, Overnight Courier Chase Manhattan Bank and Trust
or Mail: Company, National Association
By Facsimile: 415-693-8850
Confirm by Telephone: 415-954-9526
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FEES AND EXPENSES
The expenses of soliciting Existing Notes for exchange will be borne by the
Company. The principal solicitation is being made by mail by the Exchange
Agent. However, additional solicitation may be made by telephone, facsimile or
in person by officers and regular employees of the Company and its affiliates
and by persons so engaged by the Exchange Agent.
The Company will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses
in connection therewith and pay other registration expenses, including fees
and expenses of the Trustee (as defined), filing fees, blue sky fees and
printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Existing Notes pursuant to the Exchange Offer. If, however,
certificates representing the Exchange Notes or the Existing Notes for
principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be issued in the name of, any person other than the registered
Holder of the Existing Notes tendered, or if tendered Existing Notes are
registered in the name of any person other than the person signing the Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of the Existing Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered Existing Holder
or any other person) will be payable by the tendering Existing Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Existing Notes, which is the aggregate principal amount of the Existing Notes,
as reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized in
connection with the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
RESALE OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Staff of the Commission as set forth in the Staff's Exxon Capital
No-Action Letter, Morgan Stanley & Co. Incorporated No-Action Letter, Shearman
& Sterling No-Action Letter, and other interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter addressing such matters and there can be no assurance that
the Staff would make a similar determination with respect to the Exchange
Offer as it has in such interpretive letters to third parties. Based on these
interpretations by the Staff, and subject to the two immediately following
sentences, the Company believes that Exchange Notes issued pursuant to this
Exchange Offer in exchange for Existing Notes may be offered for resale,
resold and otherwise transferred by a such New Holder (other than a New Holder
who is a broker-dealer) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such New Holder's
business and that such New Holder is not participating, and has no arrangement
or understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such Exchange Notes. However, any Existing
Holder who (i) is an "affiliate" of the Company (within the meaning of Rule
405 under the Securities Act), (ii) does not acquire such Exchange Notes in
the ordinary course of its business, (iii) intends to participate in the
Exchange Offer for the purpose of distributing Exchange Notes, or (iv) is a
broker-dealer who purchased such Existing Notes directly from the Company, (a)
will not be able to rely on the interpretations of the Staff set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Existing Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Existing Notes unless such
sale is made pursuant to an exemption from such requirements. In addition, as
described below, if any broker-dealer holds Existing Notes acquired for its
own account a Participating Broker-Dealer, then such Participating Broker-
Dealer may be deemed a statutory "underwriter" within the meaning of the
Securities Act and must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such Exchange Notes.
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Each Existing Holder who wishes to exchange Existing Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not
an affiliate of the Company, (ii) any Exchange Notes to be received by it are
being acquired in the ordinary course of its business, and (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Existing Notes for its
own account as a result of market-making activities or other trading
activities (and not directly from the Company) and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, such a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the Staff in the interpretive letters referred to above, the Company
believes that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes received upon
exchange of such Existing Notes with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for an exchange offer
so long as it contains a description of the plan of distribution with respect
to the resale of such Exchange Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales
of Exchange Notes received in exchange for Existing Notes where such Existing
Notes were acquired by such Participating Broker-Dealer for its own account as
a result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Company shall
use its best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended to the extent necessary to
ensure that it is available for sales of Exchange Notes by Participating
Broker-Dealers, and to ensure that the Exchange Offer Registration Statement
conforms with the requirements of the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period
expiring approximately 180 days from the date on which the Exchange Offer
Registration Statement is declared effective. See "Plan of Distribution." Any
Participating Broker-Dealer who is an affiliate of the Company may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of Exchange Notes."
In that regard, each Participating Broker-Dealer who surrenders Existing
Notes pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Company of the occurrence of any event or the discovery of any fact which
makes any statement contained or incorporated by reference in this Prospectus
untrue in any material respect or which causes this Prospectus to omit to
state a material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which
they were made, not misleading or of the occurrence of certain other events
specified in the Registration Rights Agreement, such Participating Broker-
Dealer will suspend the sale of Exchange Notes pursuant to this Prospectus
until the Company has amended or supplemented this Prospectus to correct such
misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer or the Company has
given notice that the sale of the Exchange Notes may be resumed, as the case
may be.
CONSEQUENCES OF FAILURE TO EXCHANGE
Any Existing Notes tendered and exchanged in the Exchange Offer will reduce
the aggregate principal amount of Existing Notes outstanding. Following the
consummation of the Exchange Offer, Existing Holders who did not tender their
Existing Notes generally will not have any further registration rights under
the Registration Rights Agreement, and such Existing Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Existing Notes could be adversely affected. The Existing Notes
are currently eligible for sale pursuant to Rule 144A through PORTAL. Because
the Company anticipates that most Existing Holders will elect to exchange such
Existing Notes for Exchange Notes due to the absence of restrictions on the
resale of Exchange Notes (except for applicable restrictions on any New Holder
who is an affiliate of the Company or is a broker-dealer which acquired the
Existing Notes directly from the
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Company) under the Securities Act, the Company anticipates that the liquidity
of the market for any Existing Notes remaining after the consummation of the
Exchange Offer may be substantially limited.
As a result of the making of this Exchange Offer, the Company will have
fulfilled certain of its obligations under the Registration Rights Agreement,
and Existing Holders who do not tender their Existing Notes, except for
certain instances involving the Initial Purchasers or Existing Holders who are
not eligible to participate in the Exchange Offer, will not have any further
registration rights under the Registration Rights Agreement or otherwise or
rights to receive Liquidated Damages (as defined) for failure to register.
Accordingly, any Existing Holder that does not exchange that Holder's Existing
Notes for Exchange Notes will continue to hold the untendered Existing Notes
and will be entitled to all the rights and subject to all the limitations
applicable thereto under the Indenture, except to the extent that such rights
or limitations, by their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
The Existing Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to the Company or any of its subsidiaries, (ii)
inside the United States to a QIB in a transaction complying with Rule 144A,
(iii) inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) an
"Accredited Investor" that, prior to such transfer, furnishes (or has
furnished on its behalf by a U.S. broker-dealer) to the Trustee a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Securities (the form of which letter can be
obtained from such Trustee), (iv) outside the United States in compliance with
Rule 904 under the Securities Act, (v) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available), or
(vi) pursuant to an effective registration statement under the Securities Act.
Each Accredited Investor that is not a QIB and that is an original purchaser
of any of the Securities from the Initial Purchasers will be required to sign
a letter confirming that such person is an Accredited Investor under the
Securities Act and that such person acknowledges the transfer restrictions
summarized herein.
OTHER
Participation in the Exchange Offer is voluntary and Existing Holders should
carefully consider whether to accept. Existing Holders are urged to consult
their financial and tax advisors in making their own decision on what action
to take.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Existing
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Existing Notes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the Exchange Offer and the ownership and
disposition of the Exchange Notes. The tax consequences of these transactions
are uncertain. The discussion set forth below is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), and judicial decisions and
administrative interpretations thereunder, as of the date hereof, and such
authorities may be repealed, revoked, modified or otherwise interpreted or
applied so as to result in federal income tax consequences different from
those discussed below. There can be no assurance that the Internal Revenue
Service (the "IRS") will not challenge one or more of the tax positions
described herein, and the Company has not obtained, nor does it intend to
obtain, a ruling from the IRS or an opinion of counsel with respect to the
U.S. federal income tax consequences of acquiring or holding Exchange Notes.
The discussion below pertains only to Holders that are (i) citizens or
residents (within the meaning of Section 7701(b) of the Code) of the United
States, (ii) corporations, partnerships or other entities created in or under
the laws of the United States or any political subdivision thereof, (iii)
estates, the income of which is subject to United States
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federal income taxation regardless of its source, and (iv) trusts subject to
the primary supervision of a court within the United States and the control of
one or more United States persons as described in Section 7701(a)(30) of the
Code.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to a particular Holder in light of the
Holder's circumstances (for example, persons subject to the alternative
minimum tax provisions of the Code). Also, it is not intended to be wholly
applicable to all categories of investors, some of which (such as dealers in
securities, banks, insurance companies, tax-exempt organizations, and persons
holding Exchange Notes as part of a hedging or conversion transaction or
straddle or persons deemed to sell Exchange Notes under the constructive sale
provisions of the Code) may be subject to special rules. The discussion below
is premised upon the assumption that the Exchange Notes and Existing Notes
constitute indebtedness for U.S. federal income tax purposes, and that the
Existing Notes and Exchange Notes are held (or would be held if acquired) as
capital assets within the meaning of Section 1221 of the Code. This summary
does not discuss the tax considerations applicable to subsequent purchasers.
The discussion also does not discuss any aspect of state, local or foreign
law.
EACH PROSPECTIVE HOLDER AND, SUBSEQUENT TO THE EXCHANGE OFFER, EACH HOLDER
OF EXCHANGE NOTES IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR INCLUDING
WITH RESPECT TO ITS PARTICULAR TAX SITUATION THE TAX EFFECTS OF ANY STATE,
LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
EXCHANGE OF NOTES
The exchange of Existing Notes for Exchange Notes pursuant to the Exchange
Offer should not be a taxable exchange for U.S. federal income tax purposes.
Accordingly, a Holder should have the same adjusted issue price, adjusted
basis and holding period in the Exchange Notes as it had in the Existing Notes
immediately before the exchange.
INTEREST AND ORIGINAL ISSUE DISCOUNT
Holders of Exchange Notes will be required to include payments of "qualified
stated interest" received thereon in taxable income in accordance with their
respective methods of accounting for federal income tax purposes. Stated
interest on the Exchange Notes will be treated as qualified stated interest.
In addition, the Exchange Notes will be issued with "original issue
discount" for federal income tax purposes. A holder generally is required to
include original issue discount in gross income as it accrues, regardless of
the holder's method of accounting for federal income tax purposes.
Accordingly, each holder will be required to include amounts in gross income
without regard to when the cash or other payments to which such income is
attributable are received. The Exchange Notes will be treated as issued with
original issue discount because the "issue price" of the Existing Notes was
less than their "stated redemption price at maturity" by more than a de
minimis amount. The Existing Notes were issued as part of an "investment
unit," and the issue price of each investment unit was allocated between the
Existing Note and the Warrant constituting an investment unit, based on their
respective fair market values on the issue date. The Company allocated an
issue price of $1,000 to each Existing Note. Although the Company's allocation
is not binding on the IRS, a Holder of an Existing Note must use the Company's
allocation unless the Holder discloses on its federal income tax return for
the year in which the Existing Note was acquired that it plans to use an
allocation that is inconsistent with the Company's allocation.
Each holder of an Exchange Note will be required to include in gross income
for federal income tax purposes an amount equal to the sum of the "daily
portions" of the original issue discount of the Exchange Note for all days
during each taxable year in which the holder holds the Exchange Note. The
daily portions of original issue discount will be determined on a constant
interest rate basis by allocating to each day in an accrual period a pro rata
portion of the original issue discount thereon that is attributable to the
accrual period in which such day is included. The amount of the original issue
discount attributable to each full accrual period will be
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the product of the "adjusted issue price" of the Exchange Note at the
beginning of an accrual period and the "yield to maturity" of the Exchange
Note (adjusted to reflect the length of the accrual period). The adjusted
issue price of an Exchange Note at the beginning of an accrual period is the
original issue price of the Exchange Note plus the aggregate amount of
original issue discount that has accrued in all prior accrual periods, less
any cash payments on the Exchange Note other than qualified stated interest on
or before the first day of such accrual period. The yield to maturity is the
discount rate that, when used in computing the present value of all principal
and interest payments to be made on the Exchange Note, produces an amount
equal to the issue price. Under these rules, holders will have to include
increasingly greater amounts of original issue discount in each successive
accrual period. Each payment made under an Exchange Note (except of payments
of qualified stated interest) will be treated first as a payment of original
issue discount (which was previously includable in income) to the extent of
original issue discount that has accrued as of the date of payment and has not
been allocated to prior payments and second as a payment of principal (which
is not includable in income).
The accrual period generally is the six-month period ending on the date in
each calendar year corresponding to the day before the maturity date of the
Exchange Note or the date six months before such date.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record holders of an Exchange Note, information with
respect to original issue discount accruing during the calendar year. That
information will be based upon the adjusted issue price of the Exchange Note
as if the holder were the original holder of the Exchange Note.
There are several circumstances under which the Company could make a payment
on an Exchange Note which would affect the yield to maturity of a Note,
including (as described in the "Description of Exchange Notes"), the optional
redemption of Notes, or the repurchase of Notes. The Company intends to report
on the basis that the likelihood of a change in the interest rate on the Notes
is remote and will not affect the yield to maturity of the Notes. The Company
further intends to report on the basis that the exercise of the Company's
optional redemption right will not lower the yield of the Notes to the
Company.
MARKET DISCOUNT ON THE EXCHANGE NOTES
A Holder that acquired an Existing Note for an amount less than the adjusted
issue price of the Existing Note will have market discount with respect to
such Existing Note. To the extent a Holder had market discount with respect to
an Existing Note, the Holder generally will have market discount with respect
to an Exchange Note. Any principal payment or gain realized by a Holder on
disposition or retirement of an Exchange Note will be treated as ordinary
income to the extent that there is accrued market discount on the Exchange
Note. Unless a Holder elects to accrue under a constant-interest method,
accrued market discount is the total market discount multiplied by a fraction,
the numerator of which is the number of days the Holder has held the
obligation and the denominator of which is the number of days from the date
the Holder acquired the obligation under its maturity. A Holder may be
required to defer a portion of its interest deductions for the taxable year
attributable to any indebtedness incurred or continued to purchase or carry an
Exchange Note purchased with market discount. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in
which such market discount is includable in income. If the Holder elects to
include market discount in income currently as it accrues on all market
discount instruments acquired by the Holder in that taxable year or
thereafter, the interest deferral ruledescribed above will not apply.
ACQUISITION PREMIUM
A Holder that acquired an Existing Note for an amount in excess of the
adjusted issue price of such Existing Note will have acquisition premium with
respect to such Existing Note. To the extent a Holder had acquisition premium
with respect to an Existing Note, the Holder generally will have acquisition
premium with respect to an Exchange Note. A Holder will reduce the original
issue discount otherwise includable for each accrual period
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by an amount equal to the product of (i) the amount of such original issue
discount otherwise includable for such period, and (ii) a fraction, the
numerator of which is the acquisition premium and the denominator of which is
the excess of the amounts payable on the Exchange Note after the purchase date
over the adjusted issue price.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT
A Holder may elect to treat all "interest" on an Exchange Note as original
issue discount and calculate the amount includable in gross income under the
method described above. For this purpose, "interest" includes stated and
unstated interest, original issue discount, acquisition discount, market
discount and de minimis market discount, as adjusted by any acquisition
premium. The election is to be made for the taxable year in which the Holder
acquired the Exchange Note and may not be revoked without the consent of the
IRS.
SALES OR RETIREMENT OF A NOTE
In general, a holder of an Exchange Note will recognize gain or loss upon
the sale, retirement, redemption or other taxable disposition of such Exchange
Note in an amount equal to the difference between (a) the amount of cash and
the fair market value of other property received in exchange therefor (other
than amounts attributable to accrued but unpaid stated interest) and (b) the
holder's adjusted tax basis in such Exchange Note.
A holder's tax basis in an Exchange Note generally will be equal to the
price paid for such Exchange Note (or Existing Note exchanged therefor),
increased by the amount of original issue discount, if any, includable in
gross income prior to the date of disposition, and decreased by the amount of
any payment on such Note other than qualified stated interest prior to
disposition. The maximum rate of tax on long-term capital gains on most
capital assets held by an individual for more than 18 months is 20%, and gain
on most capital assets held by an individual for more than one year and up to
18 months is subject to tax at a maximum rate of tax of 28%. Holders are urged
to consult their tax advisor with respect to these capital gains rates.
Any gain or loss recognized on the sale, retirement, redemption or other
taxable disposition of an Exchange Note generally will be capital gain or
loss. Such capital gain or loss generally will be long-term capital gain or
loss if the Note has been held by the holder for more than one year and
otherwise will be a short term capital gain or loss.
BACKUP WITHHOLDING
A Holder of Exchange Notes may be subject to backup withholding at a rate of
31% with respect to interest and original issue discount paid or accrued on,
and gross proceeds upon sale or retirement of an Exchange Note unless such
Holder (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A Holder of the Exchange Notes who does not provide the
Company with such Holder's correct taxpayer identification number may be
subject to penalties imposed by the IRS.
Amounts withheld under the backup withholding rules may be credited against
a Holder's tax liability, and a Holder may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the IRS.
The Company will report to the Holders of the Exchange Notes and to the IRS
the amount of any "reportable payments" and any amount withheld with respect
to the Existing Notes and Exchange Notes during the calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF
THE EXISTING NOTES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT
TO THE TAX CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE EXCHANGE NOTES INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
36
<PAGE>
APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS
The Exchange Notes will have "significant original issue discount" and the
yield of the Exchange Notes will be at least five percentage points above the
applicable federal rate. As a result, it is expected that the Company will not
be able to deduct for tax purposes any original issue discount accruing with
respect thereto until such interest is actually paid. In addition, if the
yield of the Exchange Notes is more than six percentage points above the
applicable rate, then (i) a portion of such interest corresponding to the
yield in excess of six percentage points above the applicable federal rate
will not be deductible at any time, and (ii) a corporate holder may be
entitled to treat the original issue discount that is not deductible as a
dividend to the extent of the earnings and profits of the company, which may
then qualify for the dividends received deduction. Corporate holders should
consult their tax advisers concerning the availability of the dividends
received deduction.
37
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual cash, cash equivalents,
restricted cash and capitalization of the Company derived from its financial
statements as of September 30, 1997, and (ii) such amounts reflect the sale by
the Company of $150.0 million in principal amount of the Existing Notes and
related Warrants after deducting discount and offering expenses. The
capitalization information set forth in the table below is qualified by the
more detailed Financial Statements and Notes thereto included elsewhere in
this Prospectus and should be read in conjunction with such Financial
Statements and Notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents, and restricted cash(1).......... $ 39,638 $ 184,638
========= =========
Long-term debt:
Current capital lease obligations, net of current por-
tion(2).............................................. $ 36,629 $ 36,629
12 3/4% Senior Notes due 2007(3)...................... -- 145,560
--------- ---------
Total long-term debt, net of current portion........ 36,629 182,189
Commitments and contingencies:
Common Stock subject to rescission, $0.001 par value;
105,828 shares outstanding(4)........................ 1,400 1,400
--------- ---------
Total commitments and contingencies................. 1,400 1,400
Stockholders' equity:
Preferred Stock, $0.001 par value; 10,000,000 shares
authorized; none outstanding......................... -- --
Common Stock, $0.001 par value; 100,000,000 shares
authorized; 14,062,791 shares outstanding(3)(5)...... 178,139 182,579
Deferred compensation................................. (1,362) (1,362)
Accumulated deficit................................... (135,755) (135,755)
--------- ---------
Total stockholders' equity.......................... 41,022 45,462
--------- ---------
Total capitalization.................................... $ 79,051 $ 229,051
========= =========
</TABLE>
- --------
(1) The as adjusted data includes restricted cash of $52.4 million held in the
Escrow Account.
(2) See Note 3 of Notes to Financial Statements.
(3) For purposes of this presentation, a value of $4.44 million has been
assigned to the Warrants. The value of the Warrants was determined using
the Black-Scholes option pricing method.
(4) See Note 5 of Notes to Financial Statements.
(5) Does not include options and warrants to purchase approximately 3,440,255
shares of Common Stock of the Company outstanding at September 30, 1997
and warrants to purchase approximately 951,108 shares of Common Stock
issued in connection with the Existing Notes offering.
38
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected financial data should be read in conjunction with the
Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein. The selected financial data for the three years ended December 31,
1996 are derived from financial statements of the Company which have been
audited by Ernst & Young LLP, independent auditors and included elsewhere
herein. The selected financial data for the period from May 1, 1991
(inception) through December 31, 1992 and for the year ended December 31, 1993
and for the nine-month periods ended September 30, 1996 and September 30, 1997
are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of the financial
position and results of operations for these periods. The operating results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results to be expected for any future period. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1991
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------------ -------- -------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $-- $ 23 $ 442 $ 2,483 $ 15,648 $ 8,215 $ 31,792
Costs and operating ex-
penses:
Cost of revenue........ -- 130 2,891 16,168 47,945 30,951 45,495
Network equipment
write-off(1).......... -- -- -- -- 8,321 -- --
Development............ -- 349 534 837 2,449 1,603 3,538
Marketing and sales.... -- 131 639 3,899 16,609 11,033 17,489
General and administra-
tive.................. 28 634 611 2,866 3,445 2,499 3,369
----- -------- -------- --------- --------- --------- ---------
Total costs and operat-
ing expenses.......... 28 1,244 4,675 23,770 78,769 46,086 69,891
----- -------- -------- --------- --------- --------- ---------
Loss from operations.... (28) (1,221) (4,233) (21,287) (63,121) (37,871) (38,099)
Other income............ -- -- -- -- -- -- (1,233)
Net interest expense.... -- 24 57 721 3,260 2,402 4,937
----- -------- -------- --------- --------- --------- ---------
Net loss................ $ (28) $ (1,245) $ (4,290) $ (22,008) $ (66,381) $ (40,273) $ (41,803)
===== ======== ======== ========= ========= ========= =========
OTHER FINANCIAL DATA:
EBITDA(2)............... $ (28) $ (1,080) $ (4,064) $ (19,091) $ (53,651) $ (32,147) $ (24,047)
Capital expendi-
tures(3)............... -- 817 718 17,176 39,093 22,753 17,303
Ratio of Earnings to
Fixed Charges(4)....... N/A N/A N/A N/A N/A N/A N/A
Deficiency of Earnings
Available to Cover
Fixed Charges(4)....... (28) (1,221) (4,309) (22,145) (66,995) (40,654) (43,536)
PROFORMA FINANCIAL DATA
Proforma Interest Ex-
pense(5)............... -- -- -- -- $ 23,536 -- $ 19,492
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------- SEPT. 30,
1992 1993 1994 1995 1996 1997
-------- -------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ -- $ 55 $ 63 $ 19,054 $ 17,657 $ 39,638
Property and equipment,
net.................... -- 675 1,303 16,289 47,927 56,296
Total assets............ -- 783 1,798 37,235 70,722 110,165
Long-term debt,
convertible debentures
and capital lease
obligations, net of
current portion........ -- 1,251 1,648 11,047 30,551 36,629
Common stock subject to
rescission............. -- -- 2,812 5,080 5,150 1,400
Total stockholders' eq-
uity (deficit)......... (28) (1,172) (4,203) 9,763 2,925 41,022
</TABLE>
- -------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 2 of Notes to Financial Statements.
(2) EBITDA is loss from operations before interest, taxes, depreciation and
amortization. EBITDA is included herein because management believes that
certain investors find it to be a useful tool for measuring a company's
ability to service its debt; however, EBITDA does not represent cash flow
from operations, as defined by generally accepted accounting principles,
should not be considered as a substitute for net loss as an indicator of
the Company's operating performance or cash flow as a measure of
liquidity, and should be examined in conjunction with the Financial
Statements and Notes thereto of the Company included elsewhere in this
Prospectus.
(3) Capital expenditures include assets acquired through capital lease
financing and other debt.
(4) For purposes of this computation, the ratio of earnings to fixed charges
has been calculated by dividing fixed charges into loss before income
taxes, fixed charges and other income. Fixed charges consist of interest
on expense and a portion of lease rental expense considered to represent
interest cost.
(5) The proforma adjustment reflects the interest that would have been
incurred had the Existing Notes been outstanding as of the beginning of
each period presented. In addition, interest expense and related charges
of bridge financings have been excluded since such bridge financings would
not have occurred.
(6) The as adjusted data gives effect to the sale by the Company of the Units
in the Existing Notes Offering as of September 30, 1997, after deduction
of estimated offering expenses and the discount to the Initial Purchasers.
See "Use of Proceeds" and "Capitalization."
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with financial
statements and related notes included elsewhere in this Prospectus. The
results shown herein are not necessarily indicative of the results to be
expected in any future periods. This discussion contains forward-looking
statements based on current expectations which involve risks and
uncertainties. Actual results and the timing of certain events may differ
significantly from those projected in such forward-looking statements due to a
number of factors, including those set forth in the section entitled "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company was founded in 1991. From 1991 to mid-1993, the Company
conducted development and network services planning activities and realized no
revenues. Initially, the Company was focused on providing consumers with
direct dial-up connectivity to bulletin board services. On-line gaming and
entertainment services for consumers were commenced in July 1993 through the
utilization of a third party network infrastructure. The Company commenced
operation of its own network in late 1994. In May 1995, new management led by
Henry R. Nothhaft redefined and broadened the Company's strategy to provide a
range of Internet and tailored, value-added Internet Protocol-based network
services to consumers and businesses.
The Company's revenue prior to 1996 has been primarily generated from
providing Internet access to consumers. The Company's current focus is on
developing and deploying VPN and providing network access and Web hosting
services for enterprise customers. Contracts with enterprise customers
typically have a term ranging from one to three years. The Company expects
enterprise-related revenue to represent an increasing portion of total revenue
in future periods. The foregoing expectation is a forward-looking statement
that involves risks and uncertainties, and actual results could vary as a
result of a number of factors including the Company's operating results, the
results and timing of the Company's launch of new products and services,
governmental or regulatory changes, the ability of the Company to meet product
and project demands, the success of the Company's marketing efforts,
competition and acquisitions of complementary businesses, technologies or
products.
The Company has incurred net losses and experienced negative cash flow from
operations since inception and expects to continue to operate at a net loss
and experience negative cash flow at least through 1998, although the
Company's ability to achieve profitability and positive cash flow from
operations is dependent upon the Company's ability to substantially grow its
revenue base and achieve other operating efficiencies. The Company experienced
net losses of approximately $4.3 million, $22.0 million and $66.4 million for
the years ended December 31, 1994, 1995 and 1996, respectively and $41.8
million for the nine months ended September 30, 1997. There can be no
assurance that the Company will be able to achieve or sustain revenue growth,
profitability or positive cash flow on either a quarterly or an annual basis.
At December 31, 1996, the Company had approximately $37.0 million of gross
deferred tax assets comprised primarily of net operating loss carryforwards.
The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability
of the deferred tax assets such that a full valuation allowance has been
recorded. These factors include the Company's history of net losses since its
inception and the fact that the market in which the Company competes is
intensely competitive and characterized by rapidly changing technology. The
Company believes that, based on the current available evidence, it is more
likely than not that the Company will not generate taxable income through
1998, and possibly beyond, and accordingly will not realize the Company's
deferred tax assets through 1998, and possibly beyond. In addition, the
utilization of net operating losses may be subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986 and similar state provisions. The Company will continue to assess
the realizability of the deferred tax assets based on actual and forecasted
operating results. See Note 8 of Notes to Financial Statements.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Revenue. Revenue for the nine months ended September 30, 1997 totaled
approximately $31.8 million, an increase of $23.6 million over revenue of $8.2
million for the nine month period ended September 30, 1996.
40
<PAGE>
This increased revenue reflects growth in revenue from the Company's broadened
product offerings to its enterprise customers and through the Company's
leveraged marketing arrangements with its strategic partners, as well as
continued growth in revenue derived from Internet access customers. WebTV
accounted for approximately 33.9% of total revenue for the nine months ended
September 30, 1997. The Company expects revenue from WebTV to decrease as a
percentage of revenue. The foregoing expectation is a forward looking
statement that involves risks and uncertainties and the actual results could
vary materially as a result of a number of factors including those set forth
under the caption "Risk Factors--Customer Concentration."
Cost of Revenue. Cost of revenue consists primarily of personnel costs to
maintain and operate the Company's network, access charges from local exchange
carriers, backbone and Internet access costs, depreciation of network
equipment and amortization of related assets. Cost of revenue for the nine
months ended September 30, 1997 totaled approximately $45.5 million compared
with $31.0 million for the nine months ended September 30, 1996. This increase
is attributable to the overall growth in the size of the network. As a
percentage of revenue, costs declined to 143.1% of revenue in the nine months
ended September 30, 1997 from 376.8% of revenue in the year earlier period due
to increased network utilization associated with the Company's revenue growth
and lower per port costs of the Company's SuperPOP network architecture
deployed in the second half of 1996. The Company expects its cost of revenue
to continue to increase in dollar amount, while declining as a percentage of
revenue as the Company expands its customer base. The foregoing expectation is
a forward looking statement that involves risks and uncertainties and the
actual results could vary materially as a result of a number of factors,
including those set forth under the caption "Risk Factors--Limited Operating
History; Continuing Operating Losses," "--Management of Potential Growth and
Expansion" and "--Dependence Upon Key Personnel; Ability to Hire Additional
Personnel" and "--Dependence Upon New and Uncertain Markets."
Development. Development expense consists primarily of personnel and
equipment related expenses associated with the development of products and
services of the Company. Development expense for the nine month periods ending
September 30, 1997 and 1996 was approximately $3.5 million and $1.6 million,
respectively. This higher level of development expense reflects an overall
increase in personnel to develop new product offerings and to manage the
overall growth in the network. As a percent of revenue, development expense
declined to 11.1% for the nine months ended September 30, 1997 from 19.5% for
the nine months ended September 30, 1996, as a result of the Company's
increased revenue. The Company expects its development spending to continue to
increase in dollar amount, but to decline as a percentage of revenue. The
foregoing expectation is a forward looking statement that involves risks and
uncertainties and the actual results could vary materially as a result of a
number of factors, including those set forth under the caption "Risk Factors--
Limited Operating History; Continuing Operating Losses" and "--Dependence Upon
New and Enhanced Services."
Marketing and Sales. Marketing and sales expense consists primarily of
personnel expenses, including salary and commissions, costs of marketing
programs and the cost of 800 number circuits utilized by the Company for
customer support functions. For the nine months ended September 30, 1997 and
1996, marketing and sales expense was approximately $17.5 million and $11.0
million, respectively. The $6.5 million increase in 1997 reflects a
substantial investment in the customer support, marketing and sales
organizations necessary to support the Company's expanded customer base. This
increase also reflects a growth in subscriber acquisition costs, related to
both increased direct marketing efforts as well as commissions paid to
distribution partners. Additionally, the increase reflects the ramp-up of
marketing efforts related to the introduction of enterprise products and
services. Marketing and sales expense as a percentage of revenue declined to
55.0% for the nine months ended September 30, 1997 from 134.3% in the year
earlier period as a result of the Company's increased revenue. The Company
expects marketing and sales expenditures to continue to increase in dollar
amount, but to decline as a percentage of revenue. The foregoing expectation
is a forward looking statement that involves risks and uncertainties and the
actual results could vary materially as a result of a number of factors
including those set forth under "Risk Factors--Dependence Upon New and
Uncertain Markets," "--Management of Potential Growth and Expansion" and "--
Dependence Upon Key Personnel; Ability to Hire Additional Personnel."
General and Administrative. General and administrative expense consists
primarily of personnel expense and professional fees. For the nine months
ended September 30, 1997 and 1996, general and administrative
41
<PAGE>
expenses were approximately $3.4 million and $2.5 million, respectively. This
higher level of expense reflects an increase in personnel and professional
fees necessary to manage the financial, legal and administrative aspects of
the business. For the nine months ended September 30, 1997, general and
administrative expense declined to 10.6% from 30.4% for the nine months ended
September 30, 1996 as a result of the Company's increased revenue. The Company
expects general and administrative expense to increase in dollar amount,
reflecting its growth in operations and costs associated with being a publicly
held entity, but to decline as a percentage of revenue. The foregoing
expectation is a forward looking statement that involves risks and
uncertainties and the actual results could vary materially as a result of a
number of factors including those set forth under "Risk Factors--Dependence
Upon New and Uncertain Markets," "--Management of Potential Growth and
Expansion" and "--Dependence Upon Key Personnel; Ability to Hire Additional
Personnel."
Net Interest Expense. Net interest expense was approximately $4.9 million
and $2.4 million for the nine months ending September 30, 1997 and 1996,
respectively. The increase is primarily due to a cost of financing charge of
$739,000 in the three months ended September 30, 1997 associated with the
value of warrants issued in connection with $5.0 million of bridge loans
received in June 1997. Additionally, the principal amount of capitalized lease
obligations increased $22.3 million from September 30, 1996 to September 30,
1997. The nine month period ended September 30, 1996 included approximately
$330,000 associated with the value of warrants issued in connection with
bridge loan financing.
Other (Income) Expense. During the nine months ended September 30, 1997,
upon settlement of the Sattel litigation, the Company recorded $970,000 of
other income related to the reversal of previously established reserves.
Additionally, the Company recorded $425,000 of other income related to the re-
negotiation of a third party services agreement.
Net Loss. For the nine months ended September 30, 1997 the net loss totaled
$41.8 million as compared to $40.3 million for the nine months ended September
30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue totaled approximately $15.6 million for the year ended
December 31, 1996, an increase of $13.1 million over 1995 revenue of
approximately $2.5 million. This increase reflects continued growth in revenue
derived from Internet access customers, as well as revenue from the Company's
broadened enterprise product offerings and through the Company's leveraged
marketing arrangements with its strategic partners. The average selling prices
of the Company's offerings for consumer Internet access services decreased by
approximately 33% beginning in April 1996 due to industry-wide adoption of
flat monthly rates for unlimited Internet access.
Cost of Revenue. Cost of revenue for the year ended December 31, 1996 was
approximately $47.9 million, an increase of $31.7 million from 1995 cost of
revenue of approximately $16.2 million. The largest component of this increase
was the cost of providing virtual local access ("VLA") service over 800
circuits. VLA service was an interim solution for providing nationwide
coverage, while the Company's SuperPOP network architecture was being
deployed. This deployment was substantially completed in December 1996. Costs
associated with VLA service are expected to be immaterial in amount in 1997.
The remainder of the increase in 1996 cost of revenue is primarily
attributable to the overall growth in the size of the network.
Network Equipment Write-off. In 1996, the Company took a charge of
approximately $8.3 million related to the cost of certain network equipment.
The Company decided not to deploy the equipment in the network because of
concerns that the equipment would not provide the functionality and
reliability required by the Company and concerns that the equipment provider
would be unable to provide timely maintenance and support. See Note 2 of Notes
to Financial Statements.
Development. Development expense for the year ended December 31, 1996 was
approximately $2.4 million, an increase of $1.6 million over 1995 expenditures
of approximately $837,000. This higher level of development expense in 1996
primarily reflects an overall increase in personnel to develop new product
offerings and to manage the overall growth in the network.
42
<PAGE>
Marketing and Sales. Marketing and sales expense for 1996 was approximately
$16.6 million, an increase of $12.7 million over 1995 expenditures of
approximately $3.9 million. This increase in marketing and sales expense
reflects a substantial investment in the customer support, marketing and sales
organizations required to support the Company's expanded customer base. This
increase also reflects a growth in subscriber acquisition costs, related to
both increased direct marketing efforts as well as commissions paid to
distribution partners. Additionally, the increase reflects the ramp-up of
marketing efforts related to the introduction of enterprise products and
services.
General and Administrative. General and administrative expense for 1996 was
approximately $3.4 million, an increase of $500,000 over 1995 expenditures of
approximately $2.9 million. This increase reflects an increase in personnel
and professional fees necessary to manage the financial, legal and
administrative aspects of the business.
Net Interest Expense. Net interest expense for 1996 was approximately $3.3
million as compared to approximately $721,000 for 1995. The increase of $2.6
million is primarily due to an increase of $27.6 million in principal amount
of the capitalized lease obligations from December 31, 1995 to December 31,
1996. This increase in interest expense was partially offset by greater
interest income from higher average cash balances resulting from equity
financings completed in late 1995 and in August1996. See Notes 3 and 6 of
Notes to Financial Statements.
Net Loss. The Company's net loss increased to approximately $66.4 million in
1996 from approximately $22.0 million in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue. Revenue totaled approximately $2.5 million for 1995, an increase of
$2.1 million, over 1994 revenue of approximately $400,000. The Company's
revenue in 1995 reflects its first full year of providing network services.
The Company's revenue in both of these years was derived entirely from the
sale of Internet access services to consumers.
Cost of Revenue. Cost of revenue for 1995 was approximately $16.2 million,
an increase of $13.3 million over 1994 cost of revenue of approximately $2.9
million. The increase in cost of revenue from 1994 to 1995 reflected overall
higher costs associated with deploying and managing the Company's own network
infrastructure. Prior to late 1994, the Company had leased third party network
facilities and thus had not incurred significant network deployment and
maintenance expenses.
Development. Development expense for 1995 was approximately $837,000, an
increase of $303,000 over 1994 expenditures of approximately $534,000. This
higher level of development expense primarily reflected an overall increase in
personnel required to develop new products and support network growth.
Marketing and Sales. Marketing and sales expense for 1995 was approximately
$3.9 million, an increase of $3.3 million over 1994 expenditures of
approximately $639,000. This higher level of spending in 1995 reflected the
Company's new market focus on providing IP-based network services. In
connection with this new focus, the Company incurred increased expenses
related to direct subscriber acquisition, formation of a telesales group,
development of strategic relationships and marketing communications. With the
growth in subscribers, the Company added personnel to its customer support
organization.
General and Administrative. General and administrative expense for 1995 was
$2.9 million, an increase of $2.3 million over 1994 expenditures of
approximately $600,000. This increase generally reflects an increase in
personnel and professional fees necessary to manage the financial, legal and
administrative aspects of the business.
Net Interest Expense. Net interest expense for 1995 was approximately
$721,000 as compared with approximately $57,000 for 1994. This increase in net
interest expense resulted from the Company's deployment of network equipment
for its own network infrastructure beginning in late 1994 which equipment
purchases were primarily financed under capital leases. Capital lease
obligations at December 31, 1995 were $14.2 million, compared with no such
obligations at December 31, 1994.
43
<PAGE>
Net Loss. The Company's net loss increased to approximately $22.0 million in
1995 from a net loss of $4.3 million in 1994.
QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly operating results can fluctuate from period-to-
period depending upon factors such as the success of the Company's efforts to
expand its subscriber and third party partnership base, changes in, and the
timing of, expenses relating to development and sales and marketing and
changes in pricing policies by the Company or its competitors. Management
believes that period-to-period comparisons of its financial results should not
be relied upon as an indication of future performance. The Company may
experience significant period-to-period fluctuations in operating results.
The following tables set forth the statement of operations data for each of
the seven quarters through September 30, 1997, as well as the percentage of
the Company's revenue. This information has been derived from the Company's
unaudited financial statements. In the opinion of management, the unaudited
information set forth below has been prepared on the same basis as the audited
financial statements contained herein and includes all adjustments, consisting
only of normal recurring adjustments, except for the write-off of network
equipment in the three months ended December 31, 1996, necessary to present
fairly the information set forth herein. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
1996 1997
-------------------------------------- ----------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 1,533 $ 2,489 $ 4,193 $ 7,433 $ 9,154 $ 10,814 $ 11,824
Costs and operating
expenses:
Cost of revenue........ 7,256 11,782 11,913 16,994 15,744 14,913 14,838
Network equipment
write-off............. -- -- -- 8,321 -- -- --
Development............ 340 571 692 846 1,025 1,200 1,313
Marketing and sales.... 3,120 3,868 4,045 5,576 4,936 6,094 6,459
General and
administrative........ 736 1,036 72 946 1,060 1,127 1,182
-------- -------- -------- -------- -------- -------- --------
Total operating costs
and expenses.......... 11,452 17,257 17,377 32,683 22,765 23,334 23,792
-------- -------- -------- -------- -------- -------- --------
Loss from operations.... (9,919) (14,768) (13,184) (25,250) (13,611) (12,520) (11,968)
Other (income) expense.. -- -- -- -- -- (1,395) 162
Net interest expense.... 461 652 1,289 858 1,070 1,779 2,088
-------- -------- -------- -------- -------- -------- --------
Net loss................ $(10,380) $(15,420) $(14,473) $(26,108) $(14,681) $(12,904) $(14,218)
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
1996 1997
-------------------------------------- ----------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and operating
expenses:
Cost of revenue........ 473.3 473.4 284.1 228.6 172.0 137.9 125.5
Network equipment
write-off............. -- -- -- 112.0 -- -- --
Development............ 22.2 22.9 16.5 11.4 11.2 11.1 11.1
Marketing and sales.... 203.5 155.4 96.5 75.0 53.9 56.4 54.6
General and
administrative......... 48.0 41.6 17.3 12.7 11.6 10.4 10.0
------ ------ ------ ------ ------ ------ ------
Total operating costs
and expenses.......... 747.0 693.3 414.4 439.7 248.7 215.8 201.2
------ ------ ------ ------ ------ ------ ------
Loss from operations.... (647.0) (593.3) (314.4) (339.7) (148.7) (115.8) (101.2)
Other (income) expense.. -- -- -- -- -- (12.9) 1.4
Net interest expense.... 30.1 26.2 30.8 11.5 11.7 16.4 17.7
------ ------ ------ ------ ------ ------ ------
Net loss................ (677.1)% (619.5)% (345.2)% (351.2)% (160.4)% (119.3)% (120.3)%
====== ====== ====== ====== ====== ====== ======
</TABLE>
44
<PAGE>
The Company's quarterly operating results have fluctuated and will continue
to fluctuate from period to period depending upon factors such as the timely
deployment and implementation of expansion of the Concentric network and new
network architectures, the incurrence of related capital costs, the receipt of
new value-added network services and consumer services subscriptions and the
introduction of new services by the Company and its competitors. Additional
factors that may contribute to variability of operating results include: the
payment of statutory interest related to the rescission offer; the pricing and
mix of services offered by the Company; customer retention rate; market
acceptance of new and enhanced versions of the Company's services; changes in
pricing policies by the Company's competitors; the Company's ability to obtain
sufficient supplies of sole- or limited-source components; user demand for
network and Internet access services; balancing of network usage over a 24-
hour period; and general access services.
In view of the significant growth of the Company's operations, the Company
believes that period-to-period comparisons of its financial results should not
be relied upon as an indication of future performance and that the Company may
experience in the future significant period-to-period fluctuations in
operating results. The Company expects to focus in the near term on building
and increasing its revenue base, which will require it to significantly
increase its expenses for personnel, marketing, network infrastructure and the
development of new services, and may adversely impact short term operating
results. As a result, there can be no assurance that the Company will be
profitable on a quarterly basis in the future and the Company believes that it
will incur losses in the near term.
The Company expects to focus in the near term on building and increasing its
revenue base, which will require it to significantly increase its expenses for
personnel, marketing, network infrastructure and the development of new
services, and may adversely impact short term operating results. As a result,
the Company believes that it will incur losses in the near term and there can
be no assurance that the Company will be profitable on a quarterly basis in
the future.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has satisfied its cash requirements primarily through
capitalized lease financings, the sale of capital stock and the sale of the
Existing Notes. The Company's principal uses of cash are to fund working
capital requirements and capital expenditures and to service its capital lease
financing obligations. Net cash used in operating activities for the nine
months ended September 30, 1997 and 1996 was approximately $39.4 million and
$31.9 million, respectively. Included in the amount for the nine months ended
September 30, 1997 is $4.4 million of cash paid in settlement of a dispute
with Sattel Communications, LLC. Cash used in operating activities in both
periods was primarily affected by the net losses, caused by increased costs
relating to the expansion of the Company's network and organizational
infrastructure.
Net cash used in investing activities for the nine months ended September
30, 1997 and 1996 was approximately $5.0 million and $4.2 million,
respectively. Investing activities were comprised almost entirely of purchases
of capital equipment to support the growing infrastructure.
For the nine months ended September 30, 1997 net cash of approximately $66.4
million was generated from financing activities, of which $74.0 million, net
of issuance costs, was derived from the issuance of stocks and warrants. On
August 1, 1997, the Company effected its initial public offering of Common
Stock. The offering consisted of 4,300,000 shares of Common Stock issued to
the public at $12.00 per share. Concurrent with the closing of the public
offering, certain strategic investors purchased directly from the Company
1,499,236 shares of Common Stock having an aggregate purchase price of
approximately $18 million (including the cancellation of approximately $3
million in indebtedness) (the "Direct Placements)." In September the
underwriters exercised an option to purchase an additional 645,000 shares of
Common Stock at the Public Offering price of $12.00 per share to cover over-
allotments in connection with the Public Offering. Additionally, in April of
1997, the Company received proceeds of approximately $4.5 million from the
exercise of warrants and another $1.1 million as consideration for warrants
issued.
The Company also received $5.0 million in debt financing in June 1997, of
which $2.0 million was repaid and $3.0 million was converted into Common
Stock, respectively, upon closing of the Company's Public
45
<PAGE>
Offering. Concurrent with the closing of the public offering, the Company
repurchased $2.2 million of Common Stock from certain stockholders. The
remainder of financing activities for the nine months ended September 30, 1997
is comprised of $8.3 million used for repayment of capital lease obligations.
For the nine months ended September 30, 1996 cash of approximately $29.3
million was generated from financing activities, which reflects receipt of
$28.2 million, net of issuance costs, for Series D Convertible Preferred
Stock. Also reflected is a $5.0 million bridge loan which was later converted
into Series D Convertible Preferred Stock. Repayment of capital lease
obligations for the nine months ended September 30, 1996 was approximately
$3.9 million. In December 1997, the Company completed the sale of $150 million
principal amount Existing Notes and related Warrants, which resulted in net
proceeds to the Company of approximately $145 million.
The net cash increase for the nine month period ended September 30, 1997 was
$22.0 million as compared to a net cash decrease for the nine months ended
September 30, 1996 of $6.8 million. At September 30, 1997, the Company had
cash and cash equivalents of approximately $39.6 million and working capital
of $18.8 million.
For the nine months ended September 30, 1997, the Company added
approximately $15.9 million of network equipment through additional capital
lease obligations under its network equipment financing arrangement, and
reduced accounts payable by $2.0 million under a sale leaseback arrangement.
The Company expects to make additional investments in capital equipment to
expand and enhance its network, with approximately $2.0 million of anticipated
purchases of capital equipment throughout the remainder of 1997, and the
Company expects to make additional capital expenditures of approximately $20.0
million in 1998. The foregoing expectation with respect to additional capital
investments is a forward-looking statement that involves risks and
uncertainties and the actual amount of capital investment could vary
materially as a result of a number of factors. See "Risk Factors--Dependence
on Network Infrastructure," "--Risk Associated with International Expansion,"
and "--Fluctuations in Operating Results."
The Company expects to incur additional operating losses and will rely
primarily on the net proceeds from the Existing Notes Offering, the Company's
initial public offering of Common Stock and a private placement of Common
Stock, which closed concurrently on August 6, 1997 and financing available
under a network equipment lease agreement that currently has no maximum
borrowing limit. The Company believes that such financing will be sufficient
to meet its anticipated cash needs for working capital and for the acquisition
of capital equipment through at least the end of 1998. However, there can be
no assurance that the Company will not require additional financing within
this time frame. The Company's forecast of the period of time through which
its financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary materially as a result of number of factors, including
those set forth below under the caption "Risk Factors--Future Capital Needs;
Uncertainty of Additional Financing." The Company may be required to raise
additional funds through public or private financing, strategic relationships
or other arrangements. There can be no assurance that such additional funding,
if needed, will be available on terms attractive to the Company, or at all.
IMPACT OF ADOPTION OF NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123"), which established a fair-value based method of
accounting for stock-based compensation plans and requires additional
disclosures for those companies that elect not to adopt the new method of
accounting. In January 1996, the Company adopted the disclosure requirements
of FAS 123. The Company accounts for stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." The adoption of the disclosure requirements of FAS 123 did not
have a material impact on the Company's financial condition or results of
operations.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per share" ("FAS 128"),
which adjusts the calculation of earnings per share under generally accepted
accounting principles. FAS 128 is effective for the Company's fiscal year
ending December 31, 1997. See Note 1 of Notes to Financial Statements for the
effect of FAS 128 on the Company's pro forma net loss per share presentation.
46
<PAGE>
BUSINESS
Concentric provides tailored, value-added IP-based network services for
businesses and consumers. To provide these services, the Company utilizes its
low/fixed latency, high-throughput network, employing its advanced network
architecture and the Internet. Concentric's service offerings for enterprises
include VPNs, DAFs, remote access services and Web hosting services. These
services enable enterprises to take advantage of standard Internet tools such
as browsers and high-performance servers for customized data communications
within an enterprise and between an enterprise and its suppliers, partners and
customers. These services combine the cost advantages, nationwide access and
standard protocols of public networks with the customization, high
performance, reliability and security of private networks. Among the current
enterprise customers are Acer America Corporation, Inc., Intuit, Netscape,
WebTV and Ziff-Davis Publishing Co. Concentric's service offerings for
consumers and small office/home office customers include local Internet dial-
up access and applications hosting services.
INDUSTRY BACKGROUND
Development of Private Networks
Historically, the data communications services offered by public carriers
had limited security features, were expensive and did not adequately ensure
accurate and reliable transmission. As a result, many corporations established
and maintained their own private wide-area networks ("WANs") to provide
network-based services, such as transaction processing, to their customers and
to coordinate operations between employees, suppliers and business partners.
Such private WANs were frequently customized to specific applications,
business practices and user communities. As a result, these private WANs had
the capability of providing organizations and users with tailored performance
and features, security, reliability and private-label branding.
The demand for WANs has grown as a result of today's competitive business
environment. Factors stimulating the higher demand include the need to provide
broader and more responsive customer service, to operate faster and more
effectively between operating units, suppliers and other business partners,
and the need to take advantage of new business opportunities for network-based
offerings in a timely fashion. In addition, as businesses become more global
in nature, the ability to access business information across the enterprise
has become a competitive necessity.
Despite the attractive capabilities of private networks, limitations of many
private WANs have impeded or reduced the effectiveness of their use. These
networks, which traditionally have required the use of leased telephone lines
with bandwidth dedicated solely to this purpose and the purchase of vendor-
specific networking equipment, are inherently expensive to set up, operate and
maintain. Private WANs often require the development and maintenance of
proprietary software and lack cost-effective access. These aspects of
developing, deploying and maintaining such private WANs have conflicted with
the increased focus of many businesses on their core competencies, which has
prompted the outsourcing of many noncore functions. The Company believes that
many businesses have viewed as unacceptable the costs of maintaining a private
WAN infrastructure and the risks of investing in new technologies in the
absence of a single technological standard.
Emergence of the Internet
The emergence of the Internet and the widespread adoption of IP as a data
transmission standard in the 1990s, combined with deregulation of the
telecommunications industry and advances in telecommunications technology have
significantly increased the attractiveness of providing data communication
applications and services over public networks. At the same time, growth in
client/server computing, multimedia personal computers and online computing
services and the proliferation of networking technologies have resulted in a
large and growing group of people who are accustomed to using networked
computers for a variety of purposes, including e-mail, electronic file
transfers, online computing and electronic financial transactions. These
trends have led businesses increasingly to explore opportunities to provide
IP-based applications and services within their organization, and to customers
and business partners outside the enterprise.
47
<PAGE>
Need for IP-Based Private Networks
The ubiquitous nature and relatively low cost of the Internet have resulted
in its widespread usage for certain applications, most notably Web access and
e-mail. However, usage of the Internet for mission-critical business
applications has been impeded by the limited security and unreliable
performance inherent in the structure and management of the Internet.
Additionally, emerging applications such as IP-based voice and video
applications, multiplayer gaming and certain multimedia applications require a
network that has high performance characteristics, including low and/or fixed
latency (response time) and high throughput, as well as the ability to
customize features for specific user requirements. On the Internet, latency is
frequently relatively high and variable, making it suboptimal for these
emerging applications. Although private networks are capable of offering lower
and more stable latency levels, providers of these emerging applications also
desire a network that will offer their customers full access to the Internet.
As a result, these businesses and applications providers require a network
that combines the best features of the Internet, such as openness, ease of
access and low cost made possible by the IP standard, with the advantages of a
private network, such as high security, low/fixed latency and customized
features.
Industry analysts expect the market size for both value-added IP data
networking services and Internet access to grow rapidly as businesses and
consumers increase their use of the Internet, intranets and privately managed
IP networks. The total market for these services is projected to grow from
$1.2 billion in 1996 to approximately $22.7 billion in the year 2000, with
approximately $10.4 billion in the enterprise market segment and $12.3 billion
in the consumer market segment.
THE CONCENTRIC SOLUTION
Concentric provides tailored, value-added IP-based network services for
businesses and consumers. To provide these services, the Company employs a
low/fixed latency, high-throughput network based on its advanced,
geographically dispersed ATM and frame relay backbone and the Internet.
Concentric allows enterprises to create virtual private networks providing
tailored network access, content and services to enterprise-defined end users
with higher reliability and more security than is available over the Internet.
Concentric's VPN solutions also provide the ease of access and flexibility of
public networks at a lower cost than private WANs without sacrificing
reliability or security.
The Concentric network employs an advanced, geographically dispersed ATM and
frame relay backbone, SuperPOPs in 15 major metropolitan areas and 137
secondary and tertiary POPs in other cities, allowing dial-up network access
in the U.S. and Canada. In addition, the Company can provide analog dial-up,
frame relay, fractional T-1, T-1 and DS3 access to the network. The Concentric
network is engineered and managed to provide superior quality of service,
balancing several key performance criteria. The Company provides guaranteed
levels of service for dedicated access facilities to enterprise customers, and
targets performance benchmarks for connection success rates, latency levels
and throughput for all of its service offerings.
In addition to strong network performance capabilities, the Company believes
that several factors distinguish its ability to provide value-added network
services. These factors include: (i) excellent service quality; (ii) rapid
development time and flexibility in meeting custom applications requirements;
(iii) responsive customer support and effective account management, available
24 hours per day, seven days per week through the Company's 148 customer
service personnel; and (iv) the Company's technical expertise in devising
cost-effective network solutions for customers.
BUSINESS STRATEGY
The Company's objective is to become the leading supplier of value-added,
IP-based network services worldwide. In order to achieve this goal, the
Company is implementing a business strategy focused on the following key
principles:
Rapidly Provide Cost-Effective, Tailored Network Solutions. The Company
intends to capitalize on its expertise in developing tailored VPNs to
establish a leadership position in rapidly developing, deploying and
48
<PAGE>
maintaining a range of value-added network services to meet the specific needs
of its customers. The Company utilizes a set of software and hardware
technology modules as "building blocks" to offer a variety of tailored network
services on an IP-based network architecture with minimal additional
investment in engineering and rapid time to market for businesses and
consumers. These building blocks include modules for client and system
software, dedicated and remote network connectivity, tracking and billing, Web
hosting, customer support and security.
Optimize Network Utilization. Given the fixed cost nature of Concentric's
network infrastructure, the Company strives to increase total network
utilization and to optimize this utilization by targeting both daytime
business and evening-intensive consumer users to balance the network's usage
throughout a 24-hour period. Accordingly, while the Company's current
strategic focus is on providing value-added IP-based communications services
to enterprises, the Company intends to continue partnering with multichannel
distributors to acquire and maintain a base of consumer subscribers who access
the Concentric network predominantly during non-business hours.
Acquire Complementary Assets or Businesses. The Company is actively seeking
to identify and acquire assets, technologies or businesses complementary to
the Company's value-added enterprise network service strategy. Such
acquisition efforts are targeted at businesses that offer the potential to
expand the Company's revenue base, increase the scalability of the Company's
network infrastructure and value-added service offerings, as well as optimize
the utilization of the Company's network.
Employ Leveraged Marketing Through Strategic Partners. The Company actively
seeks to form alliances with certain software developers and
telecommunications service and equipment suppliers that have substantially
greater marketing, distribution and sales resources than does the Company and
that have a large installed customer base. These alliances facilitate the
cost-effective acquisition of consumer and business customers and increase
Concentric's network utilization. These marketing relationships are developed
and enhanced through the bundling of Concentric's IP-based network services
with the products and services offered by the strategic partners. These
relationships may involve customized browsers, registration services and
specialized pricing, commissions and billing programs. To date, Concentric has
established such strategic relationships with a number of companies, including
Acer America Corporation, Bay Networks, Inc., Intuit, Inc., Microsoft
Corporation, Netscape, PictureTel, Racal, TMI and WebTV. See "--Key Customer
Applications" and "Sales and Marketing."
Offer Next Generation Network Services. In addition to its core VPN service
offerings, the Company is continuing to expand the value-added network
services that it makes available to its customers. Towards this end, the
Company has recently introduced video conferencing and is in early stage
trials of IP-based telephony services that require the low/fixed latency
characteristics afforded by the Concentric network.
Deploy Network Services Internationally. The Company believes that its
enterprise customers increasingly will require their network solutions
providers to offer network services on a global basis. Pursuant to an
agreement with TMI, entered into in August 1996, the Company is working to
establish an international network based on Concentric's network technology
and expertise and TMI's existing telecommunications infrastructure to deliver
a range of compatible network services worldwide. TMI currently has a
telecommunications network deployed in over 40 countries worldwide.
Additionally, the Company entered into a roaming services agreement in June
1997 with NTT PC, a leading provider of IP services in Japan. The roaming
services agreement allows Concentric customers to use the NTT PC network to
access their internet accounts in Japan and allows members of the NTT PC
network to access their internet accounts in the United States and Canada.
While the Company does not expect to generate significant revenue from
deployment of international network services until at least 1998, the Company
believes that the ability to deliver network solutions globally will be a key
competitive factor in its industry. The foregoing expectation is a forward-
looking statement that involves risks and uncertainties and the actual results
could vary materially as a result of a number of factors including those set
forth in "Risk Factors--Risks Associated with International Expansion."
49
<PAGE>
SERVICES
Concentric provides tailored, value-added IP-based network services for
businesses and consumers. To provide these services, the Company employs a
low/fixed latency high-throughput network based on an advanced, geographically
dispersed ATM and frame relay backbone and the Internet.
Enterprise Solutions
For businesses, the Company has developed a set of enterprise services
including VPNs, dedicated and remote access services and Web hosting services.
VPNs. Concentric's VPN solutions enable its customers to deploy tailored,
IP-based mission-critical business applications for internal enterprise,
business-to-business and business-to-customer data communications on the
Concentric network while also affording high-speed access to the Internet.
Concentric offers its customers a secure network on which to communicate and
access information between an organization's geographically dispersed
locations; collaborate with external groups or individuals, including
customers, suppliers, and other business partners and use the Web to access
information on the Internet and communicate with other Web users. The
Company's VPN solutions allow the enterprise customer to tailor the type of
access, services and information that various users of the VPN are afforded
according to the specific needs of the enterprise.
The Company's VPN building blocks include modules for client and system
software, network connectivity (high-speed dedicated access lines, remote
access services and dial-up accounts), tracking and billing, Web hosting
(intranet, Web, e-mail, news or other servers), customer support and security.
VPN customers may choose to use one or more of the elements individually or in
tandem with existing or third-party components to create a customized
networking solution that is generally superior in terms of price, performance
and time to market to the option of building and maintaining a private
network. Key benefits include rapid implementation time, lower operating and
maintenance costs, minimal capital investment, higher quality of service
overall and 24-hour network and customer support.
For example, starting in October 1995 the Company created and now maintains
the VPN used by Intuit customers using a customized version of the Netscape
Navigator browser bundled with Quicken for Windows, Quickbooks, ProTax and
TurboTax. The bundled software allows a Quicken customer to click on an icon
that launches Netscape, and takes the user directly to Quicken Financial
Network Website. On the Web page Quicken customers will find useful financial
advice, information from Intuit's bank and financial institution partners,
answers to commonly asked technical questions and tips on how to tap the full
potential of Intuit's financial products. See "--Key Customer Applications."
Pricing options for enterprise solutions are a combination of standard
prices and standard charges for integration of the Company's VPN building
blocks into a comprehensive package. VPN services are priced by combining
elements such as dedicated access facilities and Web hosting with customer
support, software and other Concentric building blocks. The pricing is
standard for each service, but may be combined as a package with quantity
discounts.
Dedicated Access Facilities. In January 1997, the Company began offering
dedicated access facilities ("DAFs") as a stand-alone product targeted at
businesses that desire single or multipoint high-speed, dial-up and/or
dedicated connections to distributed locations such as regional offices,
warehouses, manufacturing facilities and/or to the Internet. DAF products are
primarily targeted at providing intranet connectivity amongst distributed
enterprise locations with the additional benefit of Internet access if desired
by the customer. The Company provides a full range of connectivity options,
allowing the customer to order the appropriate amount of bandwidth to meet its
networking requirements. In addition, Concentric offers its DAF customers a
guarantee on the quality of service and performance of these facilities.
Furthermore, Concentric believes it is the only network service provider to
bill customers based on average usage levels rather than peak usage levels.
50
<PAGE>
Concentric also performs around-the-clock monitoring of network performance
and enables its customers to monitor their network as well through the
Company's proprietary ConcentricView software. ConcentricView is a distributed
Web-based network management tool that enables a customer to monitor usage on
a call-by-call basis and performance of that portion of the Concentric network
bandwidth supporting the customer's applications. The Company believes it is
the only network services provider to offer this service.
Concentric has six offerings in its dedicated access product line:
FullChannel T-1, FullChannel T-1 Protected, FlexChannel and LECFrame Relay, as
well as FullChannel and FlexChannel offerings at DS3 (T-3) bandwidth options
which support up to 45 Mbps. Additionally, Concentric introduced a trial
service in limited communities in Northern California of a new asymmetric
digital subscriber line ("ADSL") access option which offers high-speed access
over existing copper lines in November 1997.
51
<PAGE>
FULL CHANNEL T-1 PRICING
<TABLE>
<CAPTION>
ONE-TIME FEE AVERAGE USAGE LEVEL MONTHLY FEE(1)
------------ ------------------- --------------
<S> <C> <C>
$3,000.00 0-64Kbps $1,095.00
$3,000.00 64-128Kbps $1,595.00
$3,000.00 128-256Kbps $2,095.00
$3,000.00 256-384Kbps $2,395.00
$3,000.00 384Kbps+ $2,695.00
<CAPTION>
- -------------------------------------------------------------------------------------------
FULL CHANNEL T-3 PRICING
ONE-TIME FEE AVERAGE USAGE LEVEL MONTHLY FEE(1)
------------ ------------------- --------------
<S> <C> <C>
$5,000.00 0-3Mbps $ 6,000.00
$5,000.00 3-6Mbps $10,500.00
$5,000.00 6-9Mbps $15,000.00
$5,000.00 9-12Mbps $20,500.00
$5,000.00 12-15Mbps $25,000.00
$5,000.00 15-18Mbps $30,500.00
$5,000.00 18-21Mbps $35,000.00
l$5,000.00 21Mbps+ $40,500.00
<CAPTION>
- -------------------------------------------------------------------------------------------
FULL CHANNEL T-1 PROTECTED PRICING
ONE-TIME FEE AVERAGE USAGE LEVEL MONTHLY FEE(1)
------------ ------------------- --------------
<S> <C> <C>
$3,000.00 384Kbps+ $2,095.00
<CAPTION>
- -------------------------------------------------------------------------------------------
FLEXCHANNEL T-1 PRICING
FRACTIONAL T-1
ONE-TIME FEE BANDWIDTH MONTHLY FEE(1)
------------ -------------- --------------
<S> <C> <C>
$3,000.00 128Kbps $ 895.00
$3,000.00 256Kbps $1,295.00
$3,000.00 384Kbps $1,595.00
$3,000.00 512Kbps $1,895.00
<CAPTION>
- -------------------------------------------------------------------------------------------
FLEXCHANNEL T-3 PRICING
ONE-TIME FEE AVERAGE USAGE LEVEL MONTHLY FEE
------------ ------------------- -----------
<S> <C> <C>
$5,000.00 0-3Mbps $ 6,000.00
$5,000.00 3-6Mbps $ 8,000.00
$5,000.00 6-9Mbps $11,000.00
$5,000.00 9-12Mbps $15,500.00
$5,000.00 12-15Mbps $20,500.00
$5,000.00 15-18Mbps $23,000.00
$5,000.00 18-21Mbps $25,500.00
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
LECFRAME RELAY PRICING(2)
ONE-TIME FEE FRAME RELAY CIR(3) MONTHLY FEE(1)
------------ ----------- -------- --------------
<S> <C> <C> <C>
$2,000.00 56Kbps 32Kbps $ 395.00
$2,000.00 128Kbps 64Kbps $ 795.00
$2,000.00 256Kbps 128Kbps $ 995.00
$2,000.00 512Kbps 256Kbps $1,095.00
</TABLE>
(1) Monthly billing based on average usage.
(2) Offer varies by region.
(3) Committed Information Rate.
52
<PAGE>
Full Channel T-1 and DS3 (T-3) pricing is based on average utilization
pricing. The customer's usage is measured at five-minute intervals throughout
the month, and the average of all of those measurements is used to determine
the customer's bill at the end of the month. This is the appropriate choice
for those customers who have fluctuating and/or uncertain bandwidth
consumption patterns.
Full Channel T-1 Protected gives a customer a fixed price for a full 1.5
megabits of bandwidth. This is an economical choice for those customers who
recognize in advance that their bandwidth throughput requirements will equal
T-1 levels.
FlexChannel gives a customer the opportunity to purchase a fractional
portion of a T-1 or T-3 for a fixed monthly fee. This is the appropriate
choice for the customers who know that their bandwidth requirements are going
to be consistently less than a full T-1 or T-3.
LECFrame Relay is based on various LECs' Frame Relay facilities. Although
Concentric does not offer service level guarantees over LECFrame Relay,
Concentric does guarantee the committed information rate ("CIR"). This
offering gives a lower cost, lower performance network service for those
customers for whom performance is less imperative.
Web Hosting Services. The Company's Web hosting services were introduced in
March 1997, and are targeted at businesses that are implementing high-
performance intranet, Web, e-mail, gaming, chat or other types of services.
Concentric offers a wide range of hosting solutions structured to meet the
needs of small businesses to very large enterprises. By outsourcing its Web
hosting requirements to Concentric, an enterprise can reduce costs while
increasing reliability and performance of its servers.
Web hosting consists of providing and/or managing the necessary equipment to
allow companies to operate Web sites. The components of Web hosting are the
server; a workstation or PC that runs the Website; the facility to host the
server; high speed Internet access for hosted servers; server and power backup
to ensure 24 hour functionality; and maintenance to ensure ongoing operation
of the server. Concentric also bundles Web hosting software and network
services to provide businesses with complete Internet presence solutions.
WEB HOSTING PRICING
<TABLE>
<CAPTION>
CONCENTRIC NETWORK SMALL
SHARED HOSTING SERVICES ENTERPRISE HOSTING
----------------------- ------------------
<S> <C>
Internet Access Yes
Address Virtual Domain
Email Accounts 10
Web site storage 30 MB
Monthly Throughput 1000 MB
Set-up Fee $100.00
Monthly Price $ 59.95
<CAPTION>
- ------------------------------------------------------------------------------
DEDICATED CO-LOCATED SERVER PRICING
INTERNET CONNECTION MONTHLY PRICE
------------------- -------------
<S> <C>
1 Mbps Priority Bandwidth $1,500.00
2 Mbps Priority Bandwidth $2,500.00
4 Mbps Priority Bandwidth $4,500.00
Dedicated 10 Mbps Ethernet $6,000.00
Setup Fee $1,000.00
</TABLE>
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Netscape Virtual Office by Concentric. Pursuant to a Co-Marketing Services
Agreement, a Trademark License Agreement and a Software License Agreement
executed as of June 23, 1997 (the "Agreements"), the Company entered into a
strategic business arrangement with Netscape to design, develop and operate
Netscape Virtual Office by Concentric, to offer customers hosted private
Intranet services that can be accessed from anywhere on the Internet. The
service has been adapted from Concentric's ConcentricHost product and uses
Netscape's SuiteSpot software features. These Intranet services are designed
to give an individual or small business with an Internet connection the
ability to establish a "Virtual Office" that is accessible through Netscape's
Internet site. The Company launched the service in September 1997. The
Agreements have an initial term of two years, which may be renewed for up to
two additional one year terms. The geographic scope of the licenses granted by
Netscape are sufficient to enable the Company to operate Netscape Virtual
Office by Concentric as currently planned by the Company. Pursuant to the
Agreements, the Netscape Virtual Office by Concentric features the latest
versions of Netscape SuiteSpot server software family for Web, messaging and
collaboration applications. The service has been jointly designed by the
Company and Netscape, has been developed by the Company and is hosted and
maintained by the Company. Upon execution of the Agreements the Company made a
$2.0 million down payment to Netscape. See "Certain Transactions--Bridge
Loans."
Netscape Virtual Office by Concentric has been designed to give individual
professionals, small businesses and project groups a private online presence
that can be shared with co-workers or other specified users. This online
Intranet center serves as a user's entry point to a wide variety of online
information management services, such as HTML E-mail accounts, internal and
external Web sites, private discussion forums and project collaboration,
without the cost of extensive hardware, software and technical personnel. To
take advantage of these services, the user only needs Internet access and
Netscape Communicator client software. In order to create a "Virtual Office,"
the user or office manager signs up for the monthly service on the Netscape
Internet site. The user initially specifies basic information, project
parameters, a list of people who can access the Virtual Office, and credit
card information for payment. Once all information is specified, the user's
Virtual Office is automatically configured.
Remote Access Service. The Company's remote access services, are marketed as
Concentric RemoteLink, and were released commercially in September 1997.
RemoteLink services are targeted at businesses that have employees in remote
locations. RemoteLink enables an enterprise's salespeople and other mobile
employees, telecommuters and business partners to dial into an enterprise's
corporate network resources and use them as if they were connected locally,
thus increasing their potential productivity and allowing for information to
be available on a real-time basis across the enterprise. Concentric's
RemoteLink is designed to be highly customizable and has the ability to
interface with existing Company network infrastructure. Additionally,
RemoteLink is being designed to support multiple layers of security including
privacy encryption, local and remote firewalls and network access security.
The Company believes that RemoteLink will help businesses significantly
reduce the high costs of telecommunications charges and user support
associated with building, deploying and maintaining their own remote access
WAN, typically based on remote access servers or modem pools, 800 circuits and
router links to the Internet. In addition, the enterprise utilizes
Concentric's high-performance network, combined with T1 or fractional T1 links
to the enterprise LAN, offering more reliable and faster access. Concentric
RemoteLink offers support for remote users 24 hours a day, seven days a week.
See "Risk Factors--Dependence upon New and Enhanced Services."
Consumer Services
Concentric provides its individual and small office/home office ("SOHO")
customers with a broad range of Internet access options and Web hosting e-
mail, chat, File Transfer Protocol ("FTP"), Gopher and online shareware
services. Users can choose from 800-number, telnet and direct dial services.
Concentric offers the Netscape Navigator or Microsoft Internet Explorer
browser to its users when they sign up for dial-up or 800-number service.
54
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INTERNET ACCESS PRICING
<TABLE>
<CAPTION>
PLAN MONTHLY FEE ADDITIONAL TIME
---- ----------- ---------------
<S> <C> <C>
Starter Plan $ 7.95 $1.95/hr after 5 hrs
Standard Plan $19.95 No charges for additional time.
Unlimited active access for one
monthly fee.
800-number Plan $10.00 $5/hr after 2 hrs
Inbound Internet Plan $10.00 No charges for additional time.
Unlimited active access for one
monthly fee.
</TABLE>
The Company also offers DAFs to its SOHO and individual customers. These
customers use these facilities to connect their Web servers to the Concentric
network (and hence to the Internet) or to offer dedicated connection to an
internal SOHO local area network.
The Company also offers consumers value-added services, including a
collection of online multiplayer games and premium products targeted to
vertical segments such as the SOHO and family market. This includes the
upselling of discounted products and services in such areas as education,
retail products, telephony, and travel services with such partners as
Infonautics, Amazon.com, Inc. and QuadraCom, LLC. Such arrangements not only
provide an additional monthly revenue stream but also increase customer
retention. Additional value-added products/services being reviewed by the
Company for potential introduction include premium service levels, critical
file disk back-up/recovery, hard drive maintenance software, virus protection,
and long distance and faxing services.
CUSTOMERS
The following is a representative list of the Company's customers during the
last 12 months.
<TABLE>
<S> <C>
Acer America Corporation Microsoft Corporation
Ameritech Services, Inc. Netlink, LTD
Bascom Global Internet Services, Inc. Netscape Communications Corporation
Bay Networks, Inc. On Command Corporation
Corel Corporation NTT PC Communications, Inc.
Connected Corporation Peapod L.P.
Electronic Data Systems Corporation Philips Mobile Computing
Fiberlane Communications, Inc. PictureTel Corporation
Fishking Processors, Inc. Rosemount Inc.
First Data Corporation SCP Communications
Graybar Electric Company, Inc. SMC Communications LLC
Hewlett-Packard Company Scopus Technology, Inc.
Imagesoft Technologies, Inc. Sega of America, Incorporated
Infonautics Corporation Tachyon Technology Corporation
Infogear Technology Corporation Toshiba America Information Systems
Intuit, Inc. WebTV Networks, Inc.
Investools, Inc. You Bet! On-Line Entertainment
Iomega Corporation Ziff-Davis Publishing Co.
</TABLE>
During the year ended December 31, 1996 and the nine months ended September
30, 1997, revenue from WebTV accounted for 10.1% and 33.9%, respectively, of
the Company's revenue. See "Risk Factors--Customer Concentration."
KEY CUSTOMER APPLICATIONS
The Company aggressively pursues business alliances with a variety of
companies. Through these partners, the Company seeks to expand its enterprise
and consumer customer base and increase the 24 hour utilization of the
Concentric network. The following is a summary of selected strategic
relationships:
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<PAGE>
Intuit. Intuit, a financial software and Web-based services company, is a
market leader in personal and small business financial software. Intuit's
mission is to change for the better how people and small businesses manage
their financial lives, and to change for the better how financial providers
reach, sell, and serve their customers and prospects. Intuit views its
Websites as a key channel for communicating with its customers, and as a
vehicle to provide personal finance, investment and tax related financial
information. Concentric and Intuit partnered in October 1995 to launch the
integrated Internet access to the Quicken Financial Network and the Internet.
The Internet access capability included both a virtual private network service
designed to provide Intuit customers subsidized access to select Intuit Web
sites and the ability to upgrade to full access to the Internet. Intuit has
bundled tailored versions of the Netscape Navigator browser in its fiscal year
1996 and 1997 releases of Quicken, TurboTax, ProTax and Quickbooks. Concentric
designed and implemented tailored registration and network access software to
provide Intuit customers with seamless, subsidized access to select Intuit Web
sites. Concentric provides an easy, Web-based upgrade process for customers
desiring full Internet access and e-mail services. Customers are billed for
network time through Concentric's billing systems. In addition, Concentric
provides private-labeled customer service to Intuit customers with full
network access on a twenty-four hour a day, seven day a week basis.
WebTV Networks Inc. WebTV provides the world's first high-quality Internet
solution for television. In the fall of 1996, WebTV's licensees, Sony
Electronics, Inc. and Philips Electronics introduced a plug-and-play set-top
box that enables Internet browsing from a television. As part of the WebTV
service, Concentric and WebTV jointly designed and implemented a national
virtual private dial-up network solution to connect WebTV Network(TM) users to
the Internet, utilizing Concentric's network. The WebTV(TM) Internet terminal,
combined with the virtual private network, allows anyone to browse the
Internet from the comfort of their living room.
You Bet! On-Line Entertainment. You Bet! is a technology company that
facilitates live events and is focused on content development, network
deployment, and event management via a cross-platform environment. You Bet! is
a service organization providing horse players instant access to live racing,
information, and wagering worldwide via a private, secure online environment.
The Company's initial service, the You Bet! Racing Network is focused on the
emerging market for home wagering on domestic horse racing. The application,
which runs on the Concentric network, involves the synchronization of audio,
video and data feeds that are accumulated at a single point. The multicast
application is supported by a secure front-end processor and maintained at the
Concentric data centers. A closed community group has access to the multicast
information, which consists of live races, track calls, live odds, past
performance, secured wagering from a pari-mutuel escrow account and handicap
information. Concentric believes it was chosen as the network provider by You
Bet! because of its expertise in developing back-end systems and its ability
to deploy and manage a virtual private network. Concentric will collect hourly
usage fees from You Bet!
PictureTel Corporation. PictureTel, a leading provider of video conferencing
products, and Concentric have signed a joint development agreement which
specifies both parties' intent to jointly develop products and services to
enable PictureTel desktop and room video conferencing systems to communicate
over the Concentric network. Both Concentric and PictureTel currently have
trial systems installed and operating over the Concentric network. Preliminary
results demonstrate that the low/fixed latency and high throughput of the
Concentric network delivers superior quality for both desktop and room video
conferencing over IP-routed networks.
THE CONCENTRIC NETWORK
The Concentric network employs an advanced, geographically dispersed ATM and
frame relay backbone, 15 SuperPOPs in many major metropolitan areas plus a
total of 134 secondary and tertiary POPs in other cities, allowing local dial-
up access to the network to users in the U.S. and Canada. In addition, the
Company can provide analog dial-up, frame relay, fractional T-1, T-1 and DS3
access to the network. The Concentric network currently supports 28.8 Kbps
(V.34) modems and is evaluating plans to upgrade to 56.6 Kbps modem access.
The Concentric network is managed via a centralized network control center in
St. Louis, Missouri. Two data centers (located in Bay City, Michigan and
Cupertino, California) house the servers that support logon/authentication,
billing, e-mail, Internet access, Web services and other network services.
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<PAGE>
The Concentric SuperPOPs are designed to support both dial-up and dedicated
access services within a broad geographic region. Typically, a SuperPOP will
utilize one or more CLECs and LECs to aggregate dial traffic within a 50-200
mile radius of the SuperPOP and terminate it at the SuperPOP. This strategy
allows Concentric to offer users local call coverage within the SuperPOP
region without having to deploy individual POPs in each local calling area.
All the calls are terminated at the modem equipment at the regional SuperPOP.
This results in broader call coverage, lower costs due to the typically lower
rates from CLECs and economies of scale from larger modem installations, lower
maintenance costs, and easier capacity upgrades since equipment is located in
a single location within a region.
DAFs from customer locations in a region are terminated in the SuperPOP as
well. Typically, Fractional T-1, T-1, and T-3 circuits are terminated directly
into SuperPOP router equipment (via CSU/DSUs). Frame access is terminated via
aggregated LEC Frame Access circuit(s). Both dial and dedicated traffic is
then aggregated by the routers/switches in the SuperPOP and directed to the
Concentric ATM backbone via one or more T-3 ATM links.
Some applications, such as Web browsing and file transfer require high
throughput, but can tolerate moderate and variable latency, while others, such
as mission-critical business applications and voice and video conferencing,
require low/fixed latency. Still others, such as transaction processing,
require fast connect/disconnect times, may require high levels of security and
are indifferent to latency levels. Traditional static network access
technologies and backbone architectures cannot cost-effectively manage these
varied requirements in a single network. The Concentric network has been
designed to be able to solve this problem by incorporating software
intelligence in both its access and backbone technologies to adapt the
network's connection setup and data transfer properties to the nature of the
user's application requirements on a call-by-call or service-by-service basis.
The Concentric network also offers its customers the security, reliability
and management features that companies require in their own private networks.
Varying layers of security and encryption are supported and tailored to
specific customer requirements. The network design includes a standard
security layer and is compatible with most types of custom security
applications. Further, security is provided at both the edge of the network
and internally based on embedded firewall and encryption techniques. The
Concentric network features co-location of network access and switching
equipment in "hardened" facilities, direct connections to carrier facilities,
a resilient ATM/frame relay backbone, dual data processing centers, and
redundancy within data centers to substantially enhance its uptime
performance.
Network managers, customer service, and technical support staff require near
real-time access to information about the performance and quality of their
networks. In traditional private networks, this information is provided by
network management, trouble reporting/tracking, and management information
systems. Customers usually sacrifice a great deal of control and have access
to less information when using a public network instead of a private network.
It has been difficult for public network providers to provide their major
customers with information regarding network performance that relates to that
customer's usage without either compromising other customers' proprietary
information or compromising the integrity of the network itself. Concentric
has developed a set of non-intrusive software tools and reporting mechanisms,
distributed to DAF enterprise customers as ConcentricView. ConcentricView
allows a customer's network manager to monitor network performance and quality
and to adequately support inquiries for help from their users. Web browsers
and file transfer tools are used to provide access to much of this
information. In some cases, custom integration of Concentric's network
management and trouble tracking/reporting systems will be provided to
customers.
RELATIONSHIP WITH WILLIAMS COMMUNICATIONS, INC.
Concurrent with the closing of the Company's IPO, the Company entered into a
strategic relationship with Williams Communications Group, Inc., a subsidiary
of the Williams Companies, Inc. (together, "Williams"). Williams provides a
full range of enterprise network solutions, communications services and
advanced applications to businesses, including equipment and services for
data, voice and video; international satellite and
57
<PAGE>
fiber-optic transmission services; telemarketing services; and, multipoint
video- and audio-conferencing. The relationship with Williams includes an
equity investment in the Company by Williams of approximately $15.0 million
which closed in August 1997, and the execution of a number of strategic
business agreements. In exchange for the approximately $15.0 million
investment by Williams, the Company issued and sold 1,249,236 shares of common
stock to Williams at the initial per share price of $12.00 in the Company's
IPO.
As part of the strategic business relationship, Williams has made available,
and the Company has agreed to purchase from Williams, a total of $21.2 million
in telecommunications equipment and services through the five year period
ending in 2002. At the election of Williams, $2.0 million of the minimum
purchase commitment may be paid by the issuance of Common Stock by the Company
at the then-current fair market value. Additionally, Williams and the Company
have entered into a reseller agreement and an agency agreement through which
Williams will be able to sell the Company's products and services for an
initial term of two years. The agreements with Williams provide that, in the
event of a change of control of the Company, Williams will have a right to
purchase a nonexclusive, perpetual license to use, distribute and modify all
of the intellectual property of the Company, including any copyright, patent,
license, trademark or trade secret which the Company has or obtains the right
to transfer. Finally, the parties also agreed to amend and restate the
Employee Services and Staffing Agreement between the Company and CTI, a
wholly-owned subsidiary of Williams, and to amend the Co-location Services
Agreement between the Company and CTI, to among, other things, extend the
terms of such agreements to December 31, 2000 and to forego a $1.1 million
acquisition fee to be paid by CTI to the Company as a result of the
acquisition of CTI by Williams in 1996. In exchange for the waiver of the
acquisition fee, Williams agreed to issue $1.1 million in telecommunications
services credits to the Company.
SALES AND MARKETING
The Company focuses on marketing its services to two distinct market
segments: enterprise and consumer. By attracting enterprise customers who use
the network primarily during the daytime, and consumer customers who use the
network primarily at night, the Company is able to more fully utilize its
network infrastructure by having some customers online during the day and the
others, using the same modem pools, online during the evening. The Company has
developed a multi-tiered sales strategy consisting of leveraged third party
distribution channels, inbound and outbound telesales, value-added resellers
and direct sales.
Leveraged Third Party Distribution. The Company has positioned itself as a
key network services provider for companies that bundle network access in
their products or services. For example, the Company's network service is
bundled with Intuit's Quicken, TurboTax and Quickbooks products, Microsoft
Office 97 and with WebTV and Sega Saturn Internet access devices.
Additionally, the Company is one of the Internet services providers listed on
the Netscape Navigator and Microsoft Internet Explorer browser registration
servers.
Telesales. The Company uses an inbound telesales group to answer calls from
potential consumers/ subscribers and to sign up customers. Inbound telesales
representatives also proactively upsell premium products and services. The
Company also uses an outbound telesales group to sell DAFs and high-end
hosting products to small and medium-sized businesses. Both the inbound and
outbound telesales groups forward leads to the direct sales force when
appropriate.
Value-Added Resellers. The Company has also begun to establish sales
channels through value-added resellers. These resellers are companies that
sell equipment or other components for full-service network solutions to
medium and large businesses. Value-added resellers such as Racal, which
employs more than 500 direct sales, sales-support and network services people,
are compensated for selling Concentric's enterprise service offerings in
conjunction with their other products. These relationships enable the VARs to
provide more comprehensive solutions to their customers while affording the
Company the benefit of the VAR's large sales force without incurring the costs
of maintaining a large sales force of its own.
Direct Sales Force. For large and complex enterprise solutions and to
acquire, support and retain distribution channel partners, the Company employs
12 direct sales people located in Cupertino and Orange
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County, California, Dallas, Texas, Washington, D.C., the New York metropolitan
area, Atlanta, Georgia, Chicago, Illinois and Boston, Massachusetts to provide
national direct sales coverage. The Company's direct sales force is supported
by inside sales/account managers and systems engineers.
Concentric markets its enterprise services to information service ("IS")
professionals. In addition, the Company uses print advertising in targeted
industry publications to build awareness and acquire leads for its VARs and
its direct sales team. The Company also launched in September, 1997 a large
direct response effort (direct mail/outbound telemarketing) targeting
enterprise IS managers and senior management of multilocation companies, and
companies with large numbers of mobile and telecommuting employees.
In the consumer market, the Company focuses on direct mail to targeted
audiences; establishment of customer referral programs; and co-marketing such
as packaging literature with MasterCard mailers and Intuit software. In
addition, the Company has implemented on-line programs, such as a Website
"home" where they can learn how to use the service, how to use the Internet,
and how to find information quickly, designed to increase customer retention.
The Company is also implementing programs to sell additional products and
services to its consumer customers. Additionally, the Company is generating
advertising revenue on its growing Website traffic in direct ad banner
placements as well as in shared revenue relationships with content partners
such as Excite, Inc., Locos, Inc., and Classifieds2000, Inc.
The Company employs public relations personnel in-house and works with an
outside public relations agency to provide broad coverage in network computer
and vertical industry publications. The Company participates in industry trade
shows based on the size and vertical makeup of the trade show audience. Shows
attended in 1997 include E3 and NetWorld + InterOp. The Company also
participates in trade shows with its strategic marketing partners such as
Racal to promote the sale of Concentric products and services.
As of December 31, 1997, the Company employed 92 persons in sales and
marketing. The Company is in the process of expanding its sales and marketing
staff. The Company's sales operations are conducted from its principal office
in Cupertino, California and by its field sales personnel in Orange County,
California, Dallas, Texas and the New York metropolitan area.
CUSTOMER SUPPORT
Concentric believes that a high level of customer support is critical to
attracting and retaining its enterprise and consumer customers. The Company
maintains a customer support call center at its Saginaw, Michigan, facility.
Concentric offers several levels of customer support all of which are
available 24 hours per day, seven days per week. The basic level of customer
support includes support for customers on installing and using their software,
customer communications and customer training. Premier level service programs
guarantee an exceptional performance standard, offer supplemental support
training, and provide monthly reports on operations. Private label support
gives businesses a premier level of support provided by their own customer
service team who answer calls with that customer's company name. Customer
support is provided by e-mail, telephone, Website and online chat.
As of December 31, 1997, the Company employed 146 persons in customer
support. In addition, the Company outsources supplemental customer support to
Concentric customers and their end-users.
COMPETITION
The market for tailored value-added network services is extremely
competitive. There are no substantial barriers to entry, and the Company
expects that competition will intensify in the future. The Company believes
that its ability to compete successfully depends upon a number of factors,
including market presence; the capacity, reliability, low latency and security
of network infrastructure; technical expertise and functionality, performance
and quality of services; customization; ease of access to and navigation of
the Internet; the pricing policies of its competitors; the variety of
services; the timing of introductions of new services by the Company and its
competitors; customer support; the Company's ability to support industry
standards; and industry and general economic trends.
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The Company's current and prospective competitors generally may be divided
into the following five groups: (i)telecommunications companies, such as AT&T,
Sprint, Inc., WorldCom, MCI, RBOCs and various cable companies; (ii) online
services providers, such as America Online, CompuServe, Microsoft's MSN, and
Prodigy; (iii) ISPs, such as BBN, which has been acquired by GTE, NETCOM,
which is being acquired by ICG Communications, Inc., PSI Net, and other
national and regional providers; (iv) nonprofit or education Internet
connectivity providers; and (v) Web server farms such as Internet Direct and
Exodus. Many of these competitors have greater market presence, engineering
and marketing capabilities, and financial, technological and personnel
resources than those available to the Company. As a result, they may be able
to develop and expand their communications and network infrastructures more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products than can the Company. In addition, various organizations, including
certain of those identified above, have entered into or are forming joint
ventures or consortiums to provide services similar to those of the Company.
The Company believes that new competitors, including large computer
hardware, software, media and other technology and telecommunications
companies will enter the value added network services markets, resulting in
even greater competition for the Company. Certain of such telecommunications
companies and online services providers are currently offering or have
announced plans to offer Internet or online services or to expand their
Internet access services. Certain companies, including America Online, BBN and
PSI, have also obtained or expanded their Internet access products and
services as a result of acquisitions. Such acquisitions may permit the
Company's competitors to devote greater resources to the development and
marketing of new competitive products and services and the marketing of
existing competitive products and services. In addition, the ability of some
of the Company's competitors to bundle other services and products with VPN
and consumer network services could place the Company at a competitive
disadvantage. Certain companies are also exploring the possibility of
providing high-speed data services using alternative delivery methods such as
over the cable television infrastructure, through direct broadcast satellite
technology and by wireless cable.
As a result of increased competition in the industry and vertical and
horizontal integration in the industry, the Company could encounter
significant pricing pressure, which in turn could result in significant
reductions in the average selling price of the Company's services. For
example, certain of the Company's competitors that are telecommunications
companies may be able to provide customers with reduced communications costs
in connection with their Internet access services or private network services,
reducing the overall cost of their solutions and significantly increasing
price pressures on the Company. There can be no assurance that the Company
will be able to offset the effects of any such price reductions with an
increase in the number of its customers, higher revenue from enhanced
services, cost reductions or otherwise. In addition, the Company believes that
the Internet access and online services businesses are likely to encounter
consolidation in the near future, which could result in increased price and
other competition in these industries and, potentially, the virtual private
networks industry. Increased price or other competition could result in
erosion of the Company's market share and could have a material adverse effect
on the Company's business, financial condition and results of operations.
There can be no assurance that the Company will have the financial resources,
technical expertise or marketing and support capabilities to continue to
compete successfully. See "Risk Factors--Competition," "--Risks of Growth and
Expansion" and "--Future Capital Needs; Uncertainty of Additional Financing"
and "Business--Competition."
GOVERNMENT REGULATION
The FCC currently does not regulate value-added network software or computer
equipment related services that transport data or voice messages over
telecommunication facilities. The Company provides value-added IP-based
network services, in part, through data transmissions over public telephone
lines. These transmissions are governed by regulatory policies establishing
charges and terms for wireline communications. Operators of these types of
value-added networks that provide access to regulated transmission facilities
only as part of a data services package are currently excluded from
regulations that applies to "telecommunications carrier" and as
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such the Company is not currently subject to direct regulation by the FCC or
any other governmental agency, other than regulations applicable to businesses
generally. However, in the future the Company could become subject to
regulation by the FCC or another regulatory agency as a provider of basic
telecommunications services.
Currently, the FCC is reviewing its regulatory positions and could seek to
impose common carrier regulation on the network transport and communications
facilities aspects of an enhanced or information service package. Further, the
FCC could conclude that the Company's protocol conversions, computer
processing, and interaction with customer-supplied information are
insufficient to afford the Company the benefits of the enhanced or information
service classification, and thereby may seek to regulate some segments of the
Company's activities as basic telecommunications services. While state public
utility commissions generally have declined to regulate enhanced or
information services, some states have continued to regulate particular
aspects of enhanced services in limited circumstances, such as where they are
provided by LECs. Moreover, the public service commissions of certain states
continue to review potential regulation of such services. There can be no
assurance that regulatory authorities of states within which Concentric makes
its Internet access, Intranet and VPN services available will not seek to
regulate aspects of these activities as telecommunications services. Changes
in the regulatory environment relating to the Internet connectivity market,
including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood or scope of competition
from the RBOCs or other telecommunications companies, could affect the prices
at which the Company may sell its services. The Company cannot predict the
impact, if any, that future regulation or regulatory changes may have on its
business and there can be no assurance that such future regulation or
regulatory changes will not have a material adverse effect on the Company's
business, results of operations and financial condition.
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
technology, although the Company believes that its success is more dependent
upon its technical expertise than its proprietary rights. The Company
principally relies upon a combination of copyright, trademark and trade secret
laws and contractual restrictions to protect its proprietary technology. It
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization or to develop similar
technology independently, and there can be no assurance that such measures
have been, or will be, adequate to protect the Company's proprietary
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. The Company operates a material portion of its business over the
Internet, which is subject to a variety of risks. Such risks include but are
not limited to the substantial uncertainties that exist regarding the system
for assigning domain names and the status of private rules for resolution of
disputes regarding rights to domain names. There can be no assurance that the
Company will continue to be able to employ its current domain names in the
future or that the loss of rights to one or more domain names will not have a
material adverse effect on the Company's business and results of operations.
Although the Company does not believe that it infringes the proprietary
rights of any third parties, there can be no assurance that third parties will
not assert such claims against the Company in the future or that such claims
will not be successful. In addition, participants in the Company's industry
also rely upon trade secret law. The Company could incur substantial costs and
diversion of management resources with respect to the defense of any claims
relating to proprietary rights which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief which
could effectively block the Company's ability to license its products in the
United States or abroad. Such a judgment would have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, the Company is obligated under certain agreements to indemnify the
other party in connection with infringement by the Company of the proprietary
rights of third parties. In the event a claim relating to proprietary
technology or information is asserted against the Company, the Company may
seek licenses to such intellectual property. There
61
<PAGE>
can be no assurance, however, that licenses could be obtained on commercially
reasonable terms, if at all, or that the terms of any offered licenses will be
acceptable to the Company. The failure to obtain the necessary licenses or
other rights could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of December 31, 1997, Concentric had 320 employees and 64 independent
contractors, including 92 persons in sales and marketing, 113 persons in
network operations and development, 146 in customer support and 33 in finance
and administrative functions. The Company believes that its future success
will depend in part on its continued ability to attract, hire and retain
qualified personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be able to identify, attract, and retain
such personnel in the future. None of the Company's employees is represented
by a labor union, and management believes its employee relations are good.
PROPERTIES
The Company's executive offices are located in Cupertino, California, under
a lease that expires in April 1998. The Company also leases network operations
and customer support facilities in Bay City, Michigan, and Saginaw, Michigan,
respectively, under leases expiring in December 1997 and December 2001,
respectively. The Saginaw lease obligates the Company to pay up to $1.25
million to restore the building in the event of any damage or destruction to
it during the lease term, without any rent abatement for loss of use. The
Company believes that its existing facilities are adequate for its current
needs.
LEGAL PROCEEDINGS
In late April and early May, 1997, three putative securities class action
complaints were filed in the United States District Court, Central District by
certain stockholders of Diana, the parent corporation of Sattel, alleging
securities fraud related to plaintiffs' purchase of shares of Diana Common
Stock in reliance upon allegedly misleading statements made by defendants,
Diana, Sattel and certain of their respective affiliates, officers and
directors. Concentric was named as a defendant in the complaint in connection
with certain statements made by Diana and officers of Diana related to
Concentric's purchase of network switching equipment from Diana's Sattel
subsidiary. The plaintiffs seek unspecified compensatory damages. A motion by
the Company to dismiss the complaint was denied, and the court has allowed the
action to proceed against the Company. A trial date has not yet been
determined.
While the ultimate outcome of such litigation is uncertain, the Company
believes it has meritorious defenses to the claims and intends to conduct a
vigorous defense. An unfavorable outcome in this matter could have a material
adverse effect on the Company's financial condition. In addition, even if the
ultimate outcome is resolved in favor of the Company, the defense of such
litigation could entail considerable cost and the diversion of efforts of
management, either or which could have a material adverse effect on the
Company's results of operations. See "Risk Factors--Legal Proceedings" and
Note 10 of Notes to Financial Statements.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth certain information as of December 31, 1997,
with respect to the executive officers and directors of the Company, as well
as certain members of its senior management.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Henry R. Nothhaft.................... 53 President, Chief Executive Officer and
Director
John K. Peters....................... 49 Executive Vice President and General
Manager, Network Services Division
Michael F. Anthofer.................. 45 Senior Vice President and Chief
Financial Officer
William C. Etheredge................. 51 Senior Vice President of Sales
George D. Carr....................... 53 Vice President of Field Sales
Eileen A. Curtis..................... 49 Vice President of Customer Relations
Scott G. Eagle....................... 38 Vice President of Consumer Marketing
Donald C. Schutt..................... 52 Vice President of International
Services
Warren A. Smith...................... 47 Vice President of Software Engineering
James L. Isaacs...................... 37 Vice President of Business Development
Mark W. Fisher....................... 37 Vice President of Corporate Marketing
Louis P. Bender, III (1)............. 50 Director
Vinod Khosla (2)..................... 43 Director
Gordon Martin........................ 37 Director
Franco Regis (1)..................... 41 Director
Gary E. Rieschel (2)................. 41 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Henry R. Nothhaft joined the Company as President and Chief Executive
Officer in May 1995 and became a Director of the Company in August 1995. From
1989 to August 1994, Mr. Nothhaft was President, Chief Executive Officer and a
Director of David Systems, Inc. ("David Systems"), a networking company. From
1983 to 1989, Mr. Nothhaft held various positions with DSC Communications
Corporation ("DSC"), including Senior Vice President of Marketing, President
of the Digital Switch Corporation subsidiary, President of the Business
Network Systems Group and a Corporate Director of DSC. From 1979 to 1983, Mr.
Nothhaft was Vice President of Domestic Marketing and Vice President of Sales
for GTE Telenet Communications Corporation (now Sprint). Mr. Nothhaft has an
M.B.A. in Information Systems Technology from George Washington University and
a B.S. degree from the U.S. Naval Academy.
John K. Peters joined the Company in May 1995 as an independent consultant.
Mr. Peters was named Executive Vice President and General Manager, Network
Services Division of the Company in June 1995. From 1993 to August 1995, Mr.
Peters served as President of Venture Development Consulting, a consulting
firm specializing in new communications, information services and software
businesses. From 1988 to 1993, Mr. Peters was Vice President and Chief
Operating Officer of Pacific Bell Information Services, Inc. Prior to that,
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<PAGE>
Mr. Peters spent three years as Vice President of Application Services for
Telestream Corporation. In 1981, Mr. Peters co-founded Integrated Office
Systems, Inc., a communications and information systems company. From 1976 to
1980, Mr. Peters was Vice President of Advanced Network Services for GTE
Telenet Communications Corporation. Mr. Peters has an M.B.A. from Stanford
Graduate School of Business and a B.S. degree in Statistics from Stanford
University.
Michael F. Anthofer joined the Company in January 1996 as Vice President and
Chief Financial Officer and became a Senior Vice President in November 1996.
From January 1991 to December 1995, Mr. Anthofer served as an Executive Vice
President and Chief Financial Officer of Shared Resource Exchange, Inc., a
privately held digital switching platform and PBX supplier. Prior to 1991, Mr.
Anthofer held various executive positions, including Vice President, Corporate
Business Planning, Vice President, Business Network Group and Vice President,
Network Products Group, at DSC. Mr. Anthofer has an M.B.A. and a B.S. degree
from the University of California, Berkeley.
William C. Etheredge joined the Company in March 1997 as the Senior Vice
President of Sales. From May 1991 to March 1997, Mr. Etheredge served first as
Vice President of Sales and Marketing and then as Vice President of Sales for
Meridian Data, Inc., a provider of networked CD-ROM database creation and
retrieval software and network servers. From July 1990 to May 1991, he served
as Vice President of Strategic Accounts for Maxtor Corporation. From June 1985
to June 1990, he served first as Vice President US Sales and Marketing and
then Vice President Western Region for Memorex-Telex Corporation. Mr.
Etheredge has an M.B.A. degree from Bowling Green University and a B.A. degree
from Westminster College.
George D. Carr joined the Company in June 1995 as an independent consultant.
In September 1995 Mr.Carr became Vice President of Sales. From June 1993 to
June 1995, Mr. Carr was Vice President of Sales and Marketing of David
Systems/ChipCom. From June 1989 to June 1993, Mr. Carr was VP of Operations
and International Sales of David Systems. From December 1983 to June 1989, Mr.
Carr was VP of Operations and Service of David Systems. Mr. Carr has a B.A.
degree from Loyola Marymount.
Eileen A. Curtis joined the Company in November 1994 as an independent
consultant. She became Customer Relations Manager in January 1995, Director of
Customer Relations in September 1995 and Vice President, Customer Relations in
November 1996. From August 1987 to July 1993, Ms. Curtis was employed by Cox
Communications Saginaw, Inc. and served in various positions including
Marketing and Public Relations Manager, Administrative Manager and Customer
Service Manager. Ms. Curtis has a B.S. degree from Central Michigan
University.
Scott G. Eagle joined the Company in March 1996 as Vice President of
Consumer Marketing. From November 1993 to February 1996, Mr. Eagle was the
Vice President, Strategic Marketing Development for MFS Intelenet, Inc., a
start-up division of MFS Communications Company, Inc. From February 1989 to
November 1993, Mr. Eagle was the Vice President of Marketing for the
Woodbridge Group, a marketer of consumer package goods. Prior to February
1989, Mr. Eagle served in various marketing management positions with The
Procter & Gamble Company. Mr. Eagle has a B.S. degree from the University of
Pennsylvania, Wharton School of Business.
Donald C. Schutt joined the Company in February 1994 as Vice President of
Sales and Marketing and was appointed Chief Operations Officer later that
year. Mr. Schutt was named Vice President and General Manager, Bay City
Operations in August 1995. His title was changed to Vice President of Michigan
Operations in March 1996 and to Vice President of International Services in
November 1997. From 1964 to 1985, Mr. Schutt held various management positions
with General Motors, after which Mr. Schutt served until 1989 as Vice
President for Sales and Marketing for Gentex Corporation. From 1989 to 1993,
Mr. Schutt was President and Chief Executive Officer of AMPM, Inc., a full-
service advertising agency, and retains a 54 percent interest in such entity.
Mr. Schutt has a B.S. degree in Marketing from Ferris University.
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<PAGE>
Warren A. Smith joined the Company in April 1996 as Vice President, Software
Engineering. From October 1992 to April 1996, Mr. Smith was the Director of
Engineering at NetManage, Inc., a software company. From July 1987 to July
1992, Mr. Smith was the Director of Distributed Computing Technology for Sun
Microsystems, Inc. From March 1983 to July 1987, Mr. Smith was the Western
Regional Manager of SEI Information Technology an engineering consulting firm.
Mr. Smith has a B.S. degree from California State University, Sacramento.
James L. Isaacs joined the Company in October 1995 as the Director of
Product Management. In March 1997, he became Vice President of Product
Management and in November 1997 he was appointed Vice President of Business
Development. From July 1988 to October 1995, Mr. Isaacs held various positions
at Apple Computer, including Group Manager Product Marketing, Apple On Line
Services Division and Business Development Manager of Apple On Line Services
Division. Mr. Isaacs has an M.B.A. degree from the University of California,
Berkeley and an A.B. degree from Stanford University.
Mark W. Fisher joined the Company in June 1997 as Vice President of
Corporate Marketing. From July 1996 to June 1997, Mr. Fisher was General
Manager and Vice President, Marketing of Pacific Bell Internet Services, a
wholly owned subsidiary of Pacific Bell. From June 1995 to August 1996, Mr.
Fisher was Vice President, Marketing of Pacific Bell Internet Services. From
1989 to May 1995, Mr. Fisher held various data product marketing and data
center operations positions at Pacific Bell. Mr. Fisher has an M.B.A. from the
University of California at Berkeley and a B.S. in mechanical engineering from
the U.S. Naval Academy.
Louis P. Bender, III has been a Director of the Company since June, 1997.
Since November 1996 he has been President, Americas Region of Racal Data
Group. Prior to such time, Mr. Bender served as Vice President, Business
Development at Bull Electronics, a business unit of Group Bull in Angers,
France. Prior to Bull Electronics, Mr. Bender held the position of Vice
President, Worldwide Sales at AVEX Electronics. Mr. Bender has bachelor's
degrees in Electrical Engineering and Business Administration from the State
University of New York and Monroe College, respectively.
Vinod Khosla has been a Director of the Company since April 1995. Mr. Khosla
has been a General Partner with the venture capital firm of Kleiner Perkins
Caufield & Byers from February 1986 to the present. Mr. Khosla was a co-
founder of Daisy Systems and the founding Chief Executive Officer of Sun
Microsystems, Inc. Mr. Khosla also serves on the boards of Excite, Inc.,
PictureTel, The 3DO Company, and Spectrum Holobyte. He has a B.S.E. from the
Indian Institute of Technology in New Delhi, an M.S.E. from Carnegie Mellon
University, and an M.B.A. from the Stanford Graduate School of Business.
Gordon Martin has been a director of the Company since October 1997. Mr.
Martin is vice president of strategic marketing for Williams Communications
Group, Inc. Williams, a subsidiary of the Williams Companies, Inc. Mr. Martin
joined Williams Communications Group, Inc. in October 1987 as manager of
interexchange carrier sales for the network division. He was promoted to
director of product marketing in January 1993. From February 1995 to May 1995,
he served as General Manager of Digital Frontiers LLC, a division of Williams.
In June 1995, he returned to Williams as Vice President, Marketing until he
was promoted to his current position in January 1997. Mr. Martin has a
bachelor's degree in accounting and an M.B.A. from Oral Roberts University.
Franco Regis has been a Director of the Company since October 1996. Since
1994, Mr. Regis has been a Director of Business Development and Strategic
Planning at Telecom Italia, SpA, the telephone operating company of Italy.
From 1992 to 1994, Mr. Regis was a Director of Budget and Control for the
business division of Telecom Italia. Mr. Regis has an engineering degree from
the Rome State University.
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<PAGE>
Gary E. Rieschel has been a Director of the Company since October 1996. Mr.
Rieschel is a Senior Vice President at SOFTBANK Holdings, having joined that
company in January 1996. Mr. Rieschel was Vice President for N-Cube
Corporation from August 1994 through December 1995. He was Sales Director at
Cisco Systems, Inc. from July 1993 through October 1994. Prior to this, Mr.
Rieschel was a General Manager and Sales Director at Sequent Computer for over
nine years. Mr. Rieschel has an M.B.A. from Harvard Graduate School of
Business and a B.A. in biology from Reed College.
Classified Board of Directors
The Company's Certificate of Incorporation provides that, so long as the
Board of Directors consists of more than two directors, the Board of Directors
will be divided into three classes of directors serving staggered three-year
terms. As a result, one-third of the Company's Board of Directors will be
elected each year.
Director Compensation
Directors are reimbursed for certain reasonable expenses incurred in
attending Board or committee meetings. Officers of the Company are elected
annually by the Board of Directors and serve at its discretion. The Company
has entered into indemnification agreements with each member of the Board of
Directors and certain of its officers providing for the indemnification of
such person to the fullest extent authorized, permitted or allowed by law.
Compensation Committee
The Company's Board of Directors currently has a Compensation Committee that
reviews and approves the compensation and benefits to be provided to the
officers, directors, employees, and consultants of the Company, administers
the Company's 1993 Incentive Stock Option Plan, 1995 Stock Incentive Plan for
Employees and Consultants, and Amended and Restated 1996 Stock Plan, and will
administer the 1997 Stock Plan and 1997 Employee Stock Purchase Plan. The
Compensation Committee currently consists of Messrs. Khosla and Rieschel.
Audit Committee
The Company's Board of Directors currently has an Audit Committee that
monitors the corporate financial reporting and the internal and external
audits of the Company, reviews and approves material accounting policy
changes, monitors internal accounting controls, to recommend engagement of
independent auditors, reviews related-party transactions and performs other
duties as prescribed by the Board of Directors. The Audit Committee currently
consists of Messrs. Bender and Regis.
Governance Agreement
Pursuant to a Governance Agreement entered into among GSCP, the Kleiner
Entities, Intuit, Mr. Marc Collins-Rector, Chad Shackley and the Company (the
"Government Agreement"), Mr. Collins-Rector and Mr. Shackley are jointly
enabled to designate one member of the Company's Board of Directors. The
Governance Agreement also obligates the Company to use reasonable efforts to
maintain such designee on the Board of Directors until the earlier to occur of
(i) one year after the closing of the Company's IPO, (ii) the expiration or
full release of Mr. Collins-Rector and Mr. Shackley from any lock-up
restrictions granted to the underwriters in connection with such IPO, or (iii)
the sale of all or substantially all of the assets of the Company or the
merger, acquisition or other reorganization of the Company in which more than
50% of the voting power of the Company is disposed of. Currently, no person
has been designated to serve on the Board pursuant to this Agreement.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth in summary form the
compensation earned by the Company's Chief Executive Officer, and the four
most highly compensated executive officers (the "Named Officers") during 1997.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ------------
SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) ($) (3)
- --------------------------- ---- ---------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Henry R. Nothhaft........ 1997 214,231 -- -- 124,666(4) 2,162
President and Chief 1996 184,808 -- -- -- 3,105
Executive Officer
John K. Peters........... 1997 201,346 -- -- 103,466(4) --
Executive Vice President 1996 184,273 -- -- -- 3,076
and General Manager,
Network Services
Division
Michael F. Anthofer...... 1997 185,500 -- -- 73,333 1,027
Senior Vice President 1996 136,336 20,000 155,212(2) 43,333(5) 1,545
and Chief Financial
Officer
George D. Carr........... 1997 117,115 41,904(1) -- 26,666 1,055
Vice President of Field 1996 105,000 25,897(1) -- 6,666(5) 1,761
Sales
Scott G. Eagle........... 1997 150,716 -- -- 5,833 328
Vice President of 1996 114,337 -- 82,396(2) 30,000(5) 1,347
Marketing
</TABLE>
- --------
(1) Reflects sales commissions.
(2) Reflects relocation expense payments.
(3) Reflects Company contributions to an employee 401(k) plan and term life
insurance premiums paid by the Company.
(4) Includes certain options that were granted at higher fair market values
earlier in February 1997 and repriced by amendment in July 1997 to reflect
fair market values at that time.
(5) Includes certain options that were granted at higher fair market values
earlier in 1996 and repriced by amendment in April 1996 to reflect lower
fair market values at that time.
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<PAGE>
Option Grants During 1997. The following table sets forth for each of the
Named Officers certain information concerning stock options granted during
1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------------------ REALIZABLE
MARKET VALUE OF ASSUMED
PERCENT OF PRICE OF ANNUAL RATES OF
NUMBER OF TOTAL SECURITIES STOCK PRICE
SECURITIES OPTIONS EXERCISE UNDERLYING APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTIONS ON OPTIONS TERM (2)
OPTIONS EMPLOYEES PER DATE OF EXPIRATION -----------------
NAME GRANTED(1) IN 1997 SHARE GRANT DATE 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry R. Nothhaft....... 74,666 5.07% $ 6.00(3) $ 6.00 07/07/07 282,238 712,375
50,000 3.40% $11.25 $11.25 10/29/07 354,375 894,375
John K. Peters.......... 63,466 4.31% $ 6.00(3) $ 6.00 07/07/07 239,902 605,466
40,000 2.72% $11.25 $11.25 10/29/07 283,500 715,500
Michael F. Anthofer..... 43,333 2.94% $ 6.00 $ 6.00 03/15/07 163,799 212,625
30,000 2.04% $11.25 $11.25 10/29/07 413,397 536,625
George D. Carr.......... 16,666 1.13% $ 6.00 $ 6.00 03/15/07 62,998 95,400
10,000 .68% $11.25 $11.25 10/29/07 118,120 178,875
Scott G. Eagle.......... 3,333 .23% $ 6.00 $ 6.00 03/15/07 12,599 23,850
2,500 .17% $11.25 $11.25 10/29/07 23,623 44,688
</TABLE>
- --------
(1) Options vest with respect to 25% of the shares on the first anniversary
date of grant and the remaining 75% vests monthly over the succeeding
three years.
(2) Potential Realizable Value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth.
(3) These options were granted at an exercise price determined by the Board of
Directors to be equal to the fair market value of the Company's shares on
the date of grant. The Company's Common Stock was not traded publicly at
the time of the option grants to the Named Officers. The options were
granted at higher fair market values earlier in February 1997 and repriced
by amendment in July 1997 to reflect fair market values at that time.
Aggregate Option Exercises in 1997 and Year-End Option Values. The following
table sets forth for each of the Named Officers certain information concerning
the number of shares subject to both exercisable and unexercisable stock
options as of December 31, 1997. Also reported are values for "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding options and the fair market value of the Company's
Common Stock as of December 31, 1997. No Named Officer exercised options
during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 12/31/97 (#) 12/31/97 ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Henry R. Nothhaft........... 107,042 166,957 $548,592 $431,404
John K. Peters.............. 88,590 141,809 $454,023 $378,972
Michael F. Anthofer......... 18,472 98,194 $ 94,669 $251,995
George D. Carr.............. 7,778 35,554 $ 39,859 $ 93,468
Scott G. Eagle.............. 17,125 22,708 $ 67,266 $ 96,067
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1997 ($8.875 per
share) and the exercise price of the Named Officer's option.
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<PAGE>
EMPLOYEE STOCK PLANS
1995 Stock Incentive Plan for Employees and Consultants. The Company's 1995
Stock Incentive Plan for Employees and Consultants (the "1995 Plan") provides
for the granting to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
for the granting to employees and consultants of nonstatutory stock options,
stock appreciation rights ("SARs") and restricted stock awards ("RSAs"). No
SARs or RSAs have been granted under the 1995 Plan. The 1995 Plan was approved
by the Board of Directors in September 1995 and Stockholders in September
1995, and an amendment decreasing the number of shares thereunder from 840,000
to 762,600 was approved by the Board of Directors in February 1996. The 1995
Plan was terminated effective October 4, 1996, and no further grants are being
made thereunder. A total of 762,600 shares of Common Stock are reserved for
issuance pursuant to the 1995 Plan. As of December 31, 1997, options to
purchase 332,130 shares of Common Stock at a weighted exercise price of $3.75
per share were outstanding under the 1995 plan.
The 1995 Plan is administered by a committee of the Board of Directors,
which committee is required, once the Company's Common Stock becomes publicly
traded, to be constituted to comply with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, and applicable laws. The
administrator has the power to determine the terms of the options granted,
including the exercise price, the number of shares subject to the option and
the exercisability thereof, and the form of consideration payable upon
exercise. Options granted under the 1995 Plan are not generally transferable
by the optionee, and each option is exercisable during the lifetime of the
optionee only by such optionee. Incentive stock options granted under the 1995
Plan must generally be exercised within three months of the end of an
optionee's status as an employee or consultant of the Company, or within 12
months after such optionee's termination by death or disability, but in no
event later than the expiration of the option's term, which may not exceed ten
years. The exercise price of all options granted under the 1995 Plan must be
at least equal to the fair market value of the Common Stock on the date of
grant. With respect to any participant who owns stock possessing more than 10%
of the voting power of all classes of the Company's outstanding capital stock,
the exercise price of any option must equal at least 110% of the fair market
value on the grant date and the term of the option must not exceed five years.
The term of all other options granted under the 1995 Plan may not exceed 10
years.
The 1995 Plan provides that in the event of a recapitalization, stock split,
stock dividend, combination or reclassification or other increase or decrease
in the number of issued shares of Common Stock without consideration, the
number of shares subject to each outstanding stock option, as well as the
exercise price are appropriately adjusted as determined by the Committee.
Amended and Restated 1996 Stock Plan. The Company's Amended and Restated
1996 Stock Plan (the "Restated 1996 Plan") provides for the granting to
employees of incentive stock options within the meaning of Section 422 of the
Code, and for the granting to employees, directors and consultants of
nonstatutory stock options and stock purchase rights ("Rights"). The 1996 Plan
was initially approved by the Board of Directors effective as of December
1996. It was amended and restated in May 1997 and approved by the Stockholders
at the 1997 annual meeting. Unless terminated sooner, the Restated 1996 Plan
will terminate automatically in December 2006. A total of 1,100,000 shares of
Common Stock are currently reserved for issuance pursuant to the Restated 1996
Plan. As of December 31, 1997, options to purchase 914,283 shares of Common
Stock at a weighted average exercise price of $6.40 per share were
outstanding, and 185,717 shares of Common Stock remained available for future
grant under the Restated 1996 Stock Plan.
The Restated 1996 Plan may be administered by a committee of the Board of
Directors constituted to comply with applicable laws (the "Committee") or by
the Board itself. The Board or Committee (the "Administrator") has the power
to determine the terms of the options or Rights granted, including the
exercise price, the number of shares subject to each option or Right, the
exercisability thereof, or any vesting acceleration or waiver of forfeiture
conditions. The Administrator may determine the form of payment upon exercise,
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<PAGE>
including cash, check, promissory note, other shares, cashless exercise or a
combination of the foregoing. The Board has the authority to amend, suspend or
terminate the Restated 1996 Plan, provided that no such action may impair the
rights of any optionee or Right holder without that person's consent.
Options and Rights granted under the Restated 1996 Plan are not generally
transferable by the optionee or Right holder other than by will or the laws of
descent and distribution, and each option and Right is exercisable during the
lifetime of the optionee or Right holder only by such optionee or Right
holder. The form of option agreement currently in use provides that options
generally must be exercised within 90 days of the end of optionee's status as
an employee, director or consultant of the Company. Under the Plan, options
must be exercised within twelve months after such optionee's termination by
death or disability, but in no event later than the expiration of the option's
term. In the case of Rights, unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator but in no case more slowly than 20% per year over five years.
Generally, options vest 25% after one year and 1/36 per month thereafter. The
exercise price of all incentive stock options granted under the Restated 1996
Plan must be at least equal to the fair market value of the Common Stock on
the date of grant. The exercise price of nonstatutory stock options and Rights
must at least be equal to 85% of the fair market value of the Common Stock on
the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of the Company's outstanding
capital stock, the exercise price of any incentive or nonstatutory stock
option granted must equal at least 110% of the fair market value on the grant
date. The term of an incentive stock option granted to such a 10% Stockholder
must not exceed five years. The term of other options granted under the
Restated 1996 Plan may not exceed ten years.
The Restated 1996 Plan provides that in the event of a merger of the Company
with or into another corporation, a sale of substantially all of the Company's
assets or a like transaction involving the Company, each option shall be
assumed or an equivalent option substituted by the successor corporation. If
the outstanding options are not assumed or substituted as described in the
preceding sentence, the Administrator shall provide for the optionee or Right
holder to have the right to exercise the option or Right as to all of the
optioned stock, including shares as to which it would not otherwise be
exercisable. If the Administrator makes an option or Right exercisable in full
in the event of a merger or sale of assets, the Administrator shall notify the
optionee or Right holder that the option or Right shall be fully exercisable
for a period of fifteen days from the date of such notice, and the option or
Right will terminate upon the expiration of such period. The forms of option
agreement and restricted stock purchase agreement currently in use provide for
a 180-day lockup of the optionee's or Right holder's shares in the event of
the Company's initial public offering. The option exercise notice and the
restricted stock purchase agreement also grant the Company a right of first
refusal (prior to the initial public offering) on the sale or transfer of any
shares purchased pursuant to an option or Right, other than transfers by gift,
operation of law or certain family transfers.
1997 Stock Plan. The Company's 1997 Stock Plan (the "1997 Plan") provides
for the granting to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and for the granting to employees, directors and consultants
of nonstatutory stock options and stock purchase rights ("Rights"). The 1997
Plan was approved by the Board of Directors on June 6, 1997 and by the
stockholders on June 30, 1997. Unless terminated sooner, the 1997 Plan will
terminate automatically in 2007. A total of 1,500,000 shares of Common Stock
are currently reserved for issuance pursuant to the 1997 Plan. As of December
31, 1997, options to purchase 511,271 shares of Common Stock at a weighted
average exercise price of $11.25 per share were outstanding, and 988,729
shares of Common Stock remained available for future grants under the 1997
plan.
70
<PAGE>
The 1997 Plan may be administered by a committee of the Board of Directors
(the "Committee") or by the Board itself. In the case of options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code, the Committee shall consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The Board or
Committee (the "Administrator") has the power to determine the terms of the
options or Rights granted, including the exercise price, the number of shares
subject to each option or Right, the exercisability thereof, and the form of
consideration payable upon such exercise. In addition, the Administrator has
the authority to amend, suspend or terminate the 1997 Plan, provided that no
such action may impair the rights of any optionee or Right holder without such
person's consent under the 1997 Plan.
Except in connection with his or her initial engagement with the Company, no
employee, director or consultant may be granted options or Rights for more
than 500,000 shares in any one fiscal year. Options and Rights granted under
the 1997 Plan are not generally transferable by the optionee or Right holder,
and each option and Right is exercisable during the lifetime of the optionee
or Right holder only by such optionee or Right holder. Options granted under
the 1997 Plan must generally be exercised within three months of the end of
optionee's status as an employee, director or consultant of the Company, or
within twelve months after such optionee's termination by death or disability,
but in no event later than the expiration of the option's term. In the case of
Rights, unless the Administrator determines otherwise, the restricted stock
purchase agreement shall grant the Company a repurchase option exercisable
upon the voluntary or involuntary termination of the purchaser's employment
with the Company for any reason (including death or disability). The purchase
price for shares repurchased pursuant to the restricted stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at a rate determined by the Administrator. The
exercise price of all incentive stock options granted under the 1997 Plan must
be at least equal to the fair market value of the Common Stock on the date of
grant. The exercise price of nonstatutory stock options and Rights granted
under the 1997 Plan is determined by the Administrator, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the exercise
price must at least be equal to the fair market value of the Common Stock on
the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of the Company's outstanding
capital stock, the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value on the grant date and the term of
such incentive stock option must not exceed five years. The term of other
incentive stock options granted under the 1997 Plan may not exceed ten years.
The 1997 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets
or a like transaction involving the Company, each option shall be assumed or
an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted as described in the
preceding sentence, the Administrator shall provide for the optionee or Right
holder to have the right to exercise the option or Right as to all of the
optioned stock, including shares as to which it would not otherwise be
exercisable. If the Administrator makes an option or Right exercisable in full
in the event of a merger or sale of assets, the Administrator shall notify the
optionee or Right holder that the option or Right shall be fully exercisable
for a period of fifteen days from the date of such notice, and the option or
Right will terminate upon the expiration of such period.
1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock
Purchase Plan (the "1997 Purchase Plan") was approved by the Board of
Directors on June 6, 1997 and by the stockholders on June 30, 1997. A total of
500,000 shares of Common Stock has been reserved for issuance under the 1997
Purchase Plan. The 1997 Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, consists of 24-month offering
periods beginning on the first trading day on or after February 15 and August
15 of each year, except for the first such offering period, which commenced on
August 4, 1997 and ends on February 13, 1998. Each offering period contains
four six-month purchase periods. The 1997 Purchase Plan is administered by the
Board of Directors or by a committee appointed by the Board. Employees are
eligible to participate if they are customarily employed by the Company or any
designated subsidiary for at least 20 hours per week and
71
<PAGE>
more than five months in any calendar year. The 1997 Purchase Plan permits
eligible employees to purchase Common Stock through payroll deductions of up
to 10% of an employee's compensation (excluding overtime, shift premium, and
other bonuses and incentive compensation), up to a maximum of $25,000 for all
offering periods ending within the same calendar year. No employee may
purchase more than 25,000 shares in any purchase period. The price of stock
purchased under the 1997 Purchase Plan is 85% of the lower of the fair market
value of the Common Stock at the beginning of the offering period or at the
end of the current purchase period. Employees may end their participation at
any time during an offering period, and they will be paid their payroll
deductions to date. Participation ends automatically upon termination of
employment with the Company.
Rights granted under the 1997 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan
provides that, in the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, each
outstanding option shall be assumed or an equivalent option shall be
substituted for it, or the Board of Directors or its committee shall shorten
the purchase and offering periods then in progress (so that employees' rights
to purchase stock under the Plan are exercised prior to the merger or sale of
assets). The 1997 Purchase Plan will terminate in 2007. The Board of Directors
has the authority to amend or terminate the 1997 Purchase Plan, except that no
such action may adversely affect any outstanding rights to purchase stock
under the 1997 Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the current members of the Compensation Committee is an executive
officer of the Company.
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<PAGE>
CERTAIN TRANSACTIONS
PREFERRED STOCK ISSUANCES
The Company has sold shares of its Preferred Stock in private financings
from April 1995 through June 1997 as follows (which does not reflect the
conversion of the shares of Preferred Stock into shares of Common Stock that
occurred automatically immediately prior to the closing of the Company's IPO):
906,454 shares of Series A Preferred Stock at an effective price of $11.00 per
share; 433,634 shares of Series B Preferred Stock at an effective price of
$11.00 per share; 928,243 shares of Series C Preferred Stock at an effective
price of $27.30 per share; and 2,933,248 shares of Series D Preferred Stock at
an effective price of $20.40 per share.
<TABLE>
<CAPTION>
DIRECTORS, EXECUTIVE SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
OFFICERS AND COMMON SERIES A SERIES B SERIES C SERIES D
5% STOCKHOLDERS STOCK PREFERRED PREFERRED PREFERRED PREFERRED WARRANTS
-------------------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
The Goldman Sachs Group,
L.P.(1)................ 167,246 453,227 216,817 123,297 14,706 57,595
Kleiner Perkins Caufield
& Byers entities(2).... 167,246 453,227 216,817 -- 14,706 148,504
TMI Telemedia Interna-
tional, Ltd.(3)........ -- -- -- -- 1,184,642 325,786
SOFTBANK Holdings
Inc.(4)................ -- -- -- -- 980,393 --
Racal Data Group(5)..... -- -- -- -- 490,197 491,631
Henry R. Nothhaft(6).... -- -- -- -- -- 4,902
John K. Peters(7)....... -- -- -- -- -- 2,451
</TABLE>
- --------
(1) Consists of securities held of record by GS Capital Partners, L.P. See
"Principal Stockholders." Includes 90,938 shares of Common Stock issued
upon exercise of warrants in April 1997 at an exercise price of $6.60 per
share, 33,344 shares of Series B Preferred Stock issued upon exercise of
warrants in April 1997 at an exercise price of $6.60 per share, and 14,706
shares of Series D Preferred Stock issued upon exercise of warrants in
April 1997 at an exercise price of $12.24 per share. GS Capital Partners
L.P. exercised such warrants at a discounted exercise price in
consideration of its early exercise. See "Principal Stockholders."
(2) Vinod Khosla, a director of the Company, is a general partner of KPCB VII
Associates, the general partner of Kleiner Perkins Caufield & Byers VII
and KPCB VII Information Sciences Zaibatsu Fund II. Includes 90,938 shares
of Common Stock issued upon exercise of warrants in April 1997 at an
exercise price of $6.60 per share 33,344 shares of Series B Preferred
Stock issued upon exercise of warrants in April 1997 at an exercise price
of $6.60 per share, and 14,706 shares of Series D Preferred Stock issued
upon exercise of warrants in April 1997 at an exercise price of $12.24 per
share. The Kleiner Entities exercised such warrants at a discounted
exercise price in consideration of their early exercise.
(3) Franco Regis, a director of the Company, is Director of Business
Development and Strategic Planning of Telecom Italia, SpA, the parent of
TMI Telemedia International, Ltd. Includes 204,248 shares of Series D
Preferred issued upon exercise of a warrant in April 1997 at an exercise
price of $12.24 per share. TMI exercised such warrants at a discounted
exercise price in consideration of its early exercise.
(4) Gary Rieschel, a director of the Company, is Senior Vice President of
SOFTBANK Holdings Inc. As of October 31, 1996, the shares were transferred
by SOFTBANK Holdings Inc. to its affiliate SOFTBANK Ventures, Inc.
(5) Louis P. Bender III, a director of the Company, is the President, Americas
Region of Racal Data Group of Racal.
(6) Henry R. Nothhaft is the President of the Company. Represents 4,902 shares
of Series D Preferred Stock issuable upon exercise of a warrant at an
exercise price of $20.40 per share. The warrant was granted to Mr.
Nothhaft in July 1996 in consideration of a bridge loan in the amount of
$100,000. The principal and interest on such bridge loan was repaid in
full.
(7) John Peters is the Executive Vice President and General Manager Network
Operations of the Company. Represents 2,451 shares of Series D Preferred
Stock issuable upon exercise of a warrant at an exercise price of $20.40
per share. The warrant was granted to Mr. Peters in July 1996 in
consideration of a bridge loan in the amount of $50,000. The principal and
interest on such bridge loan was repaid in full.
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<PAGE>
The Preferred Stock described above converted into Common Stock upon the
closing of IPO. Holders of the Preferred Stock are entitled to certain
registration rights with respect to the Common Stock issued upon conversion
thereof. In addition, GSCP, the Kleiner Entities and Marc Collins-Rector are
entitled to certain registration rights with respect to shares of Common Stock
held by them, and employees of Critical Technologies, Inc. have certain
piggyback registration rights with respect to shares issuable upon exercise of
certain options issued to them, a portion of which registration rights were
amended in connection with the Existing Notes Offering. See "Description of
Capital Stock--Registration Rights."
SERIES A AGREEMENT
The Preferred Stock and Warrant Purchase Agreement, dated April 20, 1995, as
amended (the "Series A Agreement") by which the Company sold Series A
Preferred Stock and warrants to purchase Common Stock to GSCP, Kleiner Perkins
Caufield & Byers VII and KPCB VII Founders Fund for an aggregate consideration
of approximately $10.0 million, provides that as long as GSCP and its
affiliates beneficially own five percent or more of the outstanding Common
Stock of the Company, Goldman, Sachs & Co. or any of its affiliates have the
right to perform all investment banking services for the Company on customary
terms consistent with an arms'-length transaction. The Series A Agreement,
further obligated the Company to complete by June 30, 1997, a rescission offer
with respect to all Common Stock and Common Stock equivalents issued prior to
April 20, 1995, and to indemnify the GSCP and the Kleiner Entities against
"rescission losses," in excess of the estimated amount of rescission losses
described in the Series A Agreement. The recision offer was completed on
November 15, 1997.
BRIDGE LOANS
In connection with the alliance between Intuit and the Company, GSCP and the
Kleiner Entities made bridge loans totaling $2 million to the Company on
October 16, 1995, which were rolled over into bridge loans totaling $4 million
on November 6, 1995. On November 29, 1995, GSCP made a further bridge loan of
$3 million. In consideration of these loans, GSCP and the Kleiner Entities
received warrants to purchase 181,876 shares of Series B Preferred Stock at an
exercise price of $11.00 per share. Effective as of December 20, 1995, GSCP
and the Kleiner Entities converted the principal and interest due under their
$2 million promissory notes into a total of 366,947 shares of Series B
Preferred Stock at a price of $11.00 per share. In addition, effective as of
February 1996, GSCP converted the entire amount of principal and interest on
its $3 million bridge note into 123,297 Series C Shares at an exercise price
of $24.57 per share.
On July 31, 1996, the Company closed bridge loans from GSCP and KPCB for
$300,000 each, evidenced by convertible promissory notes dated July 29, 1996.
The Company issued GSCP and KPCB each a warrant dated July 31, 1996, to
purchase 14,706 shares of Series D Preferred Stock at an exercise price of
$20.40 per share. The loans were repaid on August 21, 1996. On April 4, 1997,
the Company and GSCP and KPCB entered warrant amendment agreements reducing
the exercise price of the warrants to $12.24 per share, and the warrants were
exercised.
On July 31, 1996, the Company closed bridge loans from Henry Nothhaft, the
Company's President, Chief Executive Officer and a director, and John Peters,
the Company's Executive Vice President and President, Network Services
Division, for $100,000 and $50,000, respectively. The loans were evidenced by
promissory notes dated July 29, 1996. The Company issued Mr. Nothhaft and Mr.
Peters warrants dated July 31, 1996, to purchase 4,902 shares and 2,451
shares, respectively, of Series D Preferred Stock at an exercise price of
$20.40 per share. The loans were repaid on August 21, 1996.
On June 19, 1997, The Company closed a bridge loan with Williams evidenced
by a promissory note for $3,000,000 dated June 19, 1997. The Company issued a
warrant to Williams exercisable for an aggregate of 63,351 shares of Common
Stock. The exercise price per share of the warrant is $6.00.
On June 27, 1997, the Company closed a bridge loan with Kleiner Perkins
Caufield & Byers VII and KPCB Information Sciences Zaibatsu Fund VII for
$1,950,000 and $50,000, respectively, evidenced by promissory
74
<PAGE>
notes dated June 27, 1997. The Company issued the noteholders a warrant
exercisable for an aggregate of 83,333 shares of Common Stock. The exercise
price per share for each of the warrants is $6.00. The proceeds from the
bridge loan were used to finance a down-payment payable to Netscape under
agreements entered into between the Company and Netscape on June 23, 1997. See
"Business--Services."
COMMISSIONS
The Company paid commissions totaling $350,000 to Goldman, Sachs & Co. in
August 1996 in connection with the sale of shares of Series D Preferred Stock.
WARRANT EXERCISES
Effective as of April 4, 1997, the Company entered into warrant amendment
agreements with TMI, GSCP, and the Kleiner Entities to reduce the exercise
price of certain of their warrants in return for the immediate exercise of
such warrants. The exercise price of warrants for 181,876 shares of Class A
Common Stock and 66,688 shares of Series B Preferred Stock held by GSCP and
the Kleiner Entities was reduced from $11.00 to $6.60 per share. The exercise
price of warrants for 233,660 shares of Series D Preferred Stock held by GSCP,
KPCB and TMI was reduced from $20.40 per share to $12.24 per share. Also, in
connection with the reduction of the exercise price of the GSCP and Kleiner
Entities' Common Stock warrants, the exercise price of Intuit's $1.5 million
warrant was similarly reduced to $6.60 per share, and the expiration date was
extended to December 31, 2000. On August 5, 1997, Intuit purchased 127,041
shares of Common Stock through a net exercise of its warrants at a per share
price equal to $14.44.
RACAL TRANSACTION
Pursuant to a master lease agreement between the Company and Racal,
effective March 31, 1995, the Company has installed networking equipment under
lease financing. The terms of the leases under the master agreement are 48
months or 60 months, depending on the equipment. In 1996, the Company paid
Racal approximately $8.3 million in lease payments and related charges. As of
September 30, 1997, the current portion of the Company's capital lease
obligations to Racal totaled $13.2 million, and the noncurrent portion totaled
$35.0 million. As security for the lease financing, Racal has a security
interest in all leased equipment.
AMPM TRANSACTIONS
Donald C. Schutt, Vice President of International Services for the Company,
is a majority stockholder of AMPM, Inc., an advertising agency. The Company
incurred marketing fees payable to AMPM, Inc. totaling $2.5 million in 1996.
The Company believes that the fees charged by AMPM for such services are
competitive with those of similar advertising agencies.
EMPLOYMENT AND TERMINATION AGREEMENTS
In February 1996, the Company entered into a termination of services and
indemnification agreement with Marc Collins-Rector and Chad Shackley (the
"Founders"). Pursuant to such agreement Mr.Collins-Rector agreed to resign
from the Board of Directors of the Company and the Founders agreed to resign
as Company employees and to enter into lock-up agreements in the event of the
Company's initial public offering. If asked to do so by the Founders, the
Company agreed it will file a registration statement on Form S-8 or Form S-3
by certain deadlines after it becomes eligible to do so, with respect to
certain shares issuable upon exercise of the Founders' options.
Also in February 1996, the Company entered into an agreement with Randy
Maslow wherein Mr. Maslow agreed to serve as an advisor to the Board of
Directors through October 31, 1996. Mr.Maslow has since resigned from the
Board effective upon the effectiveness of an initial public offering. Mr.
Maslow will be invited to all meetings of the Company's Board of Directors and
committee meetings of the Board for six months after the effective date of the
Company's initial public offering. If asked to do so by Mr. Maslow, the
Company agreed it will file a registration statement on Form S-8 or Form S-3
as soon as practicable after it becomes eligible to do so, with respect to
certain shares issuable upon exercise of Mr. Maslow's options.
75
<PAGE>
OPTIONS OF MANAGEMENT AND DIRECTORS
In July 1996, the Company amended the terms of options to purchase 53,341
shares of Common Stock previously issued to Donald C. Schutt, an executive
officer of the Company to decrease the exercise price to $3.75 per share and
remove certain conditions precedent to vesting of such options.
In August 1996, the Board of Directors amended the vesting provisions of
options to purchase 14,000 shares issued to Henry Nothhaft, President, Chief
Executive Officer and a director of the Company, on October 31, 1995, and an
option to purchase 11,900 shares issued to John Peters, Executive Vice
President and General Manager, Network Services Division, on October 31, 1995,
so the options would fully vest as of the closing date of the sale of at least
$29 million of Series D Preferred Stock of the Company, which occurred on
August 21, 1996.
In August 1996, the Company exchanged four options previously issued to
Randy Maslow, a director of the Company, for new options exercisable for an
aggregate of 46,673 shares of Class A Common Stock at $3.75 per share. The
four-year vesting schedule accelerated so that all shares vested immediately
upon the Company's IPO. The options may be exercised through their expiration
date regardless of when Mr. Maslow ceases being an employee or consultant. Mr.
Maslow's employment with the Company ended on October 31, 1996.
In May 1997, the Company amended options to purchase 26,666 shares of Common
Stock previously issued to Marc Collins-Rector, a founder, to remove vesting
conditions.
All future transactions among the Company and its officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested directors.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of December 31, 1997, by: (i) each
person who is known by the Company to own beneficially more than 5% of the
Common Stock; (ii) each director and Named Officer of the Company; and (iii)
all directors and executive officers of the Company as a group. Except as
otherwise noted, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
NAMES AND ADDRESSES SHARES BENEFICIALLY OWNED PERCENT BENEFICIALLY OWNED(1)
- ------------------- ------------------------- -----------------------------
<S> <C> <C>
Williams Communications,
Inc.(2)................ 1,604,254 11.1%
One Williams Center
Tulsa, OK 74172
TMI Telemedia
International,
Ltd.(3)................ 1,580,966 10.9
Viale del Campo,
Boario, 56D
00153 Rome, Italy
The Goldman Sachs Group,
L.P.(4)................ 1,089,642 7.7
85 Broad Street
New York, NY 10004
Racal-Datacom, Inc.(5).. 1,025,347 7.0
1601 North Harrison
Parkway
Sunrise, FL 333233-2899
SOFTBANK Ventures,
Inc. .................. 1,026,179 7.3
c/o SOFTBANK Holdings
Inc.
10 Langley Road, Suite
403
Newton Center, MA 02159
Kleiner Perkins Caufield
& Byers Entities(6).... 1,006,873 7.1
2750 Sand Hill Road
Menlo Park, CA 94025
Henry R. Nothhaft(7).... 138,033 1.0
John K. Peters(8)....... 113,137 *
Michael F. Anthofer(9).. 32,014 *
Scott G. Eagle(10)...... 15,278 *
George D. Carr(11)...... 12,986 *
Louis P. Bender
III(12)................ -- --
Vinod Khosla(13)........ 1,006,873 7.1
Gordon Martin........... -- --
Franco Regis(14)........ 1,580,966 10.9
Gary E. Rieschel(15).... -- --
All current executive
officers and directors
as a group (17
persons)(16)........... 6,636,573 47.0
</TABLE>
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<PAGE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares, subject to the applicable
community property laws. Shares of Common Stock subject to options or
warrants currently exercisable, or exercisable by February 28, 1998, are
deemed outstanding for the purpose of computing the percentage ownership
of the person holding such options or warrants, but are not deemed
outstanding for computing the percentage ownership of any other person.
(2) Includes warrants to purchase 355,018 shares of Common Stock.
(3) Includes warrants to purchase 341,000 shares of Common Stock.
(4) Consists of securities held of record by GS Capital Partners, L.P., an
investment partnership, of which affiliates of The Goldman Sachs Group,
L.P. ("GS Group") are the general partner or investment manager. GS Group
disclaims beneficial ownership of the shares owned by GS Capital
Partners, L.P. to the extent attributable to partnership interests
therein held by persons other than GS Group and its affiliates. GS
Capital Partners, L.P. shares voting and investment power with certain of
its affiliates. Includes warrants to purchase 58,522 shares of Common
Stock.
(5) Includes warrants to purchase 512,258 shares of Common Stock.
(6) Includes shares held by Kleiner Perkins Caufield & Byers VII and KPCB
Information Sciences Zaibatsu Fund II (collectively, the "KPCB
Entities"). Also includes warrants to purchase 141,854 shares of Common
Stock held by the KPCB Entities.
(7) Includes 138,033 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants.
(8) Includes 113,137 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants.
(9) Includes 32,014 shares of Common Stock issuable upon exercise of
outstanding stock options.
(10) Includes 15,278 shares of Common Stock issuable upon exercise of
outstanding stock options.
(11) Includes 12,986 shares of Common Stock issuable upon exercise of
outstanding stock options.
(12) Excludes 1,025,347 shares and exercisable warrants held by Racal-Datacom,
Inc. See note (5). Mr. Bender is the President of Racal-Datacom, Inc.
Mr.Bender disclaims beneficial ownership of such shares.
(13) Represents shares beneficially owned by the KPCB Entities. Mr. Khosla is
an affiliate of such entities. See note (6). Mr. Khosla disclaims
beneficial ownership of such shares, except to the extent of his
pecuniary interest therein.
(14) Includes 1,580,966 shares and exercisable warrants held by TMI Telemedia
International, Ltd. Mr. Regis is the Director of Business Development and
Strategic Planning of Telecom Italia, S.p.A., the parent of TMI Telemedia
International, Ltd. See note (3). Mr. Regis disclaims beneficial
ownership of such shares.
(15) Excludes 1,026,179 shares held by SOFTBANK Ventures Inc. Mr. Rieschel, a
director of the Company, is a Senior Vice President at SOFTBANK Holdings
Inc., an affiliate of SOFTBANK Ventures Inc. Mr. Rieschel disclaims
beneficial ownership of such shares.
(16) Includes shares of Common Stock issuable upon exercise of outstanding
options and warrants, and shares beneficially owned by entities
associated with Messrs. Regis and Khosla, as to which they disclaim
beneficial ownership. See Notes (8)-(15).
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport to
be complete and is subject to and qualified in its entirety by the Company's
Amended and Restated Certificate of Incorporation and Bylaws and by the
provisions of applicable Delaware law. At December 31, 1997, there were
14,138,621 shares of Common Stock held by holders of record.
The Amended and Restated Certificate of Incorporation and Bylaws contain
certain provisions that are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and which may have
the effect of delaying, deferring, or preventing a future takeover or change
in control of the Company unless such takeover or change in control is
approved by the Board of Directors.
COMMON STOCK
The Company has authorized a total of 100,000,000 shares of Common Stock.
Holders of Common Stock do not have cumulative voting rights, and, therefore,
holders of a majority of the shares voting for the election of directors can
elect all of the directors. In such event, the holders of the remaining shares
will not be able to elect any directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any existing or future agreements
between the Company and its debtholders. See "Dividend Policy." The Company
has never declared or paid cash dividends on its capital stock, expects to
retain future earnings, if any, for use in the operation and expansion of its
business, and does not anticipate paying any cash dividends in the foreseeable
future. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets legally available for distribution after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. The Common Stock has no preemptive, redemption or
subscription rights.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
Stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without any
further vote or action by the Stockholders. The issuance of Preferred Stock
could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. There are no shares of Preferred Stock
outstanding. The Company has no present plan to issue any shares of Preferred
Stock.
WARRANTS
As of December 31, 1997, the following warrants were outstanding:
(i) Warrants to purchase 44,935 shares of Common Stock at an exercise
price of $15.00 per share (subject to adjustment for stock splits, stock
dividends and the like), which expire on September 1, 1998.
(ii) Warrants to purchase 5,000 shares of Common Stock exercisable
through February 15, 2000, at a nominal exercise price.
(iii) Warrants to purchase 25,536 shares of Common Stock at an exercise
price of $7.40 per share (subject to adjustment for stock splits, stock
dividends and the like), which expire on July 20, 1998.
(iv) Warrants to purchase 117,046 shares of Common Stock at an exercise
price of $10.82 per share (subject to adjustment for stock splits, stock
dividends and the like), which expire on December 11, 1998.
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(v) Warrants to purchase 130,273 shares of Common Stock at an exercise
price of $26.87 per share (subject to adjustment for stock splits, stock
dividends and the like), which expire on December 31, 2000.
(vi) Warrants to purchase 38,482 shares of Common Stock at an exercise
price of $19.49 per share (subject to adjustment for stock splits, stock
dividends and the like), which expires on June 6, 1999. Warrants to
purchase 35,915 shares of Common Stock at an exercise price of $19.49 per
share (subject to adjustment for stock splits, stock dividends and the
like), which expire on July 31, 1999. Warrant to purchase 156,072 shares of
Common Stock at an exercise price of $19.49 per share (subject to
adjustment for stock splits, stock dividends and the like), which expires
on August 21, 1999. Warrants to purchase 462,324 shares of Common Stock at
an exercise price of $19.49 per share (subject to adjustment for stock
splits, stock dividends and the like), which expire on October 31, 1999.
Warrant to purchase 184,930 shares of Common Stock at an exercise price of
$19.49 per share (subject to adjustment for stock splits, stock dividends
and the like), which expires on March 5, 2000.
(vii) Warrants to purchase 63,351 shares of Common Stock at an exercise
price per share equal to $6.00, which expire on June 19, 2002.
(viii) Warrants to purchase 83,333 shares of Common Stock at an exercise
price per share equal to $6.00, which expire on June 27, 2002.
(ix) Warrants to purchase 291,667 shares of Common Stock at an exercise
price per share equal to $6.00, which expire on August 6, 2002.
(x) Warrants to purchase 951,108 shares of Common Stock at an exercise
price per share equal to $10.86, which expire on December 15, 2007.
REGISTRATION RIGHTS
Common Stock. Pursuant to the agreement between the Company and holders of
approximately 7,296,253 shares of Common Stock (the "Equity Holders"), the
Equity Holders are entitled to certain rights with respect to the registration
of such shares under the Securities Act. If the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security Equity Holders exercising registration
rights (excluding the Exchange Offer but including any Resale Registrations
(as defined) filed on behalf of the holders of the Warrants), such Equity
Holders are entitled to notice of such registration and are entitled to
include shares of such Common Stock therein. Additionally, Equity Holders of
the Registrable Securities are also entitled to certain demand registration
rights pursuant to which they may require the Company to file a registration
statement under the Securities Act at the Company's expense with respect to
their shares of Common Stock, and the Company is required to use its best
efforts to effect such registration. All of these registration rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration. Additionally, a majority of the Equity Holders have agreed not
to request registration of their registrable securities until the expiration
of certain lock-up restrictions on such Equity Holders in August of 1998.
Additionally, pursuant to an agreement with CTI, certain employees of CTI
who have been granted options to purchase an aggregate of up to 60,000 shares
of the Company's Common Stock are entitled to certain piggyback registration
rights with respect to such shares. Such rights are subject to the right of
the underwriters of an offering to limit the number of shares included in such
registration.
Warrants/Warrant Shares. Pursuant to the Registration Rights Agreement and
the Warrant Registration Rights Agreement, the holders of Existing Notes and
Warrants have certain rights to have the Existing Notes and shares of Common
Stock issued upon conversion of the Warrants registered under the Securities
Act. See "Description of Notes--Registration Rights" and "Description of
Warrants--Registration Rights." Following consummation of the Exchange Offer,
the Company will have no further obligation to the Existing Holders (except
for limited instances involving Existing Holders that are not eligible to
participate in the Exchange Offer) to provide for registration under the
Securities Act of the Existing Notes held by them.
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DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Limitation of Director and Officer Liability
The Company's Certificate of Incorporation and Bylaws contain certain
provisions relating to the limitation of liability and indemnification of
directors and officers. The Company's Certificate of Incorporation provides
that directors of the Company may not be held personally liable to the Company
or its stockholders for monetary damages for a breach of fiduciary duty,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the Delaware General Corporation Law, relating to
prohibited dividends, distributions and repurchases or redemptions of stock,
or (iv) for any transaction from which the director derives an improper
personal benefit. However, such limitation does not limit the availability of
non-monetary relief in any action or proceeding against a director. In
addition, the Company's Certificate of Incorporation and Bylaws provide that
the Company shall indemnify its directors and officers to the fullest extent
authorized by Delaware law.
Classified Board of Directors
The Company's Certificate of Incorporation provides that, so long as the
Board of Directors consists of more than two directors, the Board of Directors
will be divided into three classes of directors serving staggered three-year
terms. As a result, one-third of the Company's Board of Directors will be
elected each year.
No Stockholder Action by Written Consent
The Company's Certificate of Incorporation provides that the stockholders
can take action only at a duly called annual or special meeting of
Stockholders. Stockholders of the Company are not able to take action by
written consent in lieu of a meeting. These provisions may have the effect of
deterring hostile takeovers or delaying changes in control or management of
the Company.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services LLC has been appointed as the transfer
agent and registrar for the Company's Common Stock. Its telephone number for
such purposes is (800) 851-9677.
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DESCRIPTION OF UNITS
Each Unit issued in the Existing Notes Offering consists of $1,000 principal
amount at maturity of Existing Notes and one Warrant, each Warrant
representing the right to purchase 6.34 shares of Common Stock. The Existing
Notes and the Warrants will not be separable until the earliest to occur of
(i) June 15, 1998, (ii) a Change in Control, (iii) the occurrence of an Event
of Default, (iv) the effective date of the Exchange Offer Registration
Statement, or (v) such earlier date as may be determined by UBS Securities
(the "Separation Date"). The Warrants issued in connection with the issuance
of Existing Notes shall not be subject to the terms of the Exchange Offer. The
exchange of an Existing Note for an Exchange Note pursuant to the terms of the
Exchange Offer and the Indenture shall not include the exchange of an
unregistered Warrant for a registered Warrant under the Act. The Warrants
issued in connection with the Existing Notes Offering shall remain as
restricted securities and will continue to be subject to certain transfer
restrictions.
DESCRIPTION OF NOTES
The Existing Notes were issued and the Exchange Notes will be issued under
an Indenture dated as of December 18, 1997 (the "Indenture") between the
Company and Chase Manhattan Bank and Trust Company, National Association, as
trustee (the "Trustee"), a copy of the form of which will be made available to
prospective purchasers of the Exchange Notes upon request to the Company.
References to "(Section )" mean the applicable Section of the Indenture.
The following summaries of the material provisions of the Indenture, the
Escrow Agreement, and the Registration Rights Agreement do not purport to be
complete, and where reference is made to particular provisions of the
Indenture, the Escrow Agreement, and the Registration Rights Agreement such
provisions, including the definitions of certain terms, are qualified in their
entirety by reference to all of the provisions of the Indenture and those
terms made a part of the Indenture, the Escrow Agreement, and the Registration
Rights Agreement by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Existing Notes have not been registered under the
Securities Act and are subject to certain transfer restrictions. For
definitions of certain capitalized terms used in the following summary, see
"--Certain Definitions" or "--Registration Rights."
GENERAL
The Notes will mature on December 15, 2007, will be limited to $150.0
million aggregate principal amount, and will be unsecured senior obligations
of the Company. Each Note will bear interest at the rate set forth on the
cover page hereof from December 18, 1997 or from the most recent interest
payment date to which interest has been paid, payable semiannually on June 15
and December 15 in each year, commencing June 15, 1998, to the Person in whose
name the Note (or any predecessor Note) is registered at the close of business
on the June 1 or December 1 immediately preceding such interest payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. (Sections 202, 301, 309 and 313)
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency
of the Company in The City of New York maintained for such purposes (which
initially will be the corporate trust office of the Trustee); provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the security register.
(Sections 301, 305 and 1002) The Notes will be issued only in fully registered
form without coupons, in denominations of $1,000 and any integral multiple
thereof. (Section 302) No service charge will be made for any registration of
transfer, exchange or redemption of Notes, except in certain circumstances for
any tax or other governmental charge that may be imposed in connection
therewith. (Section 305)
All payments of principal and interest will be made by the Company in same
day funds. The Notes will trade in the Same-Day Funds Settlement System of The
Depositary Trust Company (the "Depositary" or "DTC") until maturity, and
secondary market trading activity for the Notes will therefore settle in same
day funds.
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When issued, the Exchange Notes will be a new issue of securities with no
established trading market. No assurance can be given as to the liquidity of
the trading market for the Notes. See "Risk Factors--Restrictions on Resale;
Absence of Public Market for the Securities."
ESCROW ACCOUNT
Concurrently with the consummation of the Existing Notes Offering, pursuant
to the Indenture, the Company placed approximately $52.4 million of the net
proceeds of the Existing Notes Offering in an escrow account (the "Escrow
Account") held by the Trustee for the benefit of the Holders in accordance
with an escrow agreement to be entered into between the Company and the
Trustee (the "Escrow Agreement"). The Escrow Agreement provides, among other
things, that funds may be disbursed from the Escrow Account for interest
payments the Company makes on the Notes. The Trustee will be instructed to
cause all funds in the Escrow Account to be invested, pending disbursement, in
U.S. Government Securities.
Under the Escrow Agreement, the Company granted to the Trustee, for the
benefit of the holders, a first priority and exclusive security interest in
the Escrow Account and the proceeds thereof (the "Escrow Collateral"). The
Escrow Agreement provides that the Trustee may foreclose on the Escrow
Collateral upon acceleration of the maturity of the Notes. Under the terms of
the Indenture, the proceeds of the Escrow Collateral will be applied, first,
to amounts owing to the Trustee in respect of fees and expenses of the
Trustee, and second, to the Indenture Obligations of the Company to the
holders under the Notes and the Indenture. The ability of holders to realize
upon the Escrow Collateral may be subject to certain bankruptcy law
limitations in the event of the bankruptcy of the Company.
Upon payment in full of the first six scheduled interest payments (including
any Additional Interest), if no Default has occurred and is continuing, the
Escrow Collateral will be released to the Company.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after December 15,
2002, at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or an integral
multiple thereof at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning of
the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................................... 106.375%
2003........................................................... 104.250%
2004........................................................... 102.125%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due
on an interest payment date).
In addition, at any time prior to December 15, 2000, the Company may, at its
option, use the net proceeds of one or more Public Equity Offerings or the
sale of Common Stock (other than Disqualified Stock) of the Company to a
Strategic Investor in a single transaction or a series of related
transactions, to redeem up to an aggregate of 35% of the aggregate principal
amount of Notes originally issued under the Indenture at a redemption price
equal to 112.750% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the redemption date; provided that at
least 65% of the initial aggregate principal amount of Notes remains
outstanding immediately after the occurrence of such redemption. In order to
effect the foregoing redemption, the Company must mail a notice of redemption
no later than 45 days after the related Public Equity Offering and must
consummate such redemption within 60 days of the closing of the Public Equity
Offering.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable. (Sections 203, 1101 and
1104)
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SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes
in whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash, in an amount equal to 101% of the
principal amount of such Notes or portion thereof, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below (the "Change of Control Offer")
and in accordance with the other procedures set forth in the Indenture.
Within 30 days of any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each
holder of Notes, by first-class mail, postage prepaid, at his address
appearing in the security register, stating that a Change of Control has
occurred and the date of such event, the circumstances and relevant facts
regarding such Change of Control; the purchase price and the purchase date
which shall be fixed by the Company on a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act; that any
Note not tendered will continue to accrue interest; that, unless the Company
defaults in the payment of the Change of Control Purchase Price, any Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and certain other
procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance. (Section 1014)
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. See "Risk Factors--Change
of Control." The failure of the Company to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when due will give
the Trustee and the holders of the Notes the rights described under "Events of
Default."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest such election,
there could be no assurance as to how a court interpreting New York law would
interpret the phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
RANKING
The Notes will be unsecured senior obligations of the Company, and the
Indebtedness represented by the Notes and the payment of principal of,
premium, if any, and interest on the Notes will rank pari passu in right of
payment with all other existing and future senior indebtedness of the Company
and senior in right of payment to all existing and future Subordinated
Indebtedness of the Company. The Notes will be effectively subordinated to
secured Indebtedness of the Company as to the assets securing such
Indebtedness. As of September 30, 1997, on an as adjusted basis after giving
effect to the Existing Notes Offering there would have been approximately
$196.9 million of indebtedness of the Company outstanding of which $51.3
million would have been secured long-term indebtedness to which holders of the
Notes would have been effectively subordinated in right of payment.
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The Notes will not be entitled to any security, except as described under
"--Escrow Account" and will not be entitled to the benefit of any guarantees
except under the circumstances described under "--Certain Covenants--
Limitation on Issuances of Guarantees by Restricted Subsidiaries."
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. (a) The Company shall not, and shall not cause
or permit any Subsidiary to, directly or indirectly, incur any Indebtedness
(other than the Notes); provided, however, that the Company may incur
Indebtedness, and the Company or any Subsidiary may Incur Acquired
Indebtedness, if, at the time of such Incurrence, the Debt to Annualized
Operating Cash Flow Ratio would be less than or equal to 5.5 to 1.0 prior to
December 15, 2000, or less than or equal to 5.0 to 1.0 after December 15,
2000.
(b) The foregoing limitations of paragraph (a) of this covenant will not
apply to any of the following, each of which shall be given independent
effect:
(i) the Incurrence by the Company or any of its Subsidiaries of
Indebtedness (other than Acquired Indebtedness) consisting of Capital Lease
Obligations, Purchase Money Obligations, mortgage financings or other
obligations incurred for the purpose of financing all or any part of the
purchase price, cost of construction or improvement of property, plant or
equipment used in connection with the Telecommunications Business or a
credit facility or a master lease arrangement entered into for the purpose
of providing such financing, provided that such Indebtedness does not
exceed the lesser of Fair Market Value or the purchase price of such
property, plant or equipment at the time of such Incurrence.
(ii) Indebtedness of the Company or any of its Subsidiaries, and any
renewals, extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of such
Indebtedness shall not exceed $35 million outstanding at any one time in
the aggregate;
(iii) the Incurrence by the Company of Indebtedness (other than secured
Acquired Indebtedness) in an aggregate principal amount not to exceed 2.0
times the sum of the Net Cash Proceeds received by the Company after the
date of the Indenture (other than from the issuance of Disqualified Stock)
in connection with any Public Equity Offerings; provided that such
Indebtedness does not mature prior to the Stated Maturity of the Notes or
has an Average Life to Stated Maturity at least equal to the Notes;
(iv) Indebtedness of the Company or any Subsidiary entered into in the
ordinary course of business (a) pursuant to Interest Rate Agreements
designed to protect the Company or any Subsidiary against fluctuations in
interest rates in respect of Indebtedness of the Company or any Subsidiary
as long as the notional principal amount of such Interest Rate Agreements
do not exceed the aggregate principal amount of such Indebtedness then
outstanding, (b) under any Currency Hedging Arrangements designed to
protect the Company or any Subsidiary against fluctuations in the value of
any currency or (c) under any Commodity Price Protection Agreements
designed to protect the Company or any Subsidiary against fluctuations in
the price of any commodity;
(v) the Incurrence by the Company or any of its Subsidiaries of
Indebtedness in respect of bid, performance or advance payment bonds and
appeal or surety bonds;
(vi) Indebtedness existing on the date of the Indenture;
(vii) the Incurrence of (a) Indebtedness of any Subsidiary owed to and
held by the Company or another Subsidiary and (b) Indebtedness of the
Company owed to and held by any Subsidiary; and
(viii) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (i), (ii), (iii), (vi) and (vii) of this definition of
"Permitted Indebtedness," including any successive refinancings so long as
the borrower under such refinancing is the Company or, if not the Company,
the same as the borrower of the Indebtedness being refinanced and the
aggregate principal amount of Indebtedness represented thereby is not
increased by such
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refinancing plus the lesser of (I) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (II) the
amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing and, in the case of
any refinancing of Indebtedness that is Subordinated Indebtedness, such new
Indebtedness is made subordinated to the Notes at least to the same extent
as the Indebtedness being refinanced and such refinancing does not reduce
the Average Life to Stated Maturity or the Stated Maturity of such
Subordinated Indebtedness.
(c) For purposes of determining any particular amount of Indebtedness under
this covenant, Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included; provided, however, that the foregoing
shall not in any way be deemed to limit the provisions of "--Limitations on
Issuances of Guarantees of Indebtedness."
(d) For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness may be Incurred through the first paragraph of
this covenant or by meeting the criteria of one or more of the types of
Indebtedness described in the second paragraph of this covenant (or the
definitions of the terms used therein), the Company, in its sole discretion,
(i) may classify such item of Indebtedness under and comply with either of
such paragraphs (or any of such definitions), as applicable, (ii) may classify
and divide such item of Indebtedness into more than one of such paragraphs (or
definitions), as applicable, and (iii) may elect to comply with such
paragraphs (or definitions), as applicable, in any order. (Section 1008)
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution on any
shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, the Company's Capital Stock or any Capital Stock of any
Affiliate of the Company (other than Capital Stock of any Wholly Owned
Subsidiary of the Company) or options, warrants or other rights to acquire
such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Subsidiary to any Person (other than (a) to the Company or any of its
Wholly Owned Subsidiaries or (b) to all holders of Capital Stock of such
Subsidiary on a pro rata basis); or
(v) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (i) through (v), other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") (the amount of any such Restricted Payment, if other
than cash, as determined by the board of directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution), unless
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a pro forma basis, no Default or Event of Default shall
have occurred and be continuing; (2) immediately before and immediately after
giving effect to such Restricted Payment on a pro forma basis, the Company
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the provisions described under "--Limitation on
Indebtedness;" and (3) after giving effect to the proposed Restricted Payment,
the aggregate amount of all such Restricted Payments declared or made after
the date of the Indenture, does not exceed the sum of the following (the
"Basket"):
(A) (i) the Cumulative Operating Cash Flow determined at the time of such
Restricted Payment less (ii) 150% of cumulative Consolidated Interest
Expense determined for the period (treated as one accounting
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period) commencing on the date of the original issue of the Notes and
ending on the last day of the most recent fiscal quarter immediately
preceding the date of such Restricted Payment for which consolidated
financial information of the Company is required to be available;
(B) (i) capital contributions to the Company after the date of the
Indenture or (ii) the aggregate Net Cash Proceeds received after the date
of the Indenture by the Company from the issuance or sale (other than to
any of its Subsidiaries) of Qualified Capital Stock of the Company or any
options, warrants or rights to purchase such Qualified Capital Stock of the
Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below in clause (ii) or (iii) of paragraph (b)
below);
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase Qualified Capital
Stock of the Company;
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Company or its Subsidiaries
into or for Qualified Capital Stock of the Company plus, to the extent such
debt securities or Redeemable Capital Stock were issued after the date of
the Indenture, the aggregate of Net Cash Proceeds from their original
issuance; and
(E) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment, an amount equal to the return of capital
with respect to such Investment and the initial amount of such Investment.
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(vi) below, so long as there is no Default or Event of Default continuing, the
foregoing provisions shall not prohibit the following actions (each of clauses
(i) through (vi) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this Section and such
payment shall have been deemed to have been paid on such date of
declaration and shall not have been deemed a Permitted Payment for purposes
of the calculation required by paragraph (a) of this Section;
(ii) the repurchase, redemption, or other acquisition or retirement for
value of any shares of any class of Capital Stock of the Company in
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu
of the issuance of fractional shares or scrip), or out of the Net Cash
Proceeds of a substantially concurrent issuance and sale for cash (other
than to a Subsidiary) of, other shares of Qualified Capital Stock of the
Company; provided that the Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are excluded from clause (3)(B) of
paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness or
Redeemable Capital Stock in exchange for, or in an amount not in excess of
the Net Cash Proceeds of, a substantially concurrent issuance and sale for
cash (other than to any Subsidiary of the Company) of any Qualified Capital
Stock of the Company, provided that the Net Cash Proceeds from the issuance
of such shares of Qualified Capital Stock are excluded from clause (3)(B)
of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the substantially concurrent issuance of new Subordinated
Indebtedness of the Company, provided that any such new Subordinated
Indebtedness (1) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if such Subordinated Indebtedness
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, then such lesser amount
as of the date of determination), plus the lesser of (I) the stated amount
of any premium or other payment required to be paid in connection with such
a refinancing pursuant to the terms of the Indebtedness
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being refinanced or (II) the amount of premium or other payment actually
paid at such time to refinance the Indebtedness, plus, in either case, the
amount of expenses of the Company incurred in connection with such
refinancing; (2) has an Average Life to Stated Maturity greater than the
remaining Average Life to Stated Maturity of the Notes; (3) has a Stated
Maturity for its final scheduled principal payment later than the Stated
Maturity for the final scheduled principal payment of the Notes; and (4) is
expressly subordinated in right of payment to the Notes at least to the
same extent as the Subordinated Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of any Redeemable Capital Stock through
the substantially concurrent issuance of new Redeemable Capital Stock of
the Company, provided that any such new Redeemable Capital Stock (1) shall
have an aggregate liquidation preference that does not exceed the aggregate
liquidation preference of the amount so refinanced; (2) has an Average Life
to Stated Maturity greater than the remaining Average Life to Stated
Maturity of the Notes; and (3) has a Stated Maturity later than the Stated
Maturity for the final scheduled principal payment of the Notes; and
(vi) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such common stock; provided, however, that the aggregate amount of such
repurchases in any calendar year shall not exceed $1 million and $5 million
in the aggregate. (Section 1009)
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with or
for the benefit of any Affiliate of the Company (other than the Company or a
Wholly Owned Subsidiary) unless such transaction or series of related
transactions is entered into in good faith and in writing and (a) such
transaction or series of related transactions is on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than those
that would be reasonably expected to be available in a comparable transaction
in arm's-length dealings with an unrelated third party, (b) with respect to
any transaction or series of related transactions involving aggregate value in
excess of $3 million, the Company delivers an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (a) above, and (c) with respect to any transaction or
series of related transactions involving aggregate value in excess of $7
million, either (A) such transaction or series of related transactions has
been approved by a majority of the Disinterested Directors of the Company, or
in the event there is only one Disinterested Director, by such Disinterested
Director, or (B) the Company delivers to the Trustee a written opinion of an
investment banking firm of national standing or other recognized independent
expert with experience appraising the terms and conditions of the type of
transaction or series of related transactions for which an opinion is required
stating that the transactions or series of related transactions is fair to the
Company or such Subsidiary from a financial point of view; provided, however,
that this provision shall not apply to: (a) compensation and employee benefit
arrangements with any officer, director or employee of the Company, including
under any stock option or stock incentive plans, in the ordinary course of
business; (b) any transaction solely between or among the Company and/or any
Subsidiaries, if such transaction is otherwise in compliance with the
Indenture and is on fair and reasonable terms; (c) any transaction otherwise
permitted by the terms of the section of the Indenture described under
"Certain Covenants--Limitations on Restricted Payments;" (d) the execution and
delivery of or payments made under any tax sharing agreement between or among
any of the Company and any Subsidiary; (e) licensing or sublicensing of use of
any intellectual property by the Company or any Subsidiary to any Subsidiary
of the Company; provided that the licensor shall continue to have access to
such intellectual property to the extent necessary for the conduct of its
respective business; (f) arrangements between the Company and any Subsidiary
of the Company for the purpose of providing services or employees to such
Subsidiary; (g) any transaction entered into for the purpose of granting or
altering registration rights with respect to the Capital Stock of the Company;
and (h) any transaction or series of related transactions entered into prior
to the date of the Indenture. (Section 1010)
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Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur or affirm any Lien of any
kind upon any property or assets (including any intercompany notes) of the
Company or any Subsidiary owned on the date of the Indenture or acquired after
the date of the Indenture, or any income or profits therefrom, unless the
Notes are directly secured equally and ratably with (or, in the case of
Subordinated Indebtedness, prior or senior thereto, with the same relative
priority as the Notes shall have with respect to such Subordinated
Indebtedness) the obligation or liability secured by such Lien except for any
Permitted Liens. (Section 1011)
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) at least 75% of the consideration from such Asset Sale is received
in cash or other comparable consideration (as described below), and (ii) the
Company or such Subsidiary receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the shares or assets subject
to such Asset Sale (as determined by the board of directors of the Company and
evidenced in a board resolution). The following types of consideration shall
be deemed "comparable consideration" for the purposes of this covenant: (A)
Cash Equivalents, (B) liabilities (contingent or otherwise) of the Company or
a Subsidiary assumed by the transferee (or its designee) such that the Company
or such Subsidiary has no further liability therefor, and (C) any securities,
notes or other obligations received by the Company or any such Subsidiary from
such transferee that are immediately converted by the Company or such
Subsidiary into cash.
(b) The Company or a Subsidiary may, within 365 days of the Asset Sale
invest the Net Cash Proceeds in properties and other assets that will be used
in Telecommunications Businesses or to repay any Pari Passu Indebtedness of
the Company or any Subsidiary (including the repurchase of the Notes). The
amount of such Net Cash Proceeds not used or invested within 365 days of the
Asset Sale as set forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million or
more, the Company will apply the Excess Proceeds to the repayment of the Notes
and any other Pari Passu Indebtedness outstanding with similar provisions
requiring the Company to make an offer to purchase such Indebtedness with the
proceeds from any Asset Sale as follows: (A) the Company will make an offer to
purchase (an "Offer") from all holders of the Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased out of an
amount (the "Note Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Notes, and the denominator of which is the sum of the
outstanding principal amount of the Notes and such Pari Passu Indebtedness
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all Notes tendered) and (B) to the extent
required by such Pari Passu Indebtedness to permanently reduce the principal
amount of such Pari Passu Indebtedness, the Company will make an offer to
purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari
Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess
of the Excess Proceeds over the Note Amount; provided that in no event will
the Company be required to make a Pari Passu Offer in a Pari Passu Debt Amount
exceeding the principal amount of such Pari Passu Indebtedness plus the amount
of any premium required to be paid to repurchase such Pari Passu Indebtedness.
The offer price for the Notes will be payable in cash in an amount equal to
100% of the principal amount of the Notes plus accrued and unpaid interest, if
any, to the date (the "Offer Date") such Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate Offered Price of the Notes tendered pursuant to the
Offer is less than the Note Amount relating thereto or the aggregate amount of
Pari Passu Indebtedness that is purchased in a Pari Passu Offer is less than
the Pari Passu Debt Amount, the Company will use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount of Notes and
Pari Passu Indebtedness surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon the completion of the purchase of all the Notes tendered
pursuant to an Offer and the completion of a Pari Passu Offer, the amount of
Excess Proceeds, if any, shall be reset at zero.
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(d) The Indenture provides that, if the Company becomes obligated to make an
Offer pursuant to clause (c) above, the Notes and the Pari Passu Indebtedness
shall be purchased by the Company, at the option of the holders thereof, in
whole or in part in integral multiples of $1,000, on a date that is not
earlier than 30 days and not later than 60 days from the date the notice of
the Offer is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act.
(e) The Indenture provides that the Company will comply with the applicable
tender offer rules, including Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations in connection with an Offer.
(Section 1012)
Limitation on Issuances of Guarantees of Indebtedness. (a) The Company will
not permit any Subsidiary, directly or indirectly, to guarantee, assume or in
any other manner become liable with respect to any Pari Passu Indebtedness or
Subordinated Indebtedness of the Company unless such Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
a Guarantee of the Notes on the same terms as the guarantee of such
Indebtedness except that (A) such guarantee need not be secured unless
required pursuant to "--Limitation on Liens" and (B) if such Indebtedness is
by its terms expressly subordinated to the Notes, any such assumption,
guarantee or other liability of such Subsidiary with respect to such
Indebtedness shall be subordinated to such Subsidiary's Guarantee of the Notes
at least to the same extent as such Indebtedness is subordinated to the Notes;
provided that this paragraph shall not apply to any guarantee or assumption of
liability of Indebtedness permitted under Indenture described in clauses (i),
(ii), (iv), (v), (vii) and (viii) of paragraph (b) of "Certain Covenants--
Limitation on Indebtedness."
(b) Notwithstanding the foregoing, any Guarantee by a Subsidiary of the
Notes shall provide by its terms that it (and all Liens securing the same)
shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer, to any Person not an Affiliate of the Company, of
all of the Company's Capital Stock in, or all or substantially all the assets
of, such Subsidiary, which transaction is in compliance with the terms of the
Indenture and such Subsidiary is released from its guarantees of other
Indebtedness of the Company or any Subsidiaries. (Section 1013)
Limitation on Sale and Leaseback Transactions. The Company will not, and
will not permit any Subsidiary of the Company to, directly or indirectly,
enter into any sale and leaseback transaction with respect to any property or
assets (whether now owned or hereafter acquired) unless (i) the sale or
transfer of such property or assets to be leased is treated as an Asset Sale
and complies with the "--Limitation on Sale of Assets" covenant and (ii) the
Company or such Subsidiary would be entitled under the "Limitation on
Indebtedness" covenant to incur any Indebtedness (with the lease obligations
being treated as Indebtedness for purposes of ascertaining compliance with
this covenant unless such lease is properly classified as an operating lease
under GAAP) in respect of such sale and leaseback transaction. (Section 1015)
The foregoing restriction does not apply to any sale-leaseback transaction
if: (i) the lease is for a period, including renewal rights, not in excess of
three years; (ii) the transaction is solely between the Company and any Wholly
Owned Subsidiary or any Wholly Owned Subsidiary and any other Wholly Owned
Subsidiary; and (iii) the transaction is consummated within 180 days of the
acquisition by the Company or its Subsidiary of the property or assets subject
to such sale-leaseback or entered into within 180 days after the purchase or
substantial completion of the construction of such property or assets.
Limitation on Subsidiary Capital Stock. The Company will not permit (a) any
Subsidiary of the Company to issue any Capital Stock, except for (i) Capital
Stock issued or sold to, held by or transferred to the Company or a Wholly
Owned Subsidiary, and (ii) Capital Stock issued by a Person prior to the time
(A) such Person becomes a Subsidiary, (B) such Person merges with or into a
Subsidiary or (C) a Subsidiary merges with or into such Person; provided that
such Capital Stock was not issued or incurred by such Person in anticipation
of the type of transaction contemplated by subclause (A), (B) or (C) or (b)
any Person (other than the Company or a Wholly Owned Subsidiary) to acquire
Capital Stock of any Subsidiary from the Company or any Subsidiary, except, in
the case of clause (a) or (b), (1) upon the acquisition of all the outstanding
Capital Stock of such
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Subsidiary in accordance with the terms of the Indenture, (2) if, immediately
after giving effect to such issuance or sale, such Subsidiary would no longer
constitute a Subsidiary, and any Investment in such Person remaining after
giving effect to such issuance or sale would have been permitted to be made
under the provisions of the Indenture described in "Certain Covenants--
Limitations on Restricted Payments" if made on the date of such issuance or
sale, (3) issuances of director's qualifying shares, or sales to foreign
nationals of shares of Capital Stock of foreign Subsidiaries, to the extent
required by applicable law, (4) issuances or sales of common stock of a
Subsidiary, provided that the Company or such Subsidiary applies the Net Cash
Proceeds, if any, in accordance with the provisions of the Indenture to the
extent applicable, (5) issuances after which the Company maintains its direct
or indirect percentage of beneficial and economic ownership of such
Subsidiary, or (6) issuances in connection with Acquisitions for the primary
purpose of minimizing tax liability to the Company, any of its Subsidiaries,
the Acquired Person or any shareholders of the Acquired Person. (Section 1016)
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create any consensual encumbrance or
restriction on the ability of any Subsidiary to (i) pay dividends or make any
other distribution on its Capital Stock, (ii) pay any Indebtedness owed to the
Company or any other Subsidiary, (iii) make any Investment in the Company or
any other Subsidiary or (iv) transfer any of its properties or assets to the
Company or any other Subsidiary, except for: (a) any encumbrance or
restriction, with respect to a Subsidiary that is not a Subsidiary of the
Company on the date of the Indenture, in existence at the time such Person
becomes a Subsidiary of the Company and not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary; (b) encumbrances or
restrictions (I) by reason of applicable law, or (II) under the Indenture; (c)
customary non-assignment provisions of any contract or lease of any Subsidiary
entered into in the ordinary course of business; (d) encumbrances or
restrictions imposed pursuant to contracts entered into in connection with
Permitted Liens, but solely to the extent such encumbrances or restrictions
affect property or assets subject to such Permitted Lien; (e) any encumbrance
or restriction imposed pursuant to contracts for the sale of assets with
respect to the assets to be sold pursuant to such contract; and (f) any
encumbrance or restriction existing under any agreement that extends, renews,
refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (a) through (e), or in this clause (f),
provided that the terms and conditions of any such encumbrances or
restrictions are no more restrictive in any material respect than those under
or pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced. (Section 1017)
Limitations on Unrestricted Subsidiaries. The Company will not make, and
will not permit its Subsidiaries to make, any Investment in Unrestricted
Subsidiaries if, at the time thereof, the aggregate amount of such Investments
would exceed the amount of Restricted Payments then permitted to be made
pursuant to the "--Limitation on Restricted Payments" covenant. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant will be treated as a Restricted Payment in calculating the amount of
Restricted Payments made by the Company. (Section 1018)
Provision of Financial Statements. After the earlier to occur of the
consummation of the Exchange Offer and the 150th calendar day following the
date of original issue of the Notes, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to Sections 13(a) or 15(d) if
the Company were so subject, such documents to be filed with the Commission on
or prior to the date (the "Required Filing Date") by which the Company would
have been required so to file such documents if the Company were so subject.
The Company will also in any event (x) within 15 days of each Required Filing
Date (i) transmit by mail to all holders, as their names and addresses appear
in the security register, without cost to such holders and (ii) file with the
Trustee copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission
pursuant to Sections 13(a) or 15(d) of the Exchange Act if the Company were
subject to either of such Sections and (y) if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective
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holder at the Company's cost. If any Guarantor's financial statements would be
required to be included in the financial statements filed or delivered
pursuant to the Indenture if the Company were subject to Section 13(a) or
15(d) of the Exchange Act, the Company shall include such Guarantor's
financial statements in any filing or delivery pursuant to the Indenture. The
Indenture also provides that, so long as any of the Notes remain outstanding,
the Company will make available to any prospective purchaser of Notes or
beneficial owner of Notes in connection with any sale thereof the information
required by Rule 144A(d)(4) under the Securities Act, until such time as the
Company has either exchanged the Notes for securities identical in all
material respects which have been registered under the Securities Act or until
such time as the holders thereof have disposed of such Notes pursuant to an
effective registration statement under the Securities Act. (Section 1019)
Limitation on Business. The Company will not, and will not permit any of the
Subsidiaries to, engage in a business which is not substantially a
Telecommunications Business. (Section 1022)
Additional Covenants. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; and (vii) maintenance of insurance.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company will not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets to any Person or group of affiliated Persons,
or permit any of its Subsidiaries to enter into any such transaction or series
of related transactions if such transaction or series of related transactions,
in the aggregate, would result in a sale, assignment, conveyance, transfer,
lease or disposition of all or substantially all of the properties and assets
of the Company and its Subsidiaries on a Consolidated basis to any other
Person or group of affiliated Persons, unless at the time and after giving
effect thereto (i) either (a) the Company will be the continuing corporation
in the case of a consolidation or merger involving the Company or (b) the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or disposition all or substantially all of the
properties and assets of the Company and its Subsidiaries on a Consolidated
basis (the "Surviving Entity") will be a corporation duly organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and such Person expressly assumes, by a
supplemental indenture, in a form reasonably satisfactory to the Trustee, all
the obligations of the Company under the Notes, the Indenture, the Escrow
Agreement and the Registration Rights Agreement, as the case may be, and the
Notes, the Indenture, the Escrow Agreement and the Registration Rights
Agreement will remain in full force and effect as so supplemented; (ii)
immediately before and immediately after giving effect to such transaction on
a pro forma basis (and treating any Indebtedness not previously an obligation
of the Company or any of its Subsidiaries which becomes the obligation of the
Company or any of its Subsidiaries as a result of such transaction as having
been incurred at the time of such transaction), no Default or Event of Default
will have occurred and be continuing; (iii) immediately before and immediately
after giving effect to such transaction on a pro forma basis, the Company (or
the Surviving Entity if the Company is not the continuing obligor under the
Indenture) could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the provisions of "--Certain Covenants--Limitation on
Indebtedness;" (iv) at the time of the transaction, each Guarantor, if any,
unless it is the other party to the transactions described above, will have by
supplemental indenture confirmed that its Guarantee shall apply to such
Person's obligations under the Indenture and the Notes; (v) at the time of the
transaction if any of the property or assets of the Company or any of its
Subsidiaries would thereupon become subject to any Lien, the provisions of "--
Certain Covenants--Limitation on Liens" are complied with; and (vi) at the
time of the transaction the Company or the Surviving Entity will have
delivered, or caused to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an officers' certificate and an
opinion of counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, transfer, lease or other transaction
and the supplemental indenture in respect thereof comply with the Indenture.
Notwithstanding the foregoing, the Company (i) may merge or consolidate
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with any of its Subsidiaries, and (ii) the Company may merge or consolidate
into any Person in a transaction designed solely for the purpose of effecting
a change in the jurisdiction of incorporation of the Company within the United
States of America. (Section 801)
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the Surviving Person, such Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, and the Company shall be discharged from all obligations and
covenants under the Indenture, the Notes, the Escrow Agreement and the
Registration Rights Agreement. (Section 802)
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(iii)(a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Indenture,
the Escrow Agreement, the Registration Rights Agreement or any Guarantee
(other than a default in the performance, or breach, of a covenant or
agreement which is specifically dealt with in clause (i), (ii) or in clause
(b), (c) or (d) of this clause (iii)) and such default or breach shall
continue for a period of 30 days after written notice has been given, by
certified mail, (x) to the Company by the Trustee or (y) to the Company and
the Trustee by the holders of at least 25% in aggregate principal amount of
the outstanding Notes; (b) there shall be a default in the performance or
breach of the provisions described in "--Consolidation, Merger, Sale of
Assets;" (c) the Company shall have failed to make or consummate an Offer
in accordance with the provision described in "--Certain Covenants--
Limitation on Sale of Assets;" or (d) the Company shall have failed to make
or consummate a Change of Control Offer in accordance with the provisions
of "Purchase of Notes Upon a Change of Control;"
(iv)(a) any default by the Company or any Subsidiary in the payment of
the principal, premium, if any, or interest has occurred with respect to
amounts in excess of $5 million under any agreement, indenture or
instrument evidencing Indebtedness when the same shall become due and
payable in full and such default shall have continued after any applicable
grace period and shall not have been cured or waived and, if not already
matured at its final maturity in accordance with its terms, the holder of
such Indebtedness shall have the right to accelerate such Indebtedness or
(b) any event of default as defined in any agreement, indenture or
instrument of the Company evidencing Indebtedness in excess of $5 million
shall have occurred and the Indebtedness thereunder, if not already matured
at its final maturity in accordance with its terms, shall have been
accelerated;
(v) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in
full force and effect and enforceable in accordance with its terms, except
to the extent contemplated by the Indenture and any such Guarantee;
(vi) one or more judgments or orders for the payment of money in excess
of $5 million, either individually or in the aggregate, shall be rendered
against the Company not paid or covered by financially sound third-party
insurers, or any Subsidiary or any of their respective properties and there
shall not be discharged and there shall have been a period of 60
consecutive days during which a stay of enforcement of such judgment or
order, by reason of an appeal or otherwise, shall not be in effect;
(vii) any holder or holders of at least $5 million in aggregate principal
amount of Indebtedness of the Company or any Subsidiary after a default
under such Indebtedness shall notify the Trustee of its commencement of
proceedings to foreclose on any assets of the Company or any Subsidiary
that have been
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pledged to or for the benefit of such holder or holders to secure such
Indebtedness or shall commence proceedings, or take any action (including
by way of set-off), to retain in satisfaction of such Indebtedness or to
collect on, seize, dispose of or apply in satisfaction of Indebtedness,
assets of the Company or any Subsidiary (including funds on deposit or held
pursuant to lock-box and other similar arrangements);
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or (b) a decree or order adjudging the Company or any
Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary
under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Subsidiary or of any substantial part of
their respective properties, or ordering the winding up or liquidation of
their respective affairs, and any such decree or order for relief shall
continue to be in effect, or any such other decree or order shall be
unstayed and in effect, for a period of 60 consecutive days;
(ix)(a) the Company or any Subsidiary commences a voluntary case or
proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any
Subsidiary consents to the entry of a decree or order for relief in respect
of the Company or such Subsidiary in an involuntary case or proceeding
under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (c) the Company or
any Subsidiary files a petition or answer or consent seeking reorganization
or relief under any applicable federal or state law, (d) the Company or any
Subsidiary (I) consents to the filing of such petition or the appointment
of, or taking possession by, a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or such Subsidiary
or of any substantial part of the Company's Consolidated properties, (II)
makes an assignment for the benefit of creditors or (III) admits in writing
its inability to pay its debts generally as they become due or (e) the
Company or any Subsidiary takes any corporate action in furtherance of any
such actions in this paragraph (ix); or
(x) the Company shall challenge the Lien on the Escrow Collateral under
the Escrow Agreement prior to such time the Escrow Collateral is to be
released to the Company or the Escrow Collateral shall become subject to
any Lien other than the Lien under the Escrow Agreements. (Section 501)
If an Event of Default (other than as specified in clauses (viii) and (ix)
of the prior paragraph) shall occur and be continuing with respect to the
Indenture, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such holders shall, declare all unpaid principal of, premium, if
any, and accrued interest on all Notes to be due and payable, by a notice in
writing to the Company (and to the Trustee if given by the holders of the
Notes) and upon any such declaration, such principal, premium, if any, and
interest shall become due and payable immediately. If an Event of Default
specified in clause (viii) or (ix) of the prior paragraph occurs with respect
to the Company and is continuing, then all the Notes shall ipso facto become
and be due and payable immediately in an amount equal to the principal amount
of the Notes, together with accrued and unpaid interest, if any, to the date
the Notes become due and payable, without any declaration or other act on the
part of the Trustee or any holder. Thereupon, the Trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of Notes
by appropriate judicial proceedings.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (ii) all overdue interest on
all Notes then outstanding, (iii) the principal of and premium, if any, on any
Notes then outstanding which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Notes and (iv) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the Notes; and (b) all Events of
Default, other than
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the non-payment of principal of the Notes which have become due solely by such
declaration of acceleration, have been cured or waived as provided in the
Indenture. No such rescission shall affect any subsequent default or impair
any right consequent thereon. (Section 502)
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may on behalf of the holders of all outstanding Notes waive
any past default under the Indenture and its consequences, except a default in
the payment of the principal of, premium, if any, or interest on any Note or
in respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Note affected by
such modification or amendment. (Section 513)
The Company is also required to notify the Trustee within thirty business
days of the occurrence of any Default unless such Default shall have been
cured. (Section 602) The Company is required to deliver to the Trustee, on or
before a date not more than 60 days after the end of each fiscal quarter and
not more than 120 days after the end of each fiscal year, a written statement
as to compliance with the Indenture, including whether or not any Default has
occurred that is not cured. (Section 1020)
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, if any, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions, provided that if it acquires any
conflicting interest it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company, any Guarantor and any other obligor upon the Notes
discharged with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company, any such Guarantor and any other obligor
under the Indenture shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, except for (i) the rights
of holders of such outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes, and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee and (iv) the defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to have the obligations of the Company and any Guarantor released with respect
to certain covenants that are described in the Indenture ("covenant
defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Notes. In
the event covenant defeasance occurs, certain events (not including non-
payment, bankruptcy and insolvency events) described under "Events of Default"
will no longer constitute an Event of Default with respect to the Notes.
(Sections 401, 402 and 403)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes on the Stated Maturity (or on any date after
December 15, 2002 (such date being referred to as the "Defeasance Redemption
Date"), if at or prior to electing either defeasance or covenant defeasance,
the Company has delivered to the Trustee an irrevocable notice to redeem all
of the outstanding Notes on the Defeasance Redemption Date); (ii) in the case
of defeasance, the Company shall have delivered to the Trustee an opinion of
independent counsel in the United States stating that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such
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opinion of independent counsel in the United States shall confirm that, the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred; (iii)
in the case of covenant defeasance, the Company shall have delivered to the
Trustee an opinion of independent counsel in the United States to the effect
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as clauses
(viii) or (ix) under the first paragraph under--"Events of Default" are
concerned, at any time during the period ending on the 91st day after the date
of deposit; (v) such defeasance or covenant defeasance shall not cause the
Trustee for the Notes to have a conflicting interest for purposes of the Trust
Indenture Act with respect to any securities of the Company or any Guarantor;
(vi) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a Default under, the Indenture or any other
material agreement or instrument to which the Company, any Guarantor or any
Subsidiary is a party or by which it is bound; (vii) such defeasance or
covenant defeasance shall not result in the trust arising from such deposit
constituting an investment company within the meaning of the Investment
Company Act of 1940, as amended, unless such trust shall be registered under
such Act or exempt from registration thereunder; (viii) the Company will have
delivered to the Trustee an opinion of independent counsel in the United
States to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (ix) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of the Notes or any Guarantee over the other
creditors of the Company or any Guarantor with the intent of defeating,
hindering, delaying or defrauding creditors of the Company, any Guarantor or
others; (x) no event or condition shall exist that would prevent the Company
from making payments of the principal of, premium, if any, and interest on the
Notes on the date of such deposit or at any time ending on the 91st day after
the date of such deposit; and (xi) the Company will have delivered to the
Trustee an officers' certificate and an opinion of independent counsel, each
stating that all conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been complied
with. (Section 404)
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture) as to all outstanding Notes
under the Indenture when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid or Notes whose payment has been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided for in the Indenture) have
been delivered to the Trustee for cancellation or (ii) all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
year, or (z) are to be called for redemption within one year under
arrangements reasonably satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company;
and the Company or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount in United States
dollars sufficient to pay and discharge the entire indebtedness on the Notes
not theretofore delivered to the Trustee for cancellation, including principal
of, premium, if any, and accrued interest at such Maturity, Stated Maturity or
redemption date; (b) the Company or any Guarantor has paid or caused to be
paid all other sums payable under the Indenture by the Company and any
Guarantor; and (c) the Company has delivered to the Trustee an officers'
certificate and an opinion of independent counsel each stating that (i) all
conditions precedent under the Indenture relating to the satisfaction and
discharge of such Indenture have been complied with and (ii) such satisfaction
and discharge will not result in a breach or violation of, or constitute a
default under, the Indenture or any other material agreement or instrument to
which the Company, any Guarantor or any Subsidiary is a party or by which the
Company, any Guarantor or any Subsidiary is bound. (Section 1301)
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MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company,
each Guarantor, if any, and the Trustee with the consent of the holders of at
least a majority in aggregate principal amount of the Notes then outstanding;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby: (i) change
the Stated Maturity of the principal of, or any installment of interest on, or
change to an earlier date any redemption date of, or waive a default in the
payment of the principal or interest on, any such Note or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the principal of
any such Note or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment after the
Stated Maturity thereof (or, in the case of redemption, on or after the
redemption date); (ii) amend, change or modify the obligation of the Company
to make and consummate an Offer with respect to any Asset Sale or Asset Sales
in accordance with "Certain Covenants--Limitation on Sale of Assets" or the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control in accordance with "Purchase of Notes Upon a
Change of Control," including, in each case, amending, changing or modifying
any definitions relating thereto; (iii) reduce the percentage in principal
amount of such outstanding Notes, the consent of whose holders is required for
any such supplemental indenture, or the consent of whose holders is required
for any waiver or compliance with certain provisions of the Indenture; (iv)
modify any of the provisions relating to supplemental indentures requiring the
consent of holders or relating to the waiver of past defaults or relating to
the waiver of certain covenants, except to increase the percentage of such
outstanding Notes required for such actions or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent
of the holder of each such Note affected thereby; (v) except as otherwise
permitted under "Consolidation, Merger, Sale of Assets," consent to the
assignment or transfer by the Company or any Guarantor of any of its rights
and obligations under the Indenture; (vi) amend or modify any of the
provisions of the Indenture in any manner which subordinates the Notes issued
thereunder in right of payment to any other Indebtedness of the Company or
which subordinates any Guarantee in right of payment to any other Indebtedness
of the Guarantor issuing any such Guarantee; or (vii) modify the provisions of
the Escrow Agreement or the Indenture relating to the Escrow Collateral in any
manner adverse to the Holders or release any of the Escrow Collateral from the
Lien under the Escrow Agreement or permit any other obligation to be secured
by the Escrow Collateral. (Section 902)
Notwithstanding the foregoing, without the consent of any holders of the
Notes, the Company, any Guarantor and the Trustee may modify or amend the
Indenture: (a) to evidence the succession of another Person to the Company or
a Guarantor, and the assumption by any such successor of the covenants of the
Company or such Guarantor in the Indenture, the Notes, the Registration Rights
Agreement, the Escrow Agreement and in any Guarantee in accordance with "--
Consolidation, Merger, Sale of Assets"; (b) to add to the covenants of the
Company, any Guarantor or any other obligor upon the Notes for the benefit of
the holders of the Notes or to surrender any right or power conferred upon the
Company or any Guarantor or any other obligor upon the Notes, as applicable,
in the Indenture, in the Notes or in any Guarantee; (c) to cure any ambiguity,
or to correct or supplement any provision in the Indenture, the Notes or any
Guarantee which may be defective or inconsistent with any other provision in
the Indenture, the Notes or any Guarantee or make any other provisions with
respect to matters or questions arising under the Indenture, the Notes or any
Guarantee; provided that, in each case, such provisions shall not adversely
affect the interest of the holders of the Notes; (d) to comply with the
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; (e) to add a
Guarantor under the Indenture; (f) to evidence and provide the acceptance of
the appointment of a successor Trustee under the Indenture; or (g) to
mortgage, pledge, hypothecate or grant a security interest in favor of the
Trustee for the benefit of the holders of the Notes as additional security for
the payment and performance of the Company's and any Guarantor's obligations
under the Indenture, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture or
otherwise. (Section 901)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1021)
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GOVERNING LAW
The Indenture, the Notes and any Guarantee will be governed by, and
construed in accordance with, the laws of the State of New York, without
giving effect to the conflicts of law principles thereof.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue as Trustee with such conflict or resign as Trustee.
(Sections 608 and 610)
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which has not been cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture or the Escrow Agreement at the request of any holder of Notes unless
such holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense. (Sections 601 and
603)
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition, as the case may be, provided that Indebtedness
of such Person which is redeemed, defeased, retired or otherwise repaid at the
time of or immediately upon consummation of the transactions by which such
Person becomes a Subsidiary or such Asset Acquisition shall not constitute
Acquired Indebtedness.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Subsidiary to
any other Person, or any acquisition or purchase of Capital Stock of any other
Person by the Company or any Subsidiary, in either case pursuant to which such
Person shall become a Subsidiary or shall be consolidated, merged with or into
the Company or any Subsidiary or (ii) any acquisition by the Company or any
Subsidiary of the assets of any Person which constitute substantially all of
an operating unit or line of business of such Person or which is otherwise
outside of the ordinary course of business of the Company or such Subsidiary.
"Additional Interest" has the meaning provided in Section 5 of the
Registration Rights Agreement.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of: (i) any Capital
Stock of any Subsidiary; (ii) all
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or substantially all of the properties and assets of any division or line of
business of the Company or its Subsidiaries; or (iii) any other properties or
assets of the Company or any Subsidiary other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include any transfer of properties and assets (A) that is governed by the
provisions described under "Consolidation, Merger, Sale of Assets," (B) that
is by the Company to any Subsidiary or by any Subsidiary to the Company or any
other Subsidiary in accordance with the terms of the Indenture, (C) that is of
obsolete equipment in the ordinary course of business, (D) the Fair Market
Value of which in the aggregate does not exceed $200,000 in any transaction or
series of related transactions, (E) that is made in accordance with the
provisions described under "Certain Covenants--Limitations on Restricted
Payments," (F) which constitutes the granting of any Permitted Lien and (G)
any transfer of assets that are transferred in exchange for one or more like-
kind assets; provided that if the Fair Market Value of the assets to be
transferred by the Company or such Subsidiary under this clause G, plus the
Fair Market Value of any other consideration paid or credited by the Company
or such Subsidiary exceeds $1 million, such transaction shall require approval
of the Board of Directors of the Company.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the
sum of the products of (a) the number of years from the date of determination
to the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment; by
(ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Capital Lease Obligation" of any Person means any obligation of such Person
and its subsidiaries on a Consolidated basis under any capital lease of real
or personal property which, in accordance with GAAP, has been recorded as a
capital lease obligation.
"Capital Stock" of (i) with respect to any Person that is a corporation, and
all shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of common
stock and preferred stock of such Person and (ii) with respect to any Person
that is not a corporation, any and all partnership, membership or other equity
interests of such Person.
"Cash Equivalents" means (i) any evidence of Indebtedness, maturing not more
than one year after the date of acquisition, issued by the United States of
America, or an instrumentality or agency thereof, and guaranteed fully as to
principal, premium, if any, and interest by the United States of America, (ii)
any certificate of deposit, maturing not more than one year after the date of
acquisition, issued by, or time deposit of, a commercial banking institution
that is a member of the Federal Reserve System and that has combined capital
and surplus and undivided profits of not less than $500 million, whose short
term debt has a rating, at the time as of which any investment therein is
made, of "P-1" (or higher) according to Moody's Investors Service, Inc.
("Moody's") or any successor rating agency or "A-1" (or higher) according to
Standard& Poor's Corporation ("S&P") or any successor rating agency, (iii)
commercial paper, maturing not more than 270 days after the date of
acquisition, issued by a corporation (other than an Affiliate or Subsidiary of
the Company) organized and existing under the laws of the United States of
America with a rating, at the time as of which any investment therein is made,
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to
S&P and (iv) any money market deposit accounts issued or offered by a domestic
commercial bank having capital and surplus in excess of $500 million; provided
that the short term debt of such commercial bank has a rating, at the time of
Investment, of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed
to have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
outstanding
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Voting Stock of the Company; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the board of
directors of the Company (together with any new directors whose election to
such board or whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved), cease for any reason to
constitute a majority of such board of directors then in office; (iii) the
Company consolidates with or merges with or into any Person or conveys,
transfers or leases all or substantially all of its assets to any Person, or
any corporation consolidates with or merges into or with the Company in any
such event pursuant to a transaction in which the outstanding Voting Stock of
the Company is changed into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting Stock
of the Company is not changed or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of incorporation of the
Company or where no "person" or "group" owns, immediately after such
transaction, directly or indirectly, more than 50% of the total outstanding
Voting Stock of the surviving corporation); or (iv) the Company is liquidated
or dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under "--
Consolidation, Merger, Sale of Assets."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act then the body
performing such duties at such time.
"Commodity Price Protection Agreement" means any forward contract, commodity
swap, commodity option or other similar financial agreement or arrangement
relating to, or the value which is dependent upon, fluctuations in commodity
prices.
"Company" means Concentric Network Corporation, a corporation incorporated
under the laws of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of the Indenture, and thereafter
"Company" shall mean such successor Person.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person
and its Consolidated subsidiaries for such period as determined in accordance
with GAAP.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, the sum of (a) the interest expense of such Person and its
subsidiaries for such period, on a Consolidated basis, including, without
limitation, (i) amortization of debt discount, (ii) the net costs associated
with Interest Rate Agreements, Currency Hedging Agreements and Commodity Price
Protection Agreements (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation and (iv) accrued interest,
plus (b)(i) the interest component of the Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
subsidiaries during such period and (ii) all capitalized interest of such
Person and its subsidiaries plus (c) the interest expense actually paid by
such Person under any Guaranteed Debt of such Person and any subsidiary to the
extent not included under clause (a)(iv) above, plus (d) the aggregate amount
for such period of cash or non-cash dividends on any Redeemable Capital Stock
or Preferred Stock of the Company and its Subsidiaries, in each case as
determined on a Consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net income
of the Company and any Subsidiary for such period determined on a consolidated
basis in accordance with GAAP, adjusted, to the extent included in calculating
such net income, by excluding, without duplication, (a) other than for
purposes of calculating the Basket, all extraordinary gains or losses for such
period, (b) other than for purposes of calculating the Basket, all gains or
losses from the sales or other dispositions of assets out of the ordinary
course of business (net of taxes, fees and expenses relating to the
transaction giving rise thereto) for such period: (c) that portion of such net
income derived from or in respect of investments in Persons other than
Subsidiaries, except to the extent actually received in cash by the Company or
any Subsidiary (subject, in the case of any Subsidiary, to the
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provisions of clause (f) of this definition); (d) the portion of such net
income (or loss) allocable to minority interests in any Person (other than a
Subsidiary) for such period, except to the extent the Company's allocation
portion of such Person's net income for such period is actually received in
cash by the Company or any Subsidiary (subject, in the case of any Subsidiary,
to the provisions of clause (f) of this definition); (e) the net income (or
loss) or any other Person combined with the Company or any Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination; and (f) the net income of any Subsidiary to the extent that the
declaration of dividends or similar distributions by that Subsidiary of that
income is not at the time (regardless of any waiver) permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Subsidiary or its Capital Stock holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication), to
the extent deducted in calculating such Consolidated Net Income, by (a)
Consolidated Income Tax Expense for such period; (b) Consolidated Interest
Expense for such period; and (c) depreciation, amortization and any other non-
cash items for such period (other than any non-cash item which requires the
accrual of, or a reserve for, cash charges for any future period) of the
Company and any Subsidiary, including, without limitation, amortization of
capitalized debt issuance costs for such period, all of the foregoing
determined on a consolidated basis in accordance with GAAP minus non-cash
items to the extent they increase Consolidated Net Income (including the
partial or entire reversal of reserves taken in prior periods) for such
period.
"Cumulative Operating Cash Flow" means, as at any date of determination, the
positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the original issue date of the Notes and ending on the
last day of the most recent fiscal quarter immediately preceding the date of
determination for which consolidated financial information of the Company is
available or, if such cumulative Consolidated Operating Cash Flow for such
period is negative, the negative amount by which cumulative Consolidated
Operating Cash Flow is less than zero.
"Consolidated" means, consolidated in accordance with GAAP.
"Currency Hedging Arrangements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values.
"Debt to Annualized Operating Cash Flow Ratio" means the ratio of (a) the
Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") to (b) two times the Consolidated Operating Cash Flow
for the latest two fiscal quarters for which financial information is
available immediately preceding such Determination Date (the "Measurement
Period"). For purposes of calculating Consolidated Operating Cash Flow for the
Measurement Period immediately prior to the relevant Determination Date, (i)
any Person that is a Subsidiary on the Determination Date (or would become a
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such Consolidated Operating Cash Flow) will be
deemed to have been a Subsidiary at all times during such Measurement Period,
(ii) any Person that is not a Subsidiary on such Determination Date (or would
cease to be a Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Operating
Cash Flow) will be deemed not to have been a Subsidiary at any time during
such Measurement Period, and (iii) if the Company or any Subsidiary shall have
in any manner (x) acquired (through an Acquisition or the commencement of
activities constituting such operating business) or (y) disposed of (by of an
Asset Sale or the termination or discontinuance of activities constituting
such operating business) any operating business during such Measurement Period
or after the end of such period and on or prior to such Determination Date,
such calculation will be made on a pro forma basis in accordance with GAAP as
if, in the case of an Acquisition or the commencement of activities
constituting such operating business, all such transactions had been
consummated prior to the first day of such Measurement Period (it being
understood that in calculating Consolidated Operating Cash Flow the exclusions
set forth in clauses (a) through (f) of the definition of Consolidated Net
Income shall apply to an Acquired Person as if it were a Subsidiary).
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"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the board of directors of the Company who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligations or otherwise, or becomes exchangeable for Indebtedness at the
option of the holder thereof, or becomes redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final maturity date of
the Notes; provided such Capital Stock shall only constitute Disqualified
Stock to the extent it so matures or becomes so redeemable or exchangeable on
or prior to the final maturity date of the Notes; provided, further, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the final maturity date of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions contained in "Limitation on
Sale of Assets" and "Change of Control" described above and such Capital Stock
specifically provides that such person will not repurchase or redeem any such
stock pursuant to such provision prior to the Issuer's repurchase of such
Notes as are required to be repurchased pursuant to the "Limitation on Sale of
Assets" and "Change of Control" provisions described above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute.
"Exchange Notes" means Notes issued in exchange for Initial Notes pursuant
to the Registration Rights Agreement.
"Existing Notes" means the Notes issued in the Existing Notes Offering.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be reasonably expected to be obtained in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy. Fair Market
Value shall be determined by the board of directors of the Company acting in
good faith and shall be evidenced by a resolution of the board of directors.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied,
which are in effect on the date of the Indenture.
"Guarantee" means the guarantee by any Guarantor of the Company's Indenture
Obligations.
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such Person through
an agreement (i) to pay or purchase such Indebtedness or to advance or supply
funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell
or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii)
to supply funds to, or in any other manner invest in, the debtor (including
any agreement to pay for property or services without requiring that such
property be received or such services be rendered), (iv) to maintain working
capital or equity capital of the debtor, or otherwise to maintain the net
worth, solvency or other financial condition of the debtor or (v) otherwise to
assure a creditor against loss; provided that the term "guarantee" shall not
include endorsements for collection or deposit, in either case in the ordinary
course of business.
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"Guarantor" means any Subsidiary which is a guarantor of the Notes,
including any Person that is required after the date of the Indenture to
execute a guarantee of the Notes pursuant to the "Limitation on Issuance of
Guarantees of Indebtedness" covenant until a successor replaces such party
pursuant to the applicable provisions of the Indenture and, thereafter, shall
mean such successor.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of a Person existing at
the time such Person becomes a Subsidiary or is merged or consolidated with or
into the Company or any Subsidiary shall be deemed to be Incurred at such
time.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, (ii)
all obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (unless 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), but excluding trade payables arising
in the ordinary course of business, (iv) all obligations under Interest Rate
Agreements, Currency Hedging Agreements or Commodity Price Protection
Agreements of such Person, (v) all Capital Lease Obligations of such Person,
(vi) all Indebtedness referred to in clauses (i) through (v) above of other
Persons and all dividends of other Persons, the payment of which is secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien, upon or with respect to
property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness, (vii) all Redeemable Capital Stock issued by
such Person valued at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends, and (viii) any
amendment, supplement, modification, deferral, renewal, extension, refunding
or refinancing of any liability of the types referred to in clauses (i)
through (vii) above. For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the Fair Market Value of such
Redeemable Capital Stock, such Fair Market Value to be determined in good
faith by the board of directors of the issuer of such Redeemable Capital
Stock. In no event shall "Indebtedness" include any trade payable or other
current liabilities arising in the ordinary course of business. The amount of
any item of Indebtedness shall be the amount of such Indebtedness properly
classified as a liability on a balance sheet prepared in accordance with GAAP.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all
other amounts due or to become due under or in connection with the Indenture,
the Notes and the performance of all other obligations to the Trustee and the
holders under the Indenture and the Notes, according to the respective terms
thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest
rate protection agreements (including, without limitation, interest rate
swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase,
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acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities issued or owned by any other Person and all
other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Lien" means any mortgage or deed of trust, pledge, lien (statutory or
otherwise), security interest, easement, hypothecation, or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired. A Person shall be deemed to own
subject to a Lien any property which such Person has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement, other than any lease
properly classified as an operating lease under GAAP and intellectual property
licensing arrangements.
"Maturity" means, when used with respect to the Notes, the date on which the
principal of the Notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect
of Excess Proceeds, Change of Control Offer in respect of a Change of Control,
call for redemption or otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof (without duplication in respect of all Asset Sales) in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets
when disposed of for, cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Subsidiary) net of (i) brokerage commissions and other reasonable fees and
expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result
of such Asset Sale, (iii) payments made to retire Indebtedness where payment
of such Indebtedness is secured by the assets or properties the subject of
such Asset Sale, (iv) amounts required to be paid to any Person (other than
the Company or any Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale and (v) appropriate amounts to be provided by the
Company or any Subsidiary, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and
retained by the Company or any Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an officers' certificate delivered to the Trustee
and (b) with respect to any issuance or sale of Capital Stock or options,
warrants or rights to purchase Capital Stock, or debt securities or Capital
Stock that have been converted into or exchanged for Capital Stock as referred
to under "B Certain Covenants B Limitation on Restricted Payments," the
proceeds of such issuance or sale in the form of cash or Cash Equivalents
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed of for, cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Subsidiary), net of attorney's fees,
accountant's fees and brokerage, consultation, underwriting and other fees and
expenses actually incurred in connection with such issuance or sale (or
conversion in the case of debt securities or Capital Stock that have been
converted) and net of taxes paid or payable as a result thereof.
"Notes" means the Existing Notes and the Exchange Notes issued from time to
time under the Indenture.
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company that is
pari passu in right of payment to the Notes and (b) with respect to any
Guarantee, Indebtedness which ranks pari passu in right of payment to such
Guarantee.
"Permitted Investment" means (i) Investments in any Wholly Owned Subsidiary
or any Person which, as a result of such Investment, (a) becomes a Wholly
Owned Subsidiary or (b) is merged or consolidated with or into, or transfers
or conveys all or substantially all of its assets to, or is liquidated into,
the Company or any Wholly Owned Subsidiary; (ii) Indebtedness of the Company
or a Subsidiary described under clauses (iv) and (vii) of paragraph (b) under
"--Certain Covenants--Limitation on Indebtedness"; (iii) Investments in any of
the Notes; (iv) Investments in Cash Equivalents; (v) Investments acquired by
the Company or any Subsidiary in connection with an Asset Sale permitted under
"--Certain Covenants--Limitation on Sale of Assets" to the
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extent such Investments are non-cash proceeds as permitted under such
covenant; (vi) Investments in existence on the date of the Indenture; (vii)
guarantees of Indebtedness of a Wholly Owned Subsidiary given by the Company
or another Wholly Owned Subsidiary and guarantees of Indebtedness of the
Company given by any Subsidiary, in each case, in accordance with the terms of
the Indenture; (viii) advances to employees or officers of the Company in the
ordinary course of business so long as the aggregate amount of such advances
shall not exceed $1 million outstanding at any one time; (ix) any Investment
in the Company by any Subsidiary of the Company; provided, that any such
Investment in the form of Indebtedness shall be Subordinated Indebtedness; (x)
accounts receivable created or acquired in the ordinary course of business of
the Company or any Subsidiary and Investments arising from transactions by the
Company or any Subsidiary with trade creditors or customers in the ordinary
course of business (including any such Investment received pursuant to any
plan of reorganization or similar arrangement pursuant to the bankruptcy or
insolvency of such trade creditors or customers or otherwise in settlement of
a claim); (xi) loans in the ordinary course of business to employees of the
Company or a Subsidiary to purchase Capital Stock of the Company pursuant to
the terms of employee stock benefit plans; (xii) Investments the consideration
of which is Capital Stock of the Company; (xiii) stock obligations or
securities received in satisfaction of judgments; (xiv) Investments in prepaid
expenses, negotiable instruments held for collection, and lease, utility and
workers' compensation, performance and other similar deposits; and (xv) any
other Investments in an aggregate amount not to exceed $20 million at any one
time outstanding. In connection with any assets or property contributed or
transferred to any Person as an Investment, such property and assets shall be
equal to the Fair Market Value (as determined by the Company's Board of
Directors) at the time of such Investment.
"Permitted Lien" means:
(a) any Lien existing as of the date of the Indenture;
(b) any Lien arising by reason of (1) any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired; (2) taxes not yet delinquent or which are being contested in good
faith; (3) security for payment of workers' compensation or other insurance
or arising under worker's compensation laws or similar legislation; (4)
good faith deposits in connection with bids, tenders, leases, contracts
(other than contracts evidencing Indebtedness); (5) zoning restrictions,
easements, licenses, reservations, title defects, rights of others for
rights of way, utilities, sewers, electric lines, telephone or telegraph
lines, and other similar purposes, provisions, covenants, conditions,
waivers, restrictions on the use of property or minor irregularities of
title (and with respect to leasehold interests, mortgages, obligations,
liens and other encumbrances incurred, created, assumed or permitted to
exist and arising by, through or under a landlord or owner of the leased
property, with or without consent of the lessee), none of which materially
impairs the use of any parcel of property material to the operation of the
business of the Company or any Subsidiary or the value of such property for
the purpose of such business; (6) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds; or (7) operation of law
in favor of landlords, carriers, warehousemen, bankers, mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary
course of business for sums which are not yet delinquent or are being
contested in good faith by negotiations or by appropriate proceedings which
suspend the collection thereof;
(c) any Lien to secure the performance bids, trade contracts, leases
(including, without limitation, statutory and common law landlord's liens),
statutory obligations, surety and appeal bonds, letters of credit and other
obligations of a like nature and incurred in the ordinary course of
business of the Company or any Subsidiary;
(d) any Lien securing obligations in connection with Indebtedness
permitted under that section of the Indenture described in clause (i) of
paragraph (b) of "--Limitation on Indebtedness" which are incurred or
assumed in connection with the acquisition, development or construction of
real or personal, moveable or immovable property within 180 days of such
incurrence or assumption; provided that such Liens only extend to such
acquired, developed or constructed property and any accessories,
accessions, additions, replacements and proceeds thereof; and
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(e) any Lien arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(f) any Lien securing obligations in connection with Indebtedness
permitted under that section of the Indenture described in clauses (ii) or
(iii) of paragraph (b) of "--Limitation on Indebtedness;"
(g) any Lien in favor of the Company or any Subsidiary;
(h) any Lien securing obligations in connection with Acquired
Indebtedness; provided that any such Lien does not extend to or cover any
property or assets of the Company or any of its Subsidiaries other than the
property or assets of the Acquired Person covered thereby or the property
assets so acquired;
(i) any Lien in favor of the Trustee for the benefit of the Holders or
the Trustee arising under the provisions in the Indenture or the Escrow
Agreement;
(j) any Lien encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any Subsidiary if and to the extent arising in the ordinary course of
business, including rights of offset and set-off;
(k) any Lien in favor of customs or revenue authorities to secure payment
of customs duties in connection with the importation of goods in the
ordinary course of business;
(l) leases or subleases granted to third Persons not interfering with the
ordinary course of business of the Company or its Subsidiaries;
(m) any Lien securing any extension, renewal, refinancing or replacement,
in whole or in part, of any obligation or Indebtedness described in the
foregoing clauses (a) through (d) and (f) through (h) so long as no
additional collateral is granted as security thereby.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Public Equity Offering" means an underwritten offering of common stock of
the Company with gross proceeds to the Company of at least $25 million
pursuant to a registration statement that has been declared effective by the
Commission pursuant to the Securities Act (other than a registration statement
on Form S-8 or otherwise relating to equity securities issuable under any
employee benefit plan of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company and any additions and accessions
thereto, which are purchased by at any time after the Notes are issued;
provided that (i) the security agreement or conditional sales or other title
retention contract pursuant to which the Lien on such assets is created
(collectively a "Purchase Money Security Agreement") shall be entered into
within 180 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of
the outstanding Indebtedness secured thereby be increased, except in
connection with the purchase of additions and accessions thereto and except in
respect of fees and other obligations in respect of such Indebtedness and
(iii) (A) the aggregate outstanding principal amount of Indebtedness secured
thereby (determined on a per asset basis is the case of any additions and
accessions) shall not at the time such Purchase Money Security Agreement in
entered into exceed 100% of the purchase price to the Company of the assets
subject thereto or (B) the Indebtedness secured thereby shall be with recourse
solely to the assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom.
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"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable
or otherwise, is or upon the happening of an event or passage of time would
be, required to be redeemed prior to the Stated Maturity of the principal of
the Notes or is redeemable at the option of the holder thereof at any time
prior to such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to such Stated Maturity at the option of the
holder thereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as
the fixed date on which the principal of such Indebtedness or such installment
of interest, as the case may be, is due and payable.
"Strategic Investor" means any Person which is (or a controlled Affiliate of
any Person which is or a controlled Affiliate of which is) engaged principally
in the Telecommunications Business and which has a Total Market Capitalization
of at least $1.0 billion.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
subordinated in right of payment to the Notes or the Guarantee of such
Guarantor, as the case may be.
"subsidiary" means, with respect to any Person, an corporation, association
or other business entity (i) of which outstanding Capital Stock having at
least the majority of the votes entitled to be cast in the election of
directors is owned, directly or indirectly, by such Person and/or any one or
more subsidiaries of such Person, or (ii) of which at least a majority of
voting interest is owned, directly or indirectly, by such Person and/or one or
more subsidiaries of such Person.
"Subsidiary" means any subsidiary of the Company other than an Unrestricted
Subsidiary.
"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in (i) the business of transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii)the business of creating,
developing or marketing communications related network equipment, software and
other devices for use in a Telecommunications Business or (iii) businesses
reasonably related or incidental thereto.
"Total Consolidated Indebtedness" means, as at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Company and
any Subsidiary, on a Consolidated basis, outstanding as of such date of
determination, after giving effect to any Incurrence of Indebtedness and the
application of the proceeds therefrom giving rise to such determination.
"Total Market Capitalization" of any Person means, as of any day of
determination, the sum of (a) the consolidated Indebtedness of such Person and
any Subsidiaries on such day, plus (b) the product of (i) the aggregate number
of outstanding shares of common stock of such Person on such day (which shall
not include any options or warrants on, or securities convertible or
exchangeable into, shares of Common Stock of such Person) and (ii) the average
closing price of such common stock over the 10 consecutive Trading Days ending
not earlier than 10 Trading Days immediately prior to such date of
determination, plus (c) the liquidation value of any outstanding shares of
preferred stock of such Person on such day. If no such closing price exists
with respect to shares of any such class, the value of such shares for
purposes of clause (b) of the preceding sentence shall be determined by the
Board in good faith and evidenced by a resolution of the Board filed with the
Trustee. Notwithstanding the foregoing, unless the Person's Common Stock is
listed on any national securities exchange or on the Nasdaq National Market,
the "Total Market Capitalization" of the Person shall mean, as of any day of
determination, the enterprise value (without duplication) of the Person and
any subsidiaries (including the fair market value of their debt and equity),
as determined by an independent banking firm of national standing with
experience in such valuations and evidenced by a written opinion in customary
form filed with the Trustee;
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provided that for purposes of any such determination, the enterprise value of
the Person shall be calculated as if the Person were a publicly held
corporation without a controlling stockholder. For purposes of any such
determination, such banking firm's written opinion may state that such fair
market value is no less than a specified amount and such opinion may be as of
a date no earlier than 90 days prior to the date of such determination.
"Trading Day" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
any successor statute.
"Unrestricted Subsidiary" means (i) any subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any subsidiary of the Company (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary if all
of the following conditions apply: (a) neither the Company nor any of its
Subsidiaries provides credit support for Indebtedness of such subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (b) such subsidiary is not liable, directly or indirectly, with
respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness,
(c) any Investment in such subsidiary made as a result of designating such
subsidiary an Unrestricted Subsidiary shall not violate the provisions of the
"--Certain Covenants--Limitation on Unrestricted Subsidiaries" covenant and
such unrestricted subsidiary is not party to any agreement, contract,
arrangement or understanding at such time with the Company or any Subsidiary
of the Company unless the terms of any such agreement, contract, arrangement
or understanding are no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons who are not Affiliates
of the Company; and (v) such Unrestricted Subsidiary does not own any Capital
Stock in any Subsidiary of the Company which is not simultaneously being
designated an Unrestricted Subsidiary. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a board resolution giving effect to such designation and an officers'
certificate certifying that such designation complies with the foregoing
conditions and shall be deemed a Restricted Payment on the date of designation
in an amount equal to the greater of (1) the net book value of such Investment
or (2) the fair market value of such Investment as determined in good faith by
the Company's Board of Directors. The Board of Directors of the Company may
designate any Unrestricted Subsidiary as a Subsidiary; provided that (i)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant
to the restrictions under "--Certain Covenants--Limitation on Indebtedness"
and (ii) all Indebtedness of such Subsidiary shall be deemed to be incurred on
the date such Subsidiary becomes a Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither the
Company nor any Subsidiary is directly or indirectly liable (by virtue of the
Company or any such Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), except Guaranteed Debt
of the Company or any Subsidiary to any Affiliate, in which case (unless the
incurrence of such Guaranteed Debt resulted in a Restricted Payment at the
time of incurrence) the Company shall be deemed to have made a Restricted
Payment equal to the principal amount of any such Indebtedness to the extent
guaranteed at the time such Affiliate is designated an Unrestricted Subsidiary
and (ii) which, upon the occurrence of a default with respect thereto, does
not result in, or permit any holder of any Indebtedness of the Company or any
Subsidiary to declare, a default on such Indebtedness of the Company or any
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"U.S. Government Securities" means securities that are direct obligations of
the United States of America, the payment of which its full faith and credit
is pledged.
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"Voting Stock" means Capital Stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time Capital Stock of
any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
is owned by the Company or another Wholly Owned Subsidiary. For the purposes
of this definition, any director qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Subsidiary.
REGISTRATION RIGHTS
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on the Closing Date of the Existing Notes Offering. Pursuant to the
Registration Rights Agreement, the Company agreed to file with the Commission
the Exchange Offer Registration Statement, of which this Prospectus is a part,
on the appropriate form under the Securities Act with respect to the Exchange
Notes. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company will offer to the holders of Transfer Restricted Securities (as
defined) pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer Restricted
Securities for Exchange Notes. If (i) the Company is not required to file the
Exchange Offer Registration Statement or permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any holder of Transfer Restricted Securities
notifies the Company prior to the 20th day following consummation of the
Exchange Offer that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) that it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns Notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales
of the Notes by the holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. The Company will use its best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Securities"
means each Existing Note until (i) the date on which such Existing Note has
been exchanged by a person other than a broker-dealer for an Exchange Note in
the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of a Note for an Exchange Note, the date on which such Exchange
Note is sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in the Exchange
Offer Registration Statement, (iii) the date on which such Existing Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which
such Existing Note is distributed to the public pursuant to Rule 144 under the
Securities Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Issue Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 105 days after the Issue Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company
will commence the Exchange Offer and use its best efforts to issue on or prior
to 30 days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, Exchange Notes in exchange for all
Existing Notes tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, the Company will use its
best efforts to file the Shelf Registration Statement with the Commission on
or prior to 45 days after such filing obligation arises and to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior
to 105 days after such obligation arises. If (a) the Company fails to file any
of the Registration Statements required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness
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(the "Target Effectiveness Date"), or (c) the Company fails to consummate the
Exchange Offer within 30 days of the Target Effectiveness Date with respect to
the Exchange Offer Registration Statement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), the interest rate borne by the
Notes shall be increased by one-half of one percent per annum for the 90-day
period following such Registration Default, which rate will increase by one-
half of one percent per annum with respect to each subsequent 90-day period up
to a maximum of one and one half percent (1.50%) per annum until cured
("Additional Interest"). Following the cure of all Registration Defaults, the
accrual of Additional Interest will cease and the interest rate will revert to
the original rate.
Existing Holders will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the additional interest
provisions set forth above.
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DESCRIPTION OF WARRANTS
The Warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement") between the Company and Chase Manhattan Bank and Trust Company,
National Association, as warrant agent (the "Warrant Agent") in a private
transaction that is not subject to the registration requirements of the
Securities Act.
GENERAL
Each Warrant, when exercised, will entitle the holder thereof to receive
6.34 fully paid and non-assessable shares of Common Stock of the Company, par
value $0.001 per share ("Warrant Share"), at an exercise price of $10.8625 per
share, subject to adjustment (the "Exercise Price"). The Exercise Price and
the number of Warrant Shares are both subject to adjustment in certain cases
referred to below. The Warrants will entitle the holders thereof to purchase
in the aggregate 951,108 Warrant Shares, or approximately 5.0% of the
Company's Common Stock on a fully diluted basis as of the closing of the
Offering.
The Warrants will become exercisable after the Separation Date. Unless
exercised, the Warrants will automatically expire on December 15, 2007 (the
"Expiration Date"). The Company will give notice of expiration not less than
90 and not more than 120 days prior to the Expiration Date to the registered
holders of the then outstanding Warrants. If the Company fails to give such
notice, the Warrants will not expire until 90 days after the Company gives
such notice. In no event will holders be entitled to any damages or other
remedy for the Company's failure to give such notice other than any such
extension.
The Warrants may be exercised by surrendering to the Company the warrant
certificates evidencing the Warrants to be exercised with the accompanying
form of election to purchase properly completed and executed, together with
payment of the Exercise Price. Payment of the Exercise Price may be made (A)
by tendering Senior Notes having an aggregate principal amount, plus accrued
and unpaid interest, if any, thereon, to the date of exercise equal to the
Exercise Price, (B) by tendering Warrants having a fair market value (as
determined in good faith by the Company's Board of Directors) equal to the
Exercise Price or (C) by a combination of Senior Notes and Warrants. Upon
surrender of the warrant certificate and payment of the Exercise Price, the
Company will deliver or cause to be delivered, to or upon the written order of
such holder, stock certificates representing the number of whole shares of
Common Stock to which the holder is entitled. If less than all of the Warrants
evidenced by a warrant certificate are to be exercised, a new warrant
certificate will be issued for the remaining number of Warrants.
No fractional shares of Common Stock will be issued upon exercise of the
Warrants. The Company will pay to the holder of the Warrant at the time of
exercise an amount in cash equal to the current market value of any such
fractional share of Common Stock less a corresponding fraction of the Exercise
Price.
Certificates for Warrants will be issued in registered form only, and no
service charge will be made for registration or transfer or exchange upon
surrender of any Warrant certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration or transfer or exchange of Warrant
certificates.
The holders of the Warrants will have no right to vote on matters submitted
to the stockholders of the Company and will have no right to receive
dividends. The holders of the Warrants will not be entitled to share in the
assets of the Company in the event of liquidation, dissolution or the winding
up of the Company.
ADJUSTMENTS
The number of Warrant Shares purchasable upon the exercise of the Warrants
and the Exercise Price both will be subject to adjustment in certain events
including (i) the payment by the Company of dividends (or other distributions)
on Common Stock of the Company payable in Common Stock of the Company or other
shares of the Company's capital stock, (ii) subdivisions, combinations and
reclassifications of Common Stock of the
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Company, (iii) the issuance to all holders of Common Stock of the Company of
rights, options or warrants entitling them to subscribe for Common Stock of
the Company, or for securities convertible into or exchangeable for shares of
Common Stock of the Company, in either case for a consideration per share of
Common Stock which is less than the current market price per share (as defined
in the Warrant Agreement) of Common Stock of the Company, and (iv) the
distribution to all holders of Common Stock of the Company of any of the
Company's assets, debt securities or any rights or warrants to purchase
securities (excluding those rights and warrants referred to in clause (iii)
above and excluding cash dividends or other cash distributions from current or
retained earnings).
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price, provided, however, that any adjustment which is not made will
be carried forward and taken into account in any subsequent adjustment.
In the case of certain consolidations or mergers of the Company, or the sale
of all or substantially all of the assets of the Company to another
corporation, each Warrant will thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such holder would have been entitled as a result of such
consolidation, merger or sale had the Warrants been exercised immediately
prior thereto.
RESERVATION OF SHARES
The Company has authorized and reserved for issuance and will at all times
reserve and keep available such number of shares of Common Stock as will be
issuable upon the exercise of all outstanding Warrants. Such shares of Common
Stock, when paid for and issued, will be duly and validly issued, fully paid
and non-assessable, free of preemptive rights and free from all taxes, liens,
charges and security interests with respect to the issuance thereof.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing defects or inconsistencies or making any
change that does not materially adversely affect the rights of any holder. Any
amendment or supplement to the Warrant Agreement that has a material adverse
effect on the interests of the holders of the Warrants will require the
written consent of the holders of a majority of the then outstanding Warrants
(excluding Warrants held by the Company or any of its Affiliates). The consent
of each holder of the Warrants affected will be required for any amendment
pursuant to which the Exercise Price would be increased or the number of
shares of Common Stock purchasable upon exercise of Warrants would be
decreased (other than pursuant to adjustments provided in the Warrant
Agreement).
REPORTS
Whether or not required by the rules and regulation of the Commission, so
long as any of the Warrants remain outstanding, the Company shall cause copies
of the SEC Reports described under "Description of the Notes-Certain
Covenants-Provision of Financial Statements" to be filed with the Warrant
Agent and mailed to the holders at their addresses appearing in the register
of Warrants maintained by the Warrant Agent.
REGISTRATION RIGHTS
The holders of the Warrants and the Warrant Shares will be entitled to
certain rights with respect to the registration of the Warrant Shares under
the Securities Act as discussed below.
Demand Registration Rights. The holders of the Warrants and the Warrant
Shares may require the Company, after the first anniversary of the date of
issuance of the Warrants, on three occasions, at the Company's sole expense
(excluding underwriter discounts), to prepare and file a registration
statement under the Securities
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Act that provides for the public resale by the holders of Warrants and/or
Warrant Shares of all or any portion of their Warrant Shares in an
underwritten public offering or otherwise (the "Resale Registration"). The
Company will be required to use its best efforts to have each such
registration statement declared effective and to remain effective for a period
of six months (or such shorter period as will terminate when all Warrant
Shares covered thereby have been sold). Only holders of at least 25% in
aggregate of the Warrants and the Warrant Shares (singly or collectively) will
be permitted to initiate a demand registration. The Company shall be entitled
to delay the filing of a demand registration statement under certain
circumstances for up to 90 days. In the event the holders of the Warrants and
the Warrant Shares require the Company to effect a Resale Registration,
certain other security holders of the Company will be entitled to include
shares of Common Stock of the Company held by them in such Resale
Registration. All shares of Common Stock included in such Resale Registration
shall, under certain circumstances, be subject to pro rata cut-back
provisions.
Piggyback Registration Rights. If, after the first anniversary of the date
of issuance of the Warrants, the Company proposes to register any of its
Common Stock under the Securities Act for its own account, the holders of the
Warrants and the Warrant Shares will be entitled to notice of the registration
and will be entitled to include, at the Company's sole expense (excluding
underwriter discounts), all or any portion of their Warrant Shares therein,
subject to pro rata cut-back provisions in the event that the managing
underwriter in any underwritten offering determines that the inclusion of the
Warrant Shares and any other securities entitled to piggyback registration
rights would adversely affect the offering being registered. The Company shall
be entitled to delay the filing of a shelf registration statement under
certain circumstances for up to 90 days.
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PROVISIONS GENERALLY APPLICABLE TO ALL SECURITIES
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Existing Notes and the
Warrants were issued in the form of one Global Note (the "Global Note") and
one Global Warrant Certificate (the "Global Warrant Certificate"). Each Global
Note and the Global Warrant Certificate are sometimes each referred to herein
as a "Global Security." Each Global Security was deposited on the date of the
closing of the sale of the Existing Notes (the "Closing Date") with, or on
behalf of, The Depositary Trust Company ( the "Depositary") and registered in
the name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Security Holder"). As used in this section,
the term "Securities" shall refer to any of the Existing Notes, Exchange Notes
or Warrants, in whatever form held.
Existing Notes that were (i) transferred to institutional "accredited
investors" who are not "qualified institutional buyers" (as such terms are
defined under "Transfer Restrictions" elsewhere herein (the "Non-Global
Purchasers")) or (ii) issued as described below under "Certificated
Securities" were issued in registered, definitive, certificated form (the
"Certificated Securities"). Upon the transfer to a qualified institutional
buyer of any Certificated Security initially issued to a Non-Global Purchaser,
such Certificated Security may, unless a Global Security has previously been
exchanged for Certificated Securities, be exchanged for an interest in a
Global Security representing the principal amount of the Securities being
transferred.
The procedures listed in the prior two paragraphs will also be applicable to
Exchange Notes issued in the Exchange offer.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of any Global Security, the Depositary will credit
the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of any Global Security and (ii) ownership of
the Securities evidenced by each Global Security will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Holders are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to own, transfer or pledge
Securities evidenced by any Global Security will be limited to such extent.
For certain other restrictions on the transferability of the Securities, see
"Transfer Restrictions."
So long as the Global Security Holder is the registered owner of any
Securities, the Global Security Holder will be considered the sole holder
under the Indenture of any Securities evidenced by any Global Security.
Beneficial owners of Securities evidenced by any Global Security will not be
considered the owners or holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the Securities.
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Payments in respect of the principal of, premium, if any, interest and
Additional Interest, if any, on any Notes registered in the name of the Global
Security Holder on the applicable record date will be payable by the Trustee
to or at the direction of the Global Security Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the person in whose names Notes, including
any Global Security, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts
to beneficial owners of Securities. The Company believes, however, that it is
currently the policy of the Depositary to immediately credit the accounts of
the relevant Participants with such payments, in amounts proportionate to
their respective holdings of beneficial interests in the relevant security as
shown on the records of the Depositary. Payments by the Depositary's
Participants and the Depositary's Indirect Participants to the beneficial
owners of Securities will be governed by standing instructions and customary
practice and will be the responsibility of the Depositary's Participants or
the Depositary's Indirect Participants.
Certificated Securities
Transferees of Existing Notes who are not "qualified institutional buyers"
as defined in Rule 144A under the Securities Act may hold Existing Notes only
in the form of Certificated Securities. All such Certificated Securities would
be subject to the legend requirements described in the Offering Memorandum
relating to the Existing Notes Offering under "Transfer Restrictions." In
addition, if (i)the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company,
at its option, notifies the Trustee in writing that it elects to change the
issuance of Existing Notes in the form of Certificated Securities under the
Indenture then, upon surrender by the Global Security Holder of any Global
Security, Certificated Securities will be issued to each person that the
Global Security Holder and the Depositary identify as being the beneficial
owner of the related Securities.
Neither the Company nor the Trustee will be liable for any delay by the
Global Security Holder or the Depositary in identifying the beneficial owners
of Existing Notes and the Company and the Trustee may conclusively rely on,
and will be protected in relying on, instructions from the Global Security
Holder or the Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, interest and Additional
Interest, if any) be made by wire transfer of immediately available funds to
the accounts specified by the Global Security Holder. With respect to
Certificated Notes, the Company will make all payments of principal, premium,
if any, interest and Additional Interest, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof
or, if no such account is specified, by mailing a check to each such holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearing-house or next-day funds. In
contrast, the Existing Notes represented by the Global Note have been approved
for trading in the PORTAL market and to trade in the Depositary's Same-Day
Funds Settlement System, and any permitted secondary market trading activity
in such Existing Notes will, therefore, be required by the Depositary to be
settled in immediately available funds. The Company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
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PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time, may
be used by Participating Broker-Dealers in connection with resales of Exchange
Notes received in exchange for Existing Notes where such Existing Notes were
acquired as a result of market-making activities or other trading activities.
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Company
has agreed that under certain circumstances, the Company shall use its best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended to the extent necessary to ensure that it
is available for sales of Exchange Notes by Participating Broker-Dealers, and
to ensure that the Exchange Offer Registration Statement conforms with the
requirements of the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period expiring approximately
180 days from the date on which the Exchange Offer Registration Statement is
declared effective.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such Exchange Notes. Any
Participating Broker-dealer that acquired Existing Notes as a result of market
making activities or other trading activities and who resells Exchange Notes
that were received by it pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commission or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Exchange Notes will be
passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996 and
for each of the three years in the period ended December 31, 1996, appearing
in this Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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GLOSSARY OF TERMS
56 Kbps...................... Equivalent to a single high-speed telephone
service line; capable of transmitting one voice
call or 56 Kbps of data. Currently in
widespread use by medium and large businesses
primarily for entry level high-speed data and
very low-speed video applications.
ATM.......................... Asynchronous Transfer Mode. A low latency,
fixed delay information transfer standard for
routing traffic. The ATM format can be used by
many different information systems, including
LANs, to deliver traffic at varying rates,
permitting a mix of data, voice and video.
Backbone..................... A centralized high-speed network that
interconnects smaller, independent networks.
Bandwidth.................... The number of bits of information that can move
through a communications medium in given amount
of time; the capacity of a telecommunications
circuit/network to carry voice, data and video
information. Typically measured in Kbps and
Mbps. Bandwidth from public networks is
typically available to business and residential
end-users in increments from 56 Kbps to T-3.
CIR.......................... Committed Information Rate. The rate, usually
expressed as a particular quantitative amount
of Kbps of Mbps of bandwidth, at which data is
guaranteed to be transmitted through a
dedicated lease line network connection.
E-mail....................... An application that allows a user to send or
receive text messages to or from any other user
with an Internet address, commonly termed an E-
mail address.
Firewall..................... A system placed between networks that filters
data passing through it and removes
unauthorized traffic, thereby enhancing the
security of the network.
Frame relay.................. A variable delay information transfer standard
for relaying traffic. Frame relay can be an
economical means to backhaul traffic to an ATM
network.
FTP.......................... File Transfer Protocol. A protocol that allows
file transfer between a host and a remote
computer.
Internet..................... A global collection of interconnected computer
networks which use TCP/IP, a common
communications protocol.
ISDN......................... Integrated Services Digital Network. An
information transfer standard for transmitting
digital voice and data over telephone lines at
speeds up to 128 Kbps.
Kbps......................... Kilobits per second. A transmission rate. One
kilobit equals 1,024 bits of information.
LAN.......................... Local Area Network. A data communications
network designed to interconnect personal
computers, workstations, minicomputers, file
servers and other communications and computing
devices within a localized environment.
G-1
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Latency...................... The time that elapses between the moment when a
command is sent to the time that a response is
received. On a network, latency is due to
delays in routers or switches, congestion
delays on a crowded backbone, and the time
required for electrons to travel a great
distance between nodes on a network.
Leased line.................. Telecommunications line dedicated to a
particular customer along a predetermined
route.
LEC.......................... Local Exchange Carrier. A telecommunications
company that provides telecommunications
services in a geographic area in which calls
generally are transmitted without toll charges.
Mbps......................... Megabits per second.
Modem........................ A device for transmitting digital information
over an analog telephone line.
NAP.......................... Network Access Point. A location at which ISPs
exchange each other's traffic.
Online services.............. Commercial information services that offer a
computer user access to a specified slate of
information, entertainment and communications
menus on what appears to be a single system.
Peering...................... The commercial practice under which nationwide
ISPs exchange each other's traffic without the
payment of settlement charges.
POPs......................... Points-of-presence. Geographic areas within
which the Company provides local access. For
purposes of this Memorandum, POPs include both
physical points of presence as well as VLA.
Router....................... A system placed between networks that relays
data to those networks based upon a destination
address contained in the data packets being
routed.
Server....................... Software that allows a computer to offer a
service to another computer. Other computers
contact the server program by means of matching
client software. In addition, such term means
the computer on which server software runs.
SuperPOP..................... A SuperPOP is a Concentric POP that is directly
connected to the Concentric ATM backbone.
SuperPOPs typically support dial access from
the region surrounding the SuperPOP (typically
within 200 miles of the SuperPOP) using the
services of a CLEC. SuperPOPs also support
dedicated access connections to customer
locations using Local Exchange Carrier and/or
Competitive Access Provider facilities to
connect the customer to the Concentric
SuperPOP.
TCP/IP....................... Transmission Control Protocol/Internet
Protocol. A suite of network protocols that
allow computers with different architectures
and operating system software to communicate
with other computers on the Internet.
T-1.......................... A data communications circuit capable of
transmitting data at 1.5 Mbps.
T-3 or DS3................... A data communications circuit capable of
transmitting data at 45 Mbps.
G-2
<PAGE>
UNIX......................... A computer operating system frequently found on
workstations and PCs and noted for its
portability and communications functionality.
VLA.......................... Virtual local access call numbers which allow a
subscriber in a location outside the calling
area of a physical POP to place a local call to
a phone number without incurring long distance
or message unit charges.
VPN.......................... Virtual Private Network. A network capable of
providing the tailored services of a private
network (i.e., low latency, high throughput,
security and customization) while maintaining
the benefits of a public network (i.e.,
ubiquity and economies of scale).
Webserver.................... A server connected to the Internet from which
Internet users can obtain information.
World Wide Web or Web........ A system that supports easy access to documents
that have been linked across the Internet. The
documents contain links to each other, hence
the term "Web." Users do not have to know the
locations of particular documents and work
through a user friendly interface.
G-3
<PAGE>
CONCENTRIC NETWORK CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Common Stock Subject to Rescission and Stockholders' Equity
(Deficit)............................................................... F-5
Statements of Cash Flows................................................. F-7
Notes to Financial Statements............................................ F-9
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors Concentric Network Corporation.
We have audited the accompanying balance sheets of Concentric Network
Corporation as of December 31, 1995 and 1996, and the related statements of
operations, common stock subject to rescission and stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated March 14, 1997
which report contained an explanatory paragraph regarding the Company's
ability to continue as a going concern, the Company, as discussed in Note 1,
has obtained written representation from a stockholder as to their intent and
ability to fund the operations of the Company through at least December 31,
1998. Therefore, the conditions that raised substantial doubt about whether
the Company will continue as a going concern no longer exist.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Concentric Network
Corporation at December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Jose, California
March 14, 1997, except for Note 1--"The
Company", as to which the date is
November 24, 1997, and Note 5 and Note
10, as to which the date is September
30, 1997, and Note 11, as to which the
date is December 18, 1997
F-2
<PAGE>
CONCENTRIC NETWORK CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 19,054 $ 17,657 $ 39,638
Accounts receivable, net of allowances
including $80 in 1996 and $572 in 1997 to
a related party........................... 116 1,849 4,395
Prepaid expenses and other current assets.. 1,167 1,722 5,913
-------- -------- ---------
Total current assets...................... 20,337 21,228 49,946
Property and equipment:
Computer and telecommunications equipment.. 17,622 55,091 71,088
Software................................... 256 583 1,264
Furniture and fixtures and leasehold
improvements.............................. 833 2,130 2,531
-------- -------- ---------
18,711 57,804 74,883
Accumulated depreciation and amortization.. 2,422 9,877 18,587
-------- -------- ---------
16,289 47,927 56,296
Other assets................................ 609 1,567 3,923
-------- -------- ---------
Total assets............................ $ 37,235 $ 70,722 $ 110,165
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 4,159 $ 16,723 $ 10,409
Accrued compensation and other employee
benefits.................................. 230 714 1,019
Other current liabilities.................. 617 2,163 3,562
Current portion of capital lease
obligations, including $2,758 in 1995,
$10,180 in 1996, and $13,172 in 1997 to a
related party............................. 3,198 11,258 14,715
Note payable to related party.............. 3,000 -- --
Deferred revenue........................... 141 1,238 1,409
-------- -------- ---------
Total current liabilities................. 11,345 32,096 31,114
Capital lease obligations, including $10,210
in 1995, $29,167 in 1996, and $34,952 in
1997 to a related party, net of current
portion.................................... 10,977 30,551 36,629
Convertible debentures...................... 70 -- --
Commitments and contingencies
Class A common stock subject to rescission,
$0.001 par value:
Issued and outstanding shares--445 in 1995,
455 in 1996, and 106 in 1997.............. 5,080 5,150 1,400
Stockholders' equity:
Preferred stock, $0.001 par value; issuable
in series:
Authorized shares--4,667 in 1995 and 7,333
in 1996 and 10,000 in 1997
Issued and outstanding shares--2,170 in
1995, 4,901 in 1996 and none in 1997--
unaudited................................ 35,695 95,215 --
Common stock, $0.001 par value; issuable in
classes:
Authorized shares--6,677 in 1995, 13,343
in 1996 and 100,000 in 1997
Issued and outstanding shares--1,388 in
1995, 1,393 in 1996 and 14,063 in 1997--
unaudited................................ 1,639 1,850 178,139
Accumulated deficit......................... (27,571) (93,952) (135,755)
Deferred compensation....................... -- (188) (1,362)
-------- -------- ---------
Total stockholders' equity................ 9,763 2,925 41,022
-------- -------- ---------
Total liabilities and stockholders'
equity................................. $ 37,235 $ 70,722 $ 110,165
======== ======== =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
CONCENTRIC NETWORK CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- --------------------
1994 1995 1996 1996 1997
------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue..................... $ 442 $ 2,483 $ 15,648 $ 8,215 $ 31,792
Costs and expenses:
Cost of revenue........... 2,891 16,168 47,945 30,951 45,495
Network equipment write-
off...................... -- -- 8,321 -- --
Development............... 534 837 2,449 1,603 3,538
Marketing and sales,
including $95, $920,
$2,448, $2,194, and
$1,439 to a related party
for the years ended
December 31, 1994, 1995,
and 1996, and the nine-
month periods ended
September 30, 1996 and
1997, respectively....... 639 3,899 16,609 11,033 17,489
General and
administrative........... 611 2,866 3,445 2,499 3,369
------- -------- -------- --------- ---------
Total costs and
expenses............... 1,675 23,770 78,769 46,086 69,981
------- -------- -------- --------- ---------
Loss from operations........ (4,233) (21,287) (63,121) (37,871) (38,099)
Other income................ -- -- -- -- (1,233)
Interest income............. (19) (137) (614) (381) (500)
Interest expense, including
$0, $797, $3,065, $1,852
and $3,709 to a related
party for the years ended
December 31, 1994, 1995,
and 1996, and the nine-
month periods ended
September 30, 1996 and
1997, respectively......... 76 858 3,874 2,783 5,437
------- -------- -------- --------- ---------
Net loss.................... $(4,290) $(22,008) $(66,381) $ (40,273) $ (41,803)
======= ======== ======== ========= =========
Pro forma net loss per
share...................... $ (11.88) $ (4.68)
======== =========
Shares used in computing pro
forma net loss per share... 5,590 8,939
======== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
CONCENTRIC NETWORK CORPORATION
STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION AND
STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK STOCKHOLDERS' EQUITY (DEFICIT)
SUBJECT TO ------------------------------------------- TOTAL
RESCISSION PREFERRED STOCK COMMON STOCK ACCUMU- DEFERRED STOCKHOLDERS'
------------- ---------------- ---------------- LATED COMPEN- EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT SATION (DEFICIT)
------ ------ ------- -------- ------ -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... -- $ -- -- $ -- 1,339 $ 101 $ (1,273) $ -- $ (1,172)
Issuance of Class A
common stock.......... 7 200 -- -- 5 19 -- -- 19
Issuance of stock for
services.............. -- -- -- -- 8 93 -- -- 93
Stock exchanged for
long-term debt........ -- -- -- -- 31 348 -- -- 348
Contribution of shares
in connection with
note settlement....... -- -- -- -- (66) -- -- -- --
Stock options granted
for debt and
services.............. -- -- -- -- -- 800 -- -- 800
Conversion of
debentures to common
stock................. 241 2,612 -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- (4,290) -- (4,290)
--- ------ ------ -------- ----- -------- --------- ------- --------
Balance at December 31,
1994................... 248 2,812 -- -- 1,317 1,361 (5,563) -- (4,202)
Issuance of Series A
preferred stock and
common stock (net of
issuance costs)....... -- -- 906 10,147 62 117 -- -- 10,264
Issuance of Series C
preferred stock (net
of issuance costs).... -- -- 805 20,691 -- -- -- -- 20,691
Conversion of note to
Series B preferred
stock................. -- -- 367 4,035 -- -- -- -- 4,035
Warrants issued to
purchase Series B
preferred stock....... -- -- -- 822 -- -- -- -- 822
Issuance of Class A
common stock.......... 23 690 -- -- -- 1 -- -- 1
Issuance of Class A
common stock for
services.............. -- -- -- -- 2 19 -- -- 19
Conversion of officer's
note payable for Class
B common stock........ -- -- -- -- 7 80 -- -- 80
Warrants issued to
purchase Class A
common stock.......... -- -- -- -- -- 61 -- -- 61
Conversion of
debentures to Class A
common stock.......... 174 1,578 -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- (22,008) -- (22,008)
--- ------ ------ -------- ----- -------- --------- ------- --------
Balance at December 31,
1995................... 445 5,080 2,078 35,695 1,388 1,639 (27,571) -- 9,763
Issuance of Class A
common stock.......... -- -- -- -- -- 1 -- -- 1
Conversion of
debentures to Class A
common stock.......... 10 70 -- -- -- -- -- -- --
Exercise of options.... -- -- -- -- 5 22 -- -- 22
Conversion of note to
Series C preferred
stock (net of issuance
costs)................ -- -- 123 2,960 -- -- -- -- 2,960
Issuance of Series D
preferred stock (net
of issuance costs).... -- -- 2,451 48,533 -- -- -- -- 48,533
Conversion of note to
Series D preferred
stock................. -- -- 249 5,072 -- -- -- -- 5,072
Warrants issued to
purchase Series D
preferred stock....... -- -- -- 2,955 -- -- -- -- 2,955
Deferred compensation
resulting from grant
of options............ -- -- -- -- -- 188 -- (188) --
Net loss............... -- -- -- -- -- -- (66,381) -- (66,381)
--- ------ ------ -------- ----- -------- --------- ------- --------
Balance at December 31,
1996................... 455 5,150 4,901 95,215 1,393 1,850 (93,952) (188) 2,925
</TABLE>
See accompanying notes.
F-5
<PAGE>
CONCENTRIC NETWORK CORPORATION
STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION AND
STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK STOCKHOLDERS' EQUITY (DEFICIT)
SUBJECT TO ----------------------------------------------
RESCISSION PREFERRED STOCK COMMON STOCK ACCUMU- DEFERRED
-------------- ----------------- ---------------- LATED COMPEN-
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT SATION
------ ------- ------- -------- ------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Class A common stock
(unaudited)........................ -- $ -- -- $ -- 5 $ 17 $ -- $ --
Conversion of Class B common to
Series A preferred stock
(unaudited)........................ -- -- 7 -- (7) -- -- --
Conversion of Series A preferred to
Class A common stock (unaudited) -- -- (931) (10,147) 931 10,147 -- --
Conversion of Series B preferred to
Class A common stock (unaudited)... -- -- (441) (5,297) 441 5,297 -- --
Conversion of Series C preferred to
Class A common stock (unaudited)... -- -- (1,251) (23,651) 1,251 23,651 -- --
Conversion of Series D preferred to
Class A common stock (unaudited)... -- -- (3,070) (60,509) 3,070 60,509 -- --
Shares issued upon the initial
public offering (net of issuance
costs) (unaudited)................. -- -- -- -- 4,300 45,982 -- --
Shares issued in a private placement
(unaudited)........................ -- -- -- -- 1,246 14,950 -- --
Conversion of note to Class A common
stock (unaudited).................. -- -- -- -- 253 3,041 -- --
Repurchase of Class A common stock
in connection with the initial
public offering (unaudited)........ -- -- -- -- (185) (2,217) -- --
Shares issued upon the exercise of
the greenshoe (net of issuance
costs) (unaudited)................. -- -- -- -- 645 7,180 -- --
Shares issued subject to dilution
ratios (unaudited)................. -- -- 484 -- -- -- -- --
Exercise of options to purchase
Class A common stock (unaudited)... -- -- -- -- 62 233 -- --
Exercise of warrants to purchase
Class A common stock (unaudited)... -- -- -- -- 309 1,201 -- --
Exercise of warrants to purchase
Series B preferred stock
(unaudited)........................ -- -- 67 440 -- -- -- --
Exercise of warrants to purchase
Series D preferred stock (net of
issuance costs) (unaudited)........ -- -- 234 2,841 -- -- -- --
Warrants issued to purchase Class A
common stock (unaudited)........... -- -- -- -- -- 1,245 -- --
Warrants issued to purchase Series D
preferred stock (net of issuance
costs) (unaudited)................. -- -- -- 1,108 -- -- -- --
Deferred compensation resulting from
grant of options (unaudited)....... -- -- -- -- -- 1,303 -- (1,303)
Amortization of deferred
compensation (unaudited)........... -- -- -- -- -- -- -- 129
Expiration of statutes of
limitations on common stock subject
to rescission (unaudited).......... (349) (3,750) -- -- 349 3,750 -- --
Net loss (unaudited)................ -- -- -- -- -- -- (41,803) --
---- ------- ------- -------- ------ -------- --------- -------
Balance at September 31, 1997
(unaudited)......................... 106 $ 1,400 -- $ -- 14,063 $178,139 $(135,755) $(1,362)
==== ======= ======= ======== ====== ======== ========= =======
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Issuance of Class A common stock
(unaudited)........................ $ 17
Conversion of Class B common to
Series A preferred stock
(unaudited)........................ --
Conversion of Series A preferred to
Class A common stock (unaudited) --
Conversion of Series B preferred to
Class A common stock (unaudited)... --
Conversion of Series C preferred to
Class A common stock (unaudited)... --
Conversion of Series D preferred to
Class A common stock (unaudited)... --
Shares issued upon the initial
public offering (net of issuance
costs) (unaudited)................. 45,982
Shares issued in a private placement
(unaudited)........................ 14,950
Conversion of note to Class A common
stock (unaudited).................. 3,041
Repurchase of Class A common stock
in connection with the initial
public offering (unaudited)........ (2,217)
Shares issued upon the exercise of
the greenshoe (net of issuance
costs) (unaudited)................. 7,180
Shares issued subject to dilution
ratios (unaudited)................. --
Exercise of options to purchase
Class A common stock (unaudited)... 233
Exercise of warrants to purchase
Class A common stock (unaudited)... 1,201
Exercise of warrants to purchase
Series B preferred stock
(unaudited)........................ 440
Exercise of warrants to purchase
Series D preferred stock (net of
issuance costs) (unaudited)........ 2,841
Warrants issued to purchase Class A
common stock (unaudited)........... 1,245
Warrants issued to purchase Series D
preferred stock (net of issuance
costs) (unaudited)................. 1,108
Deferred compensation resulting from
grant of options (unaudited)....... --
Amortization of deferred
compensation (unaudited)........... 129
Expiration of statutes of
limitations on common stock subject
to rescission (unaudited).......... 3,750
Net loss (unaudited)................ (41,803)
-------------
Balance at September 31, 1997
(unaudited)......................... $ 41,022
=============
</TABLE>
See accompanying notes.
F-6
<PAGE>
CONCENTRIC NETWORK CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................... $(4,290) $(22,008) $(66,381) $(40,273) $(41,803)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............. 169 2,196 7,528 5,084 12,389
Amortization of deferred
interest and marketing
and sales related to
issuance of warrants..... -- -- 1,942 640 1,534
Amortization of deferred
compensation............. -- -- -- -- 129
Loss on disposal of
equipment................ -- 29 -- -- 162
Network equipment write-
off...................... -- -- 8,321 -- --
Compensation related to
stock sales and option
grants................... 400 864 -- -- --
Stock issued for
services................. 93 19 -- -- --
Changes in current assets
and liabilities:
Prepaid expenses and
other current assets... (48) (818) (57) (143) (4,128)
Accounts receivable..... (81) (14) (1,734) (986) (2,546)
Accounts payable........ 1,081 3,051 5,129 2,284 (7,022)
Accrued compensation and
other employee
benefits............... 57 173 484 168 305
Deferred revenue........ -- 141 1,097 720 171
Other current
liabilities............ (20) 539 1,546 602 1,440
------- -------- -------- -------- --------
Net cash used in operating
activities................... (2,639) (15,828) (42,125) (31,904) (39,369)
INVESTING ACTIVITIES
Additions of property and
equipment.................... (791) (1,427) (6,889) (3,979) (5,065)
Proceeds from sale of property
and equipment................ -- -- -- -- 18
Increase in refundable
deposits..................... -- -- (442) (210) --
(Increase) decrease in note
receivable................... (255) 255 -- -- --
------- -------- -------- -------- --------
Net cash used in investing
activities................... (1,046) (1,172) (7,331) (4,189) (5,047)
FINANCING ACTIVITIES
Proceeds from notes payable... 298 7,000 6,300 6,300 5,000
Repayment of lease obligations
to a related party........... -- (1,609) (4,561) (3,354) (7,092)
Repayment of lease
obligations.................. -- -- (886) (536) (1,245)
Repayment of notes payable.... (324) (218) (1,300) (1,300) (2,000)
Repurchase of common stock.... -- -- -- -- (2,217)
Proceeds from sales of
convertible debentures....... 3,500 -- -- -- --
Proceeds from issuances of
stock and warrants........... 219 30,818 48,506 28,152 73,951
------- -------- -------- -------- --------
Net cash provided by financing
activities................... 3,693 35,991 48,059 29,262 66,397
------- -------- -------- -------- --------
Increase (decrease) in cash
and cash equivalents......... 8 18,991 (1,397) (6,831) 21,981
Cash and cash equivalents at
beginning of period.......... 55 63 19,054 19,054 17,657
------- -------- -------- -------- --------
Cash and cash equivalents at
end of period................ $ 63 $ 19,054 $ 17,657 $ 12,223 $ 39,638
======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE>
CONCENTRIC NETWORK CORPORATION
STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -----------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND FINANCING
ACTIVITIES
Stock options issued to settle
note payable..................... $ 400 $ -- $ -- $ -- $ --
Stock exchanged for notes payable,
including accrued interest....... $ 348 $ 4,115 $ 8,082 $ 8,081 $ 3,041
Capital lease obligations incurred
with a related party............. $ -- $ 14,578 $ 30,945 $ 16,776 $ 15,873
Capital lease obligations
incurred......................... $ -- $ 1,207 $ 2,136 $ 2,136 $ --
Reduction of accounts payable
through capital lease obligations
incurred......................... $ -- $ -- $ -- $ -- $ 2,000
Convertible debentures exchanged
for stock........................ $ 2,612 $ 1,578 $ 70 $ -- $ --
Issuance of warrants.............. $ -- $ 883 $ 2,955 $ 2,372 $ 1,245
Purchase of property and equipment
through accounts payable......... $ -- $ -- $ 6,344 $ -- $ --
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid..................... $ 9 $ 850 $ 2,807 $ 2,041 $ 4,203
</TABLE>
See accompanying notes.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Concentric Network Corporation (the Company or Concentric) was incorporated
in the state of Florida in April 1991. Concentric provides tailored, value-
added Internet Protocol (IP) based network services for businesses and
consumers. To provide these services, the Company utilizes its low/fixed
latency, high-throughput network, employing its advanced network architecture
and the Internet. Concentric's service offerings for enterprises include
virtual private networks (VPNs), dedicated access facilities (DAFs) and Web
hosting services. These services enable enterprises to take advantage of
standard Internet tools such as browsers and high-performance servers for
customized data communications within an enterprise and between an enterprise
and its suppliers, partners and customers. These services combine the cost
advantages, nationwide access and standard protocols of public networks with
the customization, high performance, reliability and security of private
networks. Concentric's service offerings for consumers and small office/home
office customers include local Internet dial-up access, Web hosting services
and online multiplayer gaming.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Since inception, the Company has
incurred cumulative net losses of approximately $135,755,000. Management
expects the Company to incur additional losses and recognizes the need for an
infusion of cash during the fiscal year 1998. The Company is actively pursuing
various alternatives to secure additional financing and believes that
sufficient funding will be available to achieve its planned business
objectives (see Note 10). The Company has obtained written representation from
a stockholder as to their intent and ability to fund operations through at
least December 31, 1998.
Interim Results
The accompanying balance sheet as of September 30, 1997 and the statements
of operations and cash flows for the nine months ended September 30, 1996 and
1997 and the statement of common stock subject to rescission and stockholders'
equity (deficit) for the nine months ended September 30, 1997 are unaudited.
In the opinion of management, the statements have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary for the fair statement
of interim periods. The data disclosed in these notes to the financial
statements for these periods is also unaudited.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity (at date of purchase) of three months or less to be the equivalent of
cash for the purpose of balance sheet and statement of cash flows
presentation. Cash and cash equivalents are carried at cost which approximates
market value. There were no short-term investments at December 31, 1995 and
1996 or September 30, 1997.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
related assets as follows: computer and telecommunications equipment: three to
five years; purchased software: three to five years; furniture and fixtures:
eight to ten years; and leasehold improvements: the shorter of the remaining
term of the related leases or the estimated economic useful lives of the
improvements. Equipment under capital leases is amortized over the related
lease term (see Note 3).
F-9
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Revenue and Customer Receivables
Revenue is recognized over the period in which services are provided,
generally monthly. Payments received in advance of services being provided are
included in deferred revenues. Substantially all end-user subscribers pay for
services with major credit cards for which the Company receives daily
remittances from the credit card carriers.
Commissions and other obligations to strategic partners through marketing
and distribution arrangements are expensed as incurred, at the time the
associated revenue is recognized.
Concentration of Credit Risk
The Company typically offers its enterprise customers credit terms. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. Credit losses have
historically been insignificant.
Cost of Revenue
Cost of revenue includes the cost of operating the Company's network,
including telecommunications charges, personnel costs, equipment depreciation
and amortization, and related overhead.
Development
Development expenditures primarily include personnel and related overhead
expenses incurred to design, create, and test product offerings and associated
client and server tools. These expenditures are charged to operations as
incurred. The Company does not currently develop software that is sold,
licensed, or otherwise marketed. Substantially all software development
efforts by the Company are in connection with the development of its network.
Marketing and Sales
Marketing and sales expense consists primarily of personnel expenses,
including salary and commissions, costs of marketing programs and the cost of
800 number circuits utilized by the Company for customer support functions.
Advertising Costs
The Company expenses the costs of advertising as incurred except for direct-
response advertising costs meeting certain specific criteria. To date, no
direct-response advertising costs have been capitalized.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes".
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-10
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Net Loss Per Share (Historical)
Except as noted below, net loss per share is computed using the weighted
average number of shares of common stock outstanding excluding common stock
subject to rescission. Common stock equivalent shares from convertible
preferred stock and from stock options and warrants are not included as the
effect is antidilutive. Pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, common and common equivalent shares issued by the
Company at prices below the initial public offering price during the twelve-
month period prior to the offering have been included in the calculation as if
they were outstanding for all periods presented (using the treasury stock
method and the estimated public offering price in calculating equivalent
shares).
Per share information calculated on the above noted basis is as follows:
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss per share...... $ (2.15) $ (11.09) $ (32.48) $ (19.77) $ (12.28)
========= ========= ========= ========= =========
Shares used in computing
net loss per share..... 1,995,000 1,984,000 2,044,000 2,037,000 3,405,000
========= ========= ========= ========= =========
</TABLE>
Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed as described above and also
gives effect, even if antidilutive, to common equivalent shares from
convertible preferred shares that will automatically convert to common shares
upon the closing of the Company's initial public offering (using the as-if-
converted method).
Stock-Based Compensation
The Company accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB Opinion No. 25), and has adopted the "disclosure only"
alternative described in Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123).
Effect of New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (FAS 128), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
FAS 128 on the calculation of primary and fully diluted earnings per share is
not expected to be material.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," effective January 1, 1996. The Company continually reviews
long-lived assets to assess recoverability based upon undiscounted cash flow
analysis. Impairments, if any, are recognized in operating results in the
period in which a permanent diminution in value is determined (see Note 3).
F-11
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Customer Concentrations
The Company currently derives a substantial portion of its total revenue
from a single customer. For the year ended December 31, 1996 and the nine
months ended September 30, 1997, revenue from WebTV Networks, Inc. represented
approximately 10.1% and 33.9%, respectively, of the Company's total revenue.
2. NETWORK EQUIPMENT WRITE-OFF
In December 1996, the Company wrote off approximately $8,321,000
representing the net book value and future commitments for certain network
equipment purchased from Sattel Communications LLC (Sattel), a stockholder of
the Company. The Company decided not to deploy the equipment in the network
because of concerns that the equipment would not provide the functionality and
reliability required by the Company and concerns that the equipment provider
would be unable to provide timely maintenance and support. Included in
accounts payable in the accompanying balance sheet at December 31, 1996 and
September 30, 1997 was $7,517,000 and $0, respectively, related to this
equipment.
3. COMMITMENTS
Operating Leases
The Company has an agreement with a third party through which such third
party makes available the premises at which the Company's POP sites throughout
the United States are located. POP sites are locations where certain
telecommunications switching and related equipment are installed. This
agreement expires in October 1999, and the amount of the payments is based,
among other things, on the number of POP sites maintained by the Company,
subject to certain minimums. Expenses of approximately $232,000, $1,155,000
and $1,622,000 were incurred during the years ended December 31, 1994, 1995,
and 1996, respectively, for these facilities. Additionally, the Company has
agreements with three telecommunications companies to locate POP sites and
certain of such equipment at their facilities. The expiration dates associated
with these agreements range from December 1998 to January 2000.
The Company leases space for offices and a data center in Bay City,
Michigan. The lease expires in December 1997. Rent expense associated with the
facility was approximately $36,000, $36,000 and $42,000 in the years ended
December 31, 1994, 1995, and 1996, respectively. In March 1996, the Company
entered into a lease agreement for office space in Saginaw, Michigan,
primarily for its customer support organization. This lease expires in
December 2001. Rent expense associated with the Saginaw facility was
approximately $129,000 for the year ended December 31, 1996. The Company
maintains its corporate headquarters in Cupertino, California where it leases
its facility under an operating lease that expires in April 1998. Lease
expense associated with this facility was approximately $100,000 and $267,000
in the years ended December 31, 1995 and 1996, respectively.
Rent expense under all operating leases of the Company totaled approximately
$268,000, $1,291,000 and $2,060,000 in the years ended December 31, 1994, 1995
and 1996.
F-12
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Future minimum lease commitments for all noncancelable operating leases at
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997.................................................................. $2,283
1998.................................................................. 985
1999.................................................................. 779
2000.................................................................. 217
2001.................................................................. 217
------
Total................................................................. $4,481
======
</TABLE>
Capital Leases
In August 1994, the Company entered into a master lease agreement under
which a related party began installing networking equipment at the Company's
POP sites and data center. This agreement became effective upon installation
and acceptance by the Company on March 31, 1995. The lease provides for
monthly payments for terms of 48 or 60 months, depending upon the type of
equipment. The Company has continued to install equipment under the terms of
this agreement, resulting in a monthly payment of approximately $896,000 and
$1,431,000 at December 31, 1996 and September 30, 1997, respectively.
In September 1995, the Company entered into a master lease agreement with a
third party for an equipment lease line against which the Company has leased
approximately $3,342,000 as of September 30, 1997. The term of the lease is 36
months and provides for monthly payments of approximately $114,000 as of
September 30, 1997. The Company has granted to the third party a security
interest in all equipment leased under this agreement.
Assets capitalized under capital leases totaled approximately $15,785,000,
$48,856,000, and $61,448,000 at December 31, 1995 and 1996, and September 30,
1997, respectively, and are included in computer and telecommunications
equipment. Accumulated amortization for assets capitalized under capital
leases totaled approximately $1,787,000, $8,306,000 and $15,199,426 at
December 31, 1995 and 1996, and September 30, 1997 respectively. Amortization
of leased assets is included in depreciation and amortization expense. Future
minimum lease payments under capital lease obligations at December 31, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $15,732
1998.. 15,105
1999................................................................ 11,321
2000................................................................ 6,069
Thereafter.......................................................... 3,393
-------
Total minimum lease payments........................................ 51,620
Less amount representing interest................................... 9,811
-------
Present value of net minimum lease payments......................... 41,809
Less current portion of capital leases.............................. 11,258
-------
Long-term portion of capital leases................................. $30,551
=======
</TABLE>
F-13
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Other
The Company has a noncancelable service agreement with AT&T for the
utilization of its frame relay telecommunications network. The agreement
provides for minimum payments to AT&T of approximately $300,000 per month over
its three-year term, expiring in June 1999.
The Company has a noncancelable service agreement with MCI for the
utilization of its ATM telecommunications network. The agreement provides for
minimum payments to MCI of approximately $1,200,000 per year over its term,
expiring three years after the end of an initial ramp up period but no later
than June 2000. The Company also has a noncancelable telecommunications
service agreement with MCI for other services, including dedicated access and
800 service, that provides for minimum payments of approximately $8,500,000
over the term of the agreement, expiring in June, 1998. The Company had
incurred expenses of approximately $3,700,000, $0 and $7,767,000 for the year
ended December 31, 1996 and the nine-month periods ended September 30, 1996
and 1997, respectively, related to these other services.
The Company has remaining minimum prepaid royalty commitments to a vendor
for distribution of licenses of the vendor's software totaling approximately
$1,016,000 due in installments through 1997. Prepaid royalties related to this
agreement were $300,000 at December 31, 1996.
In November 1995, the Company entered into a two-year service agreement
under which a third party provides substantially all of the network analysis
and deployment and maintenance of POP sites. This agreement has subsequently
been extended to October 31, 1999. The Company will reimburse the third party
for its employee compensation and direct costs for services provided. At the
end of the agreement, the third party is obligated to transfer to the Company
those personnel, resources, and facilities used to support the Company's
network analysis, POP site deployment, and maintenance. The Company, in turn,
will pay the third party $675,000 to relocate the remainder of the third
party's business to new facilities. Additionally, as part of the agreement,
the Company granted 60,000 options for its Class A common stock to employees
of such third party at an exercise price of $3.75. At September 30, 1997, all
of these options were vested.
4. CONVERTIBLE DEBENTURES AND NOTES
At December 31, 1995, convertible debentures in the amount of $70,000,
representing 9,802 shares of common stock, were outstanding. The conversion of
these debentures into shares of Class A common stock subject to rescission was
completed in March 1996.
In 1995, the Company issued convertible notes totaling $7,000,000 to
shareholders of which $4,000,000, plus accrued interest, was converted into
Series B convertible preferred stock in December 1995. The remaining
$3,000,000 outstanding at December 31, 1995 was converted into Series C
convertible preferred stock in February 1996.
5. COMMON STOCK SUBJECT TO RESCISSION
In August 1993, the Company commenced sales of convertible debentures and
certain additional shares of its common stock. Through March 31, 1995, sales
of convertible debentures aggregated $4,260,000, and issuance of common stock
aggregated $890,000. The sale of common stock and sale of and/or conversion of
debentures into common stock was not made pursuant to a registration statement
filed under the Securities Act of 1933 (the Act) or any filings pursuant to
the laws of any of the states in which such sales occurred (State Blue Sky
Laws). Although at the time the Company believed the sale and conversion, if
applicable, of these securities was exempt
F-14
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
from the provisions of the Act and applicable State Blue Sky Laws, it appears
that the appropriate exemptions may not have been available. As a result, on
September 30, 1997, the Company made rescission offers (the "Rescission
Offer") to certain purchasers of these securities who are entitled to a return
of the consideration paid for their stock or debentures. As such, these shares
have been classified as common stock subject to rescission in the accompanying
financial statements. Additionally, options issued pursuant to the Company's
1995 Stock Incentive Plan to Employees and Consultants and non-plan options
were issued in various states for which the Company may not have had an
available exemption under state laws. Such options are potentially subject to
rescission and the Company has included them in the Rescission Offer. As of
September 30, 1997, a number of statutes of limitations under federal and
state securities laws applicable to the shares which may have been issued
without securities laws exemptions have lapsed. Pursuant to the Rescission
Offer, the Company offered to rescind the issuance of shares and options as to
which the applicable statute of limitations has not run. There can be no
assurances that the Company will not otherwise be subject to additional
liabilities with respect to such issuances. If the Rescission Offer is
accepted in full, the Company would be required to pay approximately $1.4
million plus interest thereon totaling approximately $300,000 related to the
issuance of the stock and approximately $940,000 with respect to options.
6. STOCKHOLDERS' EQUITY
On August 5, 1996, the Company amended its Articles of Incorporation to
increase the number of authorized shares of Class A common stock and preferred
stock to 13,333,333 and 7,333,333, respectively. Of the 7,333,333 authorized
shares of preferred stock, 1,000,000, 866,667, 933,333, and 4,533,333 are
designated as Series A, B, C, and D, respectively.
Preferred Stock
Preferred stock at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
SHARES
ISSUED AND PAR LIQUIDATION
AUTHORIZED OUTSTANDING VALUE AMOUNT PREFERENCE
---------- ----------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A convertible.... 1,000,000 906,454 $0.001 $10,146,987 $10,000,000
Series B convertible.... 866,667 366,946 $0.001 4,857,130 4,035,130
Series C convertible.... 933,333 928,243 $0.001 23,651,008 20,690,804
Series D convertible.... 4,533,333 2,699,588 $0.001 56,559,871 55,071,586
--------- ----------- -----------
4,904,136 $95,214,996 $89,797,520
========= =========== ===========
</TABLE>
In April 1995, the Company agreed to sell 906,454 shares of Series A
convertible preferred stock and, as discussed below, warrants to purchase
Class A common stock for an aggregate of $10,000,000. In December 1995,
convertible notes totaling $4,000,000 and accrued interest were converted into
366,946 shares of Series B convertible preferred stock (see Note 4). In
October 1995, the Company agreed to sell 928,243 shares of Series C
convertible preferred stock. In August 1996, the Company agreed to sell
2,699,588 shares of Series D convertible preferred stock and, as discussed
below, warrants to purchase 795,051 shares of Series D convertible preferred
stock in connection with other agreements established with certain Series D
investors. Included in the sale of Series D shares was the conversion of a
June 1996 $5,000,000 bridge loan and accrued interest thereon.
The Preferred Stock and Warrant Purchase Agreement pursuant to which the
Series A convertible preferred stock was issued, as amended through August 21,
1996 (the Series A Agreement), contains certain provisions relating to
corporate governance prior to completion of a Qualified Public Offering, as
defined and as amended (see Note 10). These provisions include limiting the
size of the Company's Board of Directors to five, giving investors the right
to designate certain directors for election by the Company, and the automatic
designation for election of the Chief Executive Officer of the Company.
F-15
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The Series D Preferred Stock Purchase Agreement (the Series D Agreement)
also contains certain provisions relating to corporate governance, which are
effective as long as 20% of the shares of Series D preferred stock issued at
the initial closing remain outstanding. These provisions include a requirement
that the Board of Directors be large enough to enable the Series D holders to
designate three, four, or five board members, depending on the number of
Series D shares outstanding.
In addition, the Series A Agreement and the Series D Agreement provide that
without approval of the Series A and Series D investors, the Company may not
declare or pay dividends on common stock other than in common stock, make
loans or advances to any person except in the ordinary course of business or
under terms of a board-approved employee stock or option plan, or engage in a
transaction with an officer or director on terms better than could be obtained
from arms' length negotiations with an unrelated third party.
Each share of Series A, B, C, and D convertible preferred stock is
convertible into shares of Class A common stock initially on a one-for-one
basis, subject to adjustment for, among other things, stock splits, stock
dividends, and the issuance of additional shares of common stock and
securities convertible into common stock. Additionally, each share of Series A
convertible preferred stock is convertible into .003207 shares of Class B
common stock. The conversion price of Series A, B, C, and D convertible
preferred stock is subject to adjustment for any future issuance of common
stock at a per share price less than the exercise or conversion price. Holders
of each share of Series A, B, C, and D convertible preferred stock are
entitled to the number of votes equal to the number of shares of Class A and
Class B common stock into which the preferred stock is convertible. Holders of
Series A, B, C, and D convertible preferred stock will be entitled to receive
dividends on a pari passu basis.
Each share of Series A, B, C, and D convertible preferred stock will be
converted automatically into the number of shares of Class A common stock into
which such shares are convertible, immediately prior to the closing of a sale
of the Company's common stock to the public in a Qualified Public Offering, as
defined and as amended.
In the event of liquidation, dissolution, or winding up of the Company, each
holder of Series A, B, C, and D convertible preferred stock will be entitled
to be paid, with respect to each share of Series A, B, C, and D convertible
preferred stock held, a liquidation preference out of the assets available for
distribution to shareholders in an amount equal to $11.03, $11.00, $27.30, and
$20.40, respectively. Thereafter, holders of common stock will get pro rata
shares of an amount equal to the aggregate liquid amounts paid to Series A, B,
C, and D. Any residual assets will be distributed among the holders of common
and preferred stock as if each share of convertible preferred stock had been
converted into the number of shares of common stock issuable upon conversion
of the convertible preferred stock immediately prior to such liquidation,
dissolution, or winding up of the Company.
Warrants to Purchase Preferred Stock
In connection with a customer network services arrangement, the Company
issued warrants to purchase 136,407 shares of Series B convertible preferred
stock at an exercise price of $11.00 beginning December 11, 1995 and warrants
to purchase 128,205 shares of Series B convertible preferred stock at an
exercise price of $27.30 beginning February 27, 1996. The warrants expire at
the earlier of October 1998 or ten days from the closing of a Qualified Public
Offering of the Company's common stock meeting certain criteria. In 1995, the
Company recorded deferred sales and marketing expense of $822,000 to reflect
the value of these warrants as determined by using the Black-Scholes option
pricing method. Amortization of deferred sales and marketing expense totaled
$249,000 for the year ended December 31, 1996.
F-16
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
In December 1995, the Company issued warrants to purchase 181,876 shares of
Series B convertible preferred stock to certain preferred shareholders in
connection with the Series B convertible preferred stock financing. The
warrants expire three years from issuance and are exercisable at $11.00 per
share.
On June 6, 1996 and July 29, 1996, the Company received bridge loans from
various investors of $5,000,000 and $1,300,000, respectively. Included in
these transactions were the issuance of warrants to purchase 36,765 shares and
63,725 shares of Series D convertible preferred stock. These warrants expire
three years from issuance and are exercisable at $20.40 per share. The value
of these warrants, approximately $330,000, was expensed as a cost of
financing.
As part of the sale of Series D convertible preferred stock in August 1996,
the Company issued warrants to purchase 795,051 shares of Series D convertible
preferred stock to certain Series D investors. These warrants were issued in
connection with distribution, lease financing, and joint sales and marketing
agreements. These warrants will expire in three years and are exercisable at
$20.40 per share. The value of these warrants was determined by using the
Black-Scholes option pricing method. Approximately $1,369,000 of this value
was expensed in the year ended December 31, 1996, with the remaining balance
being amortized over the three-year life of the warrants.
Also, in connection with the sale of Series D convertible preferred stock,
an additional 176,678 warrants to purchase Series D convertible preferred
stock were issued for net consideration of approximately $1,108,000 in March
1997. These warrants will expire in three years and are exercisable at $20.40
per share.
Common Stock
Common stock at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
SHARES ISSUED PAR
AUTHORIZED AND OUTSTANDING VALUE AMOUNT
---------- --------------- ------ ----------
<S> <C> <C> <C> <C>
Class A......................... 13,333,333 1,385,790 $0.001 $1,769,819
Class B......................... 10,024 7,117 $0.001 80,065
---------- --------- ------ ----------
13,343,357 1,392,907 $1,849,884
========== ========= ==========
</TABLE>
The holders of Class A common stock are entitled to one vote per share on
all matters submitted to the shareholders. The holders of Class B common stock
are entitled to 500 votes per share on all matters submitted to the
shareholders. Each share of Class B common stock will automatically be
converted into one share of Class A common stock immediately prior to the
closing of common stock in a Qualified Public Offering, as defined and as
amended. The holders of common stock do not have preemptive rights under the
Company's Articles of Incorporation to subscribe for additional shares of
common stock. See Note 10 for the conversion of Class B common stock.
Subject to the preferences of the preferred stock, the holders of common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available for payment. In the event of the liquidation, dissolution, or
winding up of the Company, holders of common stock are entitled to receive
ratably an amount equal to the aggregate liquidation amount paid to all
holders of preferred stock. Thereafter, any remaining assets of the Company
are shared ratably by holders of common stock, calculated assuming the
conversion of all outstanding preferred stock.
F-17
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Warrants to Purchase Common Stock
From April 20 through July 5, 1995, the Company issued warrants to purchase
181,876 shares of Class A common stock to certain preferred shareholders in
connection with the Series A convertible preferred stock financing. The
warrants expire three years from issuance and are exercisable at $11.00 per
share.
In connection with the capital lease agreements discussed in Note 3, the
Company issued warrants to purchase 67,388 shares of Class A common stock at
an exercise price of $3.75. The warrants expire over a term from July 20, 1998
to February 15, 2000. In 1995, the Company recorded deferred interest of
$61,000 to reflect the value of these warrants using the Black-Scholes option
pricing method. Amortization of deferred interest totaled $25,000 for the year
ending December 31, 1996.
Stock Option Plans
The Company maintains the 1993 Incentive Stock Option Plan (the 1993 Plan),
the 1995 Plan and the 1996 Stock Plan (the 1996 Plan), collectively referred
to as the Plans. The 1996 Plan was approved by the Board of Directors on
December 30, 1996 and calls for shareholder approval within one year. The 1995
Plan was approved by the Board of Directors and shareholders in September
1995. In October 1995, the Company offered to exchange options issued under
the 1993 Plan for options under the 1995 Plan. With the inception of the 1996
Plan, no further options will be granted under the 1993 and 1995 Plans.
Among other things, the 1996 Plan provides for granting of incentive stock
options, nonstatutory stock options, and stock appreciation rights to
employees and consultants. Unless terminated sooner, the 1996 Plan will
terminate automatically in December 2006. A total of 700,000 shares of common
stock may be issued under the 1996 Plan of which 520,700 shares are available
for grant at December 31, 1996. See Note 10 for amendment and restatement of
the 1996 Plan. Options under all plans generally vest over a four-year period,
25% after one year and the remaining portion in equal monthly increments over
the remaining three years. Options generally expire within ninety days of
termination of employment or five years after full vesting has occurred.
In August 1994, the Company granted nonqualified options under individual
option agreements to purchase 106,667 shares of common stock at a per share
price of $3.75 to two of the Company's executives and majority shareholders
(53,333 options each) to settle a note payable of $400,000. This transaction
also resulted in compensation expense of $400,000 at the grant date. These
options were fully vested at the time of issuance; however, they may not be
exercised if the holder has any other unexercised options that were previously
granted to that individual. In addition, during 1994, the Company granted
other nonqualified stock options to various individuals under separate option
agreements. These options vest over periods of up to one year and expire over
periods of up to five years.
In April 1995, an additional 53,333 options to purchase Class A common stock
for $30.00 per share were issued to two of the Company's executives in
connection with their employment by the Company. These options were fully
vested upon issuance and are exercisable over five years.
F-18
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
In October 1995 and August 1996, the exercise price of options to purchase
182,375 shares and 46,673 shares of Class A common stock, respectively, were
repriced to $3.75 per share, the then fair value of the common stock, as
determined by the Company's Board of Directors.
The Company issued options to purchase 179,300 shares of Class A common
stock in December 1996, 40,267 shares of common stock in January 1997, 216,733
shares of common stock in June 1997, and repriced 181,473 options in July
1997. The Company recorded deferred compensation, for financial reporting
purposes, of approximately $188,000 in 1996 and $1,303,000 for the nine-month
period ended September 30, 1997, with respect to such option grants to reflect
the difference between the exercise price and the deemed fair value for
financial reporting purposes of these shares. Amortization of this deferred
compensation was $0 in 1996 and $129,000 in the nine-month period ended
September 30, 1997. The amortization of this deferred compensation will
continue over the four year vesting period of the associated stock options.
The following table summarizes stock option activity under all of the Plans:
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Balance at January 1, 1994............................ 38,333 $3.75--$30.00
Granted.............................................. 319,722 $3.75--$33.00
Exercised............................................ (4,933) $3.75
Canceled............................................. (666) $3.75
---------
Balance at December 31, 1994.......................... 352,456 $3.75--$33.00
Granted.............................................. 642,075 $3.75--$33.00
Exercised............................................ (133) $9.00
Canceled............................................. (187,315) $11.25--$12.45
---------
Balance at December 31, 1995.......................... 807,083 $3.75--$33.00
Granted.............................................. 421,620 $3.75
Exercised............................................ (4,483) $3.75--$ 9.00
Canceled............................................. (95,218) $3.75--$30.00
---------
Balance at December 31, 1996.......................... 1,129,002 $3.75--$33.00
Granted.............................................. 953,777 $3.75--$ 9.30
Exercised............................................ (61,852) $3.75
Canceled............................................. (219,566) $3.75--$ 9.30
---------
Balance at September 30, 1997......................... 1,801,361 $3.75--$30.00
=========
</TABLE>
At September 30, 1997, vested options totaled 637,079.
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
WEIGHTED AVERAGE NUMBER
NUMBER REMAINING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE AND VESTED EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$3.75................... 1,034,399 8.61 $3.75 537,079 $ 3.75
$6.00................... 397,654 9.34 $6.00 43,336 $ 6.00
$8.25--$30.00........... 369,308 9.32 $9.79 56,664 $13.48
--------- -------
Total................... 1,801,361 637,079
========= =======
</TABLE>
F-19
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Stock-Based Compensation
Pro forma information regarding results of operations and loss per share is
required by FAS 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under a
valuation method permitted by FAS 123. The value of the Company's stock-based
awards to employees in 1995 and 1996 was estimated using the minimum value
method. Should the Company complete an initial public offering (IPO) of its
stock, options granted after the IPO will be valued using the Black-Scholes
option pricing model. Among other things, the Black-Scholes model considers
the expected volatility of the Company's stock price, determined in accordance
with FAS 123, in arriving at an option valuation. The minimum value method
does not consider stock price volatility. Further, certain other assumptions
necessary to apply the Black-Scholes model may differ significantly from
assumptions used in calculating the value of options granted in 1995 and 1996
under the minimum value method.
The minimum value of the Company's stock-based awards to employees was
estimated assuming no expected dividends and the following weighted average
assumptions:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Expected life............................................ 8.5 years 8.5 years
Risk-free interest rate.................................. 6.2% 6.3%
</TABLE>
The weighted average minimum value of stock options granted during 1995 and
1996 was $0.10. Exercise prices for options outstanding as of December 31,
1996 ranged from $3.75 to $33.00. The weighted average remaining contractual
life of those options is 9.1 years. In 1996, certain options were issued at an
exercise price less than the stock price for which the weighted average
minimum value was $4.65. For pro forma purposes, the estimated minimum value
of the Company's stock-based awards to employees is amortized over the
options' vesting period. The results of applying FAS 123 to the Company's
option grants in 1995 and 1996 was not material to the results of operations
or loss per share for those years reported in the accompanying statements of
operations. Because FAS 123 is applicable only to awards granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
approximately 1998.
7. EMPLOYEE BENEFIT PLANS
Retirement Savings Plan
The Company maintains a contributory 401(k) plan that covers substantially
all employees. The Company contributes $0.30 for every $1.00 contributed by
the participant up to a maximum of 1.5% of the participants' compensation. The
Company contributed $5,000, $6,000 and $45,000 to the plan during the years
ended December 31, 1994, 1995, and 1996.
8. INCOME TAXES
As of December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately $86,000,000 and $59,000,000, respectively.
The net operating loss carryforwards will expire at various dates beginning in
the years 2003 through 2011, if not utilized.
F-20
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes of December 31, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $8,500,000 $32,000,000
Write-off of network equipment -- 5,000,000
Other, net........................................ 500,000 1,000,000
---------- -----------
Total deferred tax assets........................... 9,000,000 38,000,000
---------- -----------
Deferred tax liabilities:
Other, net -- 1,000,000
---------- -----------
Net deferred tax assets............................. 9,000,000 37,000,000
Valuation allowance................................. (9,000,000) (37,000,000)
---------- -----------
$ -- $ --
========== ===========
</TABLE>
The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability
of the deferred tax assets such that a full valuation allowance has been
recorded. These factors include the Company's history of net losses since
inception and the fact that the market in which the Company competes is
intensely competitive and characterized by rapidly changing technology. The
Company believes that, based on the currently available evidence, it is more
likely than not that the Company will not generate taxable income through
1998, and possibly beyond, and accordingly will not realize the Company's
deferred tax assets through 1998 and possibly beyond. The Company will
continue to assess the realizability of the deferred tax assets based on
actual and forecasted operating results. In addition, the utilization of net
operating losses may be subject to a substantial annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986 and
similar state provisions.
The net valuation allowance increased by approximately $7,000,000 in 1995
and $28,000,000 in 1996.
9. OTHER MATTERS
An officer of the Company is a majority shareholder of a vendor of the
Company. The Company incurred marketing fees to the vendor totaling $95,000,
$920,000, $2,450,000, $2,194,000 and $1,439,000 in the years ended December
31, 1994, 1995, 1996, and the nine-month periods ended September 30, 1996 and
1997, respectively.
10. SUBSEQUENT EVENTS
Initial Public Offering and Direct Placements
Effective July 30, 1997, the Company reincorporated under the laws of the
state of Delaware, at which time a one for 15 reverse stock split took effect.
Upon closing of the initial public offering (the Public Offering), all
outstanding shares of Series A, B, C, and D convertible preferred stock were
converted into Common Stock. All share and per share data in these financial
statements have been retroactively restated to reflect the reverse stock
split.
F-21
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
On August 1, 1997, the Company effected its Public Offering of Common Stock.
The offering consisted of 4,300,000 shares of Common Stock issued to the
public at $12.00 per share. Concurrent with the closing of the Public
Offering, certain strategic investors purchased directly from the Company
1,499,236 shares of Common Stock having an aggregate purchase price of
approximately $18 million (including the cancellation of approximately $3
million in indebtedness). Such shares are unregistered shares and were
purchased at the Public Offering price of $12.00 per share.
In connection with the direct purchase, the Company issued warrants to one
of the strategic investors to purchase 291,667 shares of the Company's Common
Stock at $6.00 per share. The fair value of these warrants was accounted for
as an issuance cost of the financing. The warrants expire five years from the
date of grant. In September, the underwriters exercised an option to purchase
an additional 645,000 shares of Common Stock at the Public Offering price of
$12.00 per share to cover over-allotments in connection with the Public
Offering.
Stock Option Plans.
On May 1, 1997, and June 6, 1997 the Company's Board of Directors took the
following actions which were approved by the Company's shareholders on June
30, 1997:
(i) Amended and restated the 1996 Stock Plan to increase the shares
reserved for grant thereunder to 793,333.
(ii) Adopted and approved the 1997 Stock Plan (the 1997 Plan) which provides
for the granting of incentive stock options to employees and the
granting of nonstatutory stock options and stock purchase rights to
employees, directors, and consultants of the Company. A total of
1,500,000 shares of the Company's common stock has been reserved for
issuance pursuant to the 1997 Plan. Unless terminated sooner, the 1997
Plan will terminate automatically in 2007.
(iii) Adopted and approved the 1997 Employee Stock Purchase Plan (the 1997
Purchase Plan) under which 500,000 shares of common stock have been
reserved for issuance. The 1997 Purchase Plan allows for eligible
employees to purchase stock at 85% of the lower of the fair market
value of the Company's common stock as of the first day of each six-
month offering period or at the end of the current purchase period.
The Plan has 24-month offering periods, with each offering period
divided into four consecutive six-month purchase periods. The initial
offering period will commence on the first trading day on or after
the closing of the initial public offering.
Exercise of Warrants
On April 18, 1997, certain preferred stockholders holding warrants to
purchase an aggregate number of 181,876 shares of Class A common stock and
66,688 shares of Series B convertible preferred stock at $11.00 per share,
exercised such warrants at a discounted price of $6.60 per share in
consideration of their early exercise. Additionally, certain preferred
stockholders exercised warrants to purchase an aggregate number of 233,660
shares of Series D convertible preferred stock at a price of $12.24,
discounted from the original price of $20.40. The Company received total
consideration of $4.5 million related to the exercise of these warrants. On
August 5, 1997, a stockholder holding warrants to purchase an aggregate number
of 127,041 shares of Class A common stock exercised such warrants at a price
of $14.44 per share pursuant to the cashless exercise provision of the
warrant. The Company received no consideration related to the exercise of
these warrants.
F-22
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Litigation
In late April and early May, 1997, three putative securities class action
complaints were filed in the United States District Court, Central District by
certain stockholders of Diana Corporation (Diana), the parent corporation of
Sattel Communications LLC (Sattel), alleging securities fraud related to
plaintiffs' purchase of shares of Diana Common Stock in reliance upon
allegedly misleading statements made by defendants, Diana, Sattel and certain
of their respective affiliates, officers and directors. The Company was named
as a defendant in the complaint in connection with certain statements made by
Diana and officers of Diana related to the Company's purchase of network
switching equipment from Diana's Sattel subsidiary. The plaintiffs seek
unspecified compensatory damages. The Company has moved to dismiss the
complaint against it. The motion is scheduled to be heard by the Court on
December 8, 1997.
While the ultimate outcome of such litigation is uncertain, the Company
believes it has meritorious defenses to the claims and intends to conduct a
vigorous defense. An unfavorable outcome in this matters could have a material
adverse effect on the Company's financial condition. In addition, even if the
ultimate outcomes is resolved in favor of the Company, the defense of such
litigation could entail considerable cost and the diversion of efforts of
management, either or which could have a material adverse effect on the
Company's results of operations.
Sattel Settlement
On April 22, 1997, a complaint was filed in the Los Angeles County,
California Superior Court against the Company and other unnamed defendants by
Sattel Communications LLC (Sattel). Sattel's complaint alleged that the
Company was in breach of an agreement to pay for up to $4.3 million of DSS
Switches from Sattel for use in the Company's network and also sought
unspecified consequential and punitive damages. On July 11, 1997, the Company
settled the complaint with Sattel in the amount of $4.4 million. The Company
also purchased 32,986 shares of the Company's common stock held by Sattel on
the day after the closing of the offering at the Public Offering price. In
August, 1997 the Company made cash payments to Sattel totaling approximately
$4.8 million, to satisfy its obligations pursuant to the settlement agreement
and the repurchase of common stock. Upon the settlement of the Sattel
complaint, the Company recorded $970,000 of other income related to the
reversal of previously established reserves.
Bridge Loans
In June 1997, the Company borrowed $3 million from a related party in the
form of a 10% convertible secured promissory note (the Secured Note). The
Secured Note automatically converted into 253,403 shares of Common Stock upon
the closing of the Public Offering at a per share conversion price equal to
the Public Offering price of $12.00. In connection with the Secured Note, the
Company issued a warrant to purchase 63,351 shares of Common Stock at an
exercise price of $6.00 per share. This warrant will expire five years from
the date of grant.
In June 1997, the Company borrowed $2 million from a stockholder in the form
of a 10% unsecured promissory note (the Unsecured Note). The Unsecured Note
was repaid in August 1997. In connection with the Unsecured Note, the Company
issued a warrant to purchase 83,333 shares of Common Stock at an exercise
price of $6.00 per share. This warrant will expire five years from the date of
grant.
The Company deemed the fair value of the warrants issued in connection with
the Secured Note and the Unsecured Note, using the Black-Scholes method, to be
approximately $930,000 which was amortized as interest expense in the nine
months ended September 30, 1997.
F-23
<PAGE>
CONCENTRIC NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Commitment
In August 1997, the Company entered into a five-year service and equipment
agreement under which a related party will provide telecommunication services
and equipment. The agreement provides for minimum payments as follows: $1.2
million in 1998, $2.5 million in 1999, $7.0 million in 2000, $6.5 million in
2001 and $4.0 million in 2002. At the election of the third party, $2.0
million of the minimum payments may be paid by the issuance of common stock of
the Company at the then-current fair market value.
11. SUBSEQUENT EVENT
Senior Notes
In December 1997, the Company issued 150,000 units (collectively, the
"Units"), each consisting of $1,000 principal amount of 12 3/4% Senior Notes
(the "Senior Notes") due 2007 of the Company, aggregate cash proceeds of
$150.0 million, and one warrant (a "Warrant"), each Warrant entitling the
holder thereof to purchase 6.34 shares of common stock at $10.86 per share and
such Warrants expire on December 15, 2007.
The Senior Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after December 15, 2002, at the redemption
prices set forth within the Senior Note agreement, plus accrued interest to
the date of redemption. In addition, on or prior to December 15, 2000, the
Company may redeem up to 35% of the original aggregate principal amount of
Senior Notes at a redemption price of 112.750% of the principal amount,
together with accrued and unpaid interest to the date of redemption with the
net cash proceeds of one or more public equity offerings or the sale of common
stock to a strategic investor, provided that at least 65% of the original
aggregate principal amount of the Senior Notes remain outstanding.
F-24
<PAGE>
ANNEX A
LETTER OF TRANSMITTAL
CONCENTRIC NETWORK CORPORATION
OFFER TO EXCHANGE ITS
NEW 12 3/4% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
12 3/4% SENIOR NOTES DUE 2007
PURSUANT TO THE PROSPECTUS
DATED [ ], 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME ON [ ], 1998 (30 BUSINESS DAYS FOLLOWING EFFECTIVENESS OF
THE EXCHANGE OFFER REGISTRATION STATEMENT ON FORM S-4, UNLESS EXTENDED BY
CONCENTRIC NETWORK CORPORATION IN ITS SOLE DISCRETION) (SUCH TIME AND SUCH
DATE, AND AS SUCH TIME AND DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
If you desire to accept the Exchange Offer (as defined below), this Letter
of Transmittal should be completed, signed, and submitted to:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
Exchange Agent
BY MAIL, OVERNIGHT DELIVERY OR HAND:
Chase Manhattan Bank and Trust Company, National Association
Attn:
(Concentric Network Corporation, 12 3/4% Senior Notes due 2007)
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
415-954-9526
FACSIMILE TRANSMISSIONS:
415-693-8850
(Originals of all documents sent by facsimile should be sent promptly by
hand, overnight courier or registered or certified mail.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
A-1
<PAGE>
This Letter of Transmittal is to be completed by holders of Existing Notes
(as defined below) either if Existing Notes are to be forwarded herewith or if
tenders of Existing Notes are to be made by book-entry transfer to an account
maintained by Chase Manhattan Bank and Trust Company, National Association
(the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the
procedures set forth in "The Exchange Offer-Procedures for Tendering Existing
Notes" in the Prospectus.
Holders of Existing Notes whose certificates (the "Certificates") for such
Existing Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or
prior to the Expiration Date (as defined in the Prospectus) or who cannot
complete the procedures for book-entry transfer on a timely basis, must tender
their Existing Notes according to the guaranteed delivery procedures set forth
in "The Exchange Offer-Procedures for Tendering Existing Notes" in the
Prospectus. See Instruction 1 hereto. DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
A-2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Concentric Network Corporation, a Delaware
corporation (the "Company"), the aggregate principal amount of the Company's
12 3/4% Senior Notes due 2007 (the "Existing Notes") described in Box 1 below,
in exchange for a like aggregate principal amount of the Company's new 12 3/4%
Senior Notes due 2007 (the "Exchange Notes") which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), upon the terms
and subject to the conditions set forth in the Prospectus dated [ ], 1998
(as the same may be amended or supplemented from time to time, the
"Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitutes the "Exchange
Offer").
Subject to, and effective upon, the acceptance for exchange of all or any
portion of the Existing Notes tendered herewith in accordance with the terms
and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to such Existing
Notes as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints Chase Manhattan Bank and Trust Company, National
Association as the Exchange Agent (the "Exchange Agent") as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting
as agent of the Company in connection with the Exchange Offer) with respect to
the tendered Existing Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest),
subject only to the right of withdrawal described in the Prospectus, to (i)
deliver Certificates for Existing Notes to the Company together with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Company, upon receipt by the Exchange Agent, as the undersigned's agent,
of the Exchange Notes to be issued in exchange for such Existing Notes, (ii)
present Certificates for such Existing Notes for transfer, and to transfer the
Existing Notes on the books of the Company, and (iii) receive for the account
of the Company all benefits and otherwise exercise all rights of beneficial
ownership of such Existing Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
EXISTING NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE EXISTING NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE
NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF
THE EXISTING NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS
OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ
AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Existing
Notes tendered hereby should be printed in Box 1 below, if they are not
already set forth below, as they appear on the Certificates representing such
Existing Notes. The Certificate number(s) and the Existing Notes that the
undersigned wishes to tender should be indicated in the appropriate box below.
If any tendered Existing Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Existing Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Existing Notes will be returned (or, in the case of Existing
Notes tendered by book-entry transfer, such Existing Notes will be credited to
an account maintained at DTC), without expense to the tendering holder,
promptly following the expiration or termination of the Exchange Offer.
A-3
<PAGE>
The undersigned understands that tenders of Existing Notes pursuant to any
one of the procedures described in "The Exchange Offer-Procedures for
Tendering Existing Notes" in the Prospectus and in the instructions hereto
will, upon the Company's acceptance for exchange of such tendered Existing
Notes, constitute a binding agreement between the undersigned and the Company
upon the terms and subject to the conditions of the Exchange Offer. The
undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Existing Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below (Box 7), the undersigned hereby directs that the Exchange
Notes be issued in the name(s) of the undersigned or, in the case of a book-
entry transfer of Existing Notes, that such Exchange Notes be credited to the
account indicated below maintained at DTC. If applicable, substitute
Certificates representing Existing Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Existing Notes, will be credited to the account indicated below
maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions" (Box 8), please deliver Exchange Notes to the
undersigned at the address shown below the undersigned's signature.
BY TENDERING EXISTING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (i) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (ii) ANY EXCHANGE NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (iii)
THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF
EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (iv) IF THE
UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND
DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE
SECURITIES ACT) OF SUCH EXCHANGE NOTES. BY TENDERING EXISTING NOTES PURSUANT
TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF
EXISTING NOTES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH
CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF
CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD
PARTIES, THAT SUCH EXISTING NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES (SUCH A BROKER-DEALER WHICH IS TENDERING EXISTING NOTES IS HEREIN
REFERRED TO AS A "PARTICIPATING BROKER-DEALER") AND IT WILL DELIVER THE
PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH PARTICIPATING BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT
IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER IN CONNECTION WITH
RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR EXISTING NOTES, WHERE SUCH
EXISTING NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES,
FOR A PERIOD ENDING 180 DAYS AFTER THE EXPIRATION DATE OR, IF EARLIER, WHEN
ALL SUCH EXCHANGE NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-
DEALER. IN THAT REGARD, EACH PARTICIPATING BROKER-DEALER, BY TENDERING SUCH
EXISTING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON
RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE
A-4
<PAGE>
IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY
WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS
SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-
DEALER WILL SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT TO THE PROSPECTUS
UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH
MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE EXCHANGE NOTES MAY BE RESUMED, AS THE CASE
MAY BE.
Each Exchange Note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Existing Note surrendered
in exchange for such Exchange Note or, if no such interest has been paid or
duly provided for on such Existing Note, from December 15, 1997. Holders of
the Existing Notes whose Existing Notes are accepted for exchange will not
receive accrued interest on such Existing Notes for any period from and after
the last Interest Payment Date to which interest has been paid or duly
provided for on such Existing Notes prior to the original issue date of the
Exchange Notes or, if no such interest has been paid or duly provided for,
will not receive any accrued interest on such Existing Notes, and will be
deemed to have waived the right to receive any interest on such Existing Notes
accrued from and after such Interest Payment Date or, if no such interest has
been paid or duly provided for, from and after December 15, 1997.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except
pursuant to the withdrawal rights set forth in the Prospectus, this tender is
irrevocable.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
THE BOXES BELOW AND FOLLOW THE INSTRUCTIONS BEGINNING ON PAGE 9 HEREOF.
A-5
<PAGE>
ALL TENDERING HOLDERS COMPLETE THIS BOX 1:
BOX 1
DESCRIPTION OF EXISTING NOTES TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF BLANK,
PLEASE PRINT
NAME(S) AND
ADDRESS(ES) OF
REGISTERED
HOLDER(S),
EXACTLY AS
NAME(S)
APPEAR(S) ON CERTIFICATE PRINCIPAL AMOUNT
EXISTING NOTE NUMBER(S) OF PRINCIPAL AMOUNT OF EXISTING NOTES
CERTIFICATE(S): EXISTING NOTES* OF EXISTING NOTES TENDERED**
- ----------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
TOTAL PRINCIPAL
TOTAL PRINCIPAL AMOUNT TENDERED
AMOUNT $ $
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Existing Notes may be tendered in whole or in part in denominations of
$1,000 and integral multiples thereof. All Existing Notes held shall be
deemed tendered unless a lesser number is specified in this column. See
Instruction 4.
BOX 2
BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1 BELOW)
- --------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution ________________________________________________
DTC Account Number ___________________________________________________________
Transaction Code Number ______________________________________________________
A-6
<PAGE>
BOX 3
NOTICE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 1 BELOW)
- --------------------------------------------------------------------------------
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name of Registered Holders(s) ________________________________________________
Window Ticket Number (if any) ________________________________________________
Date of Execution of Notice of Guaranteed Delivery ___________________________
Name of Institution which Guaranteed Delivery ________________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer: _________________
Name of Tendering Institution ________________________________________________
DTC Account Number ___________________________________________________________
Transaction Code Number ______________________________________________________
BOX 4
RETURN OF NON-EXCHANGED EXISTING NOTES TENDERED BY BOOK-ENTRY TRANSFER
(SEE INSTRUCTIONS 4 AND 6 BELOW)
- --------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED EXISTING
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
BOX 5
PARTICIPATING BROKER-DEALER
- --------------------------------------------------------------------------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE EXISTING NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF
THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ________________________________________________________________________
Address: _____________________________________________________________________
A-7
<PAGE>
BOX 6
TENDERING HOLDER SIGNATURE
- --------------------------------------------------------------------------------
Holder(s) Sign Here __________________________________________________________
(SEE INSTRUCTIONS 2, 5 AND 6 BELOW)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 IN BOX 9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Existing Notes hereby tendered or on a security
position listing, or by a person(s) authorized to become the registered
holder(s) by endorsements and documents transmitted herewith (including such
opinions of counsel, certifications and other information as may be required
by the Company or the Trustee for the Existing Notes to comply with the
restrictions on transfer applicable to the Existing Notes). If signature is
by an attorney-in-fact, executor, administrator, trustee, guardian, officer
of a corporation or another acting in a fiduciary capacity or representative
capacity, please set forth the signer's full title. See Instruction 5 below.
______________________________
(Signature(s) of Holder(s))
Date ________________ , 1998
Name(s) ______________________________________________________________________
(Please Print)
Address ______________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _______________________________________________
(Tax Identification or Social Security Number(s)) ____________________________
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1, 2 AND 5 BELOW)
______________________________
Authorized Signature
Name _________________________________________________________________________
(Please Print)
Date _________________, 1998
Capacity or Title ____________________________________________________________
Name of Firm _________________________________________________________________
Address ______________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _______________________________________________
A-8
<PAGE>
BOX 7 BOX 8
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6 (SEE INSTRUCTIONS 1, 5 AND 6
BELOW) BELOW)
To be completed ONLY if the Ex- To be completed ONLY if Exchange
change Notes are to be issued in Notes are to be sent to someone
the name of someone other than other than the registered holder
the registered holder of the Ex- of the Existing Notes whose
isting Notes whose name(s) ap- name(s) appear(s) above, or to
pear(s) above. such registered holder(s) at an
address other than that shown
above.
Issue Exchange Notes to:
Name _____________________________ Mail Exchange Notes to:
(Please Print) Name______________________________
Address __________________________ (Please Print)
__________________________________ Address __________________________
(Include Zip Code) __________________________________
__________________________________ (Include Zip Code)
(Tax Identification or Social __________________________________
Security Number) (Tax Identification or Social
Security Number)
A-9
<PAGE>
BOX 9
SUBSTITUTE FORM W-9
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9 BELOW)
SIGN THIS SUBSTITUTE FORM W-9 IN ADDITION TO THE SIGNATURE(S) REQUIRED IN BOX
6
PAYER'S NAME: CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
PART I--Please provide your TIN:
SUBSTITUTE TIN (either your social
security number or employer
FORM W-9 identification number) in
the box to the right and
certify by signing and
dating below.
----------------------
--------------------------------------------------------
DEPARTMENT OF PART II--Awaiting TIN [_]
THE TREASURY SIGN THIS FORM AND THE CERTIFICATION OF AWAITING
INTERNAL TAXPAYER IDENTIFICATION NUMBER BELOW.
REVENUE --------------------------------------------------------
SERVICE PART III--EXEMPT [_]
See enclosed Guidelines for additional information
and SIGN THIS FORM.
--------------------------------------------------------
PAYER'S REQUEST Certification--Under penalties of
FOR TAXPAYER perjury, I certify that:
IDENTIFICATION (1) The number shown on this form is my correct
NUMBER (TIN) AND taxpayer identification number (or I am waiting for
CERTIFICATION a number to be issued to me); and
(2) I am not subject to backup withholding because (i) I
am exempt from backup withholding, or (ii) I have
not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a
result of a failure to report all interest or
dividends, or (iii) the IRS has notified me that I
am no longer subject to backup withholding.
(3) Any other information provided on this form is
true and correct.
--------------------------------------------------------
Certification Instructions--You must cross out item
(iii) in Part (2) above if you have been notified by
the IRS that you are subject to backup withholding
because of underreporting interest or dividends on
your tax return and you are no longer subject to
backup withholding.
Signature: _______________________ Date: __________
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me on account of the Exchange
Notes shall be retained until I provide a taxpayer identification number to
the Exchange Agent and that, if I do not provide my taxpayer identification
number within 60 days, such retained amounts shall be remitted to the
Internal Revenue Service as backup withholding and 31% of all reportable
payments made to me thereafter will be withheld and remitted to the Internal
Revenue Service until I provide a taxpayer identification number.
Signature: ___________________________________________________________________
Date: ________________________________________________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
FOR ADDITIONAL INFORMATION.
A-10
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
GENERAL
Please do not send Certificates for Existing Notes directly to the Company.
Your Existing Note Certificates, together with your signed and completed
Letter of Transmittal and any required supporting documents should be mailed
in the enclosed addressed envelope, or otherwise delivered, to the Exchange
Agent, at either of the addresses indicated on the first page hereof. THE
METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES
This Letter of Transmittal is to be completed if either (a) Certificates are
to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Existing Notes" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such Existing
Notes into the Exchange Agent's account at DTC, as well as this Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at its address
set forth herein on or prior to 5:00 p.m., New York City time, on the
Expiration Date. Existing Notes may be tendered in whole or in part in the
principal amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Existing Notes and (i) whose Existing Notes
are not immediately available or (ii) who cannot deliver their Existing Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent on or prior to the Expiration Date or (iii) who cannot complete the
procedures for delivery by book-entry transfer on a timely basis, may tender
their Existing Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer--Procedures for Tendering Existing Notes" in the
Prospectus and by completing Box 3 hereof. Pursuant to such procedures: (i)
such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Exchange Agent on or prior to the Expiration Date; and (iii)
the Certificates (or a book-entry confirmation (as defined in the Prospectus))
representing all tendered Existing Notes, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in
"The Exchange Offer--Procedures for Tendering Existing Notes" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Existing Notes
to be properly tendered pursuant to the guaranteed delivery procedure, the
Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein, "Eligible Institution" means a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible
guarantor institution," including (as such terms are defined therein) (i) a
bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association, that is a participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Medallion Signature
Program or the Stock Exchanges Medallion Program.
A-11
<PAGE>
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance
of such tender.
2. GUARANTEE OF SIGNATURES
No signature guarantee on this Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC
whose name appears on a security position listing as the owner of the
Existing Notes) of Existing Notes tendered herewith, unless such holder(s)
has completed either the box entitled "Special Exchange Instructions" (Box
7) or the box entitled "Special Delivery Instructions" (Box 8) above, or
(ii) such Existing Notes are tendered for the account of a firm that is
an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal (Box 6). See Instruction 5.
3. INADEQUATE SPACE
If the space provided in the box captioned "Description of Existing Notes"
is inadequate, the Certificate number(s) and/or the principal amount of
Existing Notes and any other required information should be listed on a
separate signed schedule which should be attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS
Tenders of Existing Notes will be accepted only in the principal amount of
$1,000 and integral multiples thereof. If less than all the Existing Notes
evidenced by any Certificate submitted are to be tendered, fill in the
principal amount of Existing Notes which are to be tendered in Box 1 under the
column "Principal Amount of Existing Notes Tendered". In such case, new
Certificate(s) for the remainder of the Existing Notes that were evidenced by
your Existing Certificate(s) will only be sent to the holder of the Existing
Notes, promptly after the Expiration Date. All Existing Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at its address set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Existing Notes to be
withdrawn, the aggregate principal amount of Existing Notes to be withdrawn,
and (if Certificates for such Existing Notes have been tendered) the name of
the registered holder of the Existing Notes as set forth on the Certificate
for the Existing Notes, if different from that of the person who tendered such
Existing Notes. If Certificates for the Existing Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Certificates for the Existing Notes, the tendering holder must submit
the serial numbers shown on the particular Certificates for the Existing Notes
to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Existing Notes
tendered for the account of an Eligible Institution. If Existing Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
"The Exchange Offer--Procedures for Tendering Existing Notes," the notice of
withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawal of Existing Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of
Existing Notes may not be rescinded. Existing Notes properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The
Exchange Offer--Procedures for Tendering Existing Notes."
A-12
<PAGE>
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give such notification. Any Existing Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS
If this Letter of Transmittal is signed by the registered holder(s) of the
Existing Notes tendered hereby, the signature(s) must correspond exactly with
the name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Existing Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Existing Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal (or facsimiles thereof) as there are
different registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and, unless waived by the
Company, must submit proper evidence satisfactory to the Company, in its sole
discretion, of such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Existing Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Notes
are to be issued in the name of a person other than the registered holder(s).
However, if Exchange Notes are to be issued in the name of a person other than
the registered holder(s), signature(s) on such Certificate(s) or bond power(s)
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Existing Notes listed, the certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also
must be accompanied by such opinions of counsel, certifications and other
information as the Company or the Trustee for the Existing Notes may require
in accordance with the restrictions on transfer applicable to the Existing
Notes. Signatures on such Certificates or bond powers must be guaranteed by an
Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
If Exchange Notes are to be issued in the name of a person other than the
signer of this Letter of Transmittal, or if Exchange Notes are to be sent to
someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed (Box 7 and 8). Certificates for Existing Notes
not exchanged will be returned by mail or, if tendered by book-entry transfer,
by crediting the account indicated above maintained at DTC. See Instruction 4.
7. DETERMINATION OF VALIDITY
The Company will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Existing Notes, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any and all tenders determined by it not to be in proper form
or the acceptance of which, or exchange for, may, in the view of counsel to
the Company, be unlawful. The Company also reserves the absolute right,
subject to
A-13
<PAGE>
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer-Certain Conditions to the Exchange
Offer" or any conditions or irregularity in any tender of Existing Notes of
any particular holder whether or not similar conditions or irregularities are
waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will
be final and binding. No tender of Existing Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent, nor any other person shall be under any duty to
give notification of any irregularities in tenders or incur any liability for
failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES
Questions and requests for assistance may be directed to the Exchange Agent
at its address and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange
Agent.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9
For U.S. Federal income tax purposes, holders are required, unless an
exemption applies, to provide the Exchange Agent with such holder's correct
taxpayer identification number ("TIN") on Substitute Form W-9 of this Letter
of Transmittal (Box 9) and certify, under penalties of perjury, that such
number is correct and he or she is not subject to backup withholding. If the
Exchange Agent is not provided with the correct TIN, the Internal Revenue
Service (the "IRS") may subject the holder or other payee to a $50 penalty. In
addition, payments to such holders or other payees with respect to Existing
Notes exchanged pursuant to the Exchange Offer, or with respect to Exchange
Notes following the Exchange Offer, may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 (Box 9) may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 2 is
checked, the holder or other payee must also complete the Certificate of
Awaiting Taxpayer Identification Number below Substitute Form W-9 in order to
avoid backup withholding. Notwithstanding that the box in Part 2 is checked
and the Certificate of Awaiting Taxpayer Identification Number is completed,
the Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent.
The holder is required to give the Exchange Agent the TIN (i.e., social
security number or employer identification number) of the registered owner of
the Existing Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Existing Notes. If the Existing Notes are
registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below and check the box in Part 3 of
Box 9 for "exempt", to avoid possible erroneous backup withholding. A foreign
person may qualify as an exempt recipient by submitting a properly completed
IRS Form W-8, signed under penalties of perjury, attesting to that holder's
exempt status. Please consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
A-14
<PAGE>
10. LOST, DESTROYED OR STOLEN CERTIFICATES
If any Certificate(s) representing Existing Notes have been lost, destroyed
or stolen, the holder should promptly notify the Exchange Agent. The holder
will then be instructed as to the steps that must be taken in order to replace
the Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Existing Notes tendered, or if a transfer
tax is imposed for any reason other than the exchange of Existing Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
A-15
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN--The Taxpayer Identification Number for most individuals is their
social security number. Refer to the following chart to determine the
appropriate number:
- -------------------------------------- --------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------- ----------------
<S> <C>
1. individual The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4. a The usual revocable The grantor-
savings trust (grantor trustee(1)
is also trustee)
b So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
5. Sole proprietorship The owner(3)
- ---------------------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
----
<S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate Legal entity(4)
or pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational or other
tax-exempt
organization
10. Partnership The partnership
11. A broker or registered The broker or
nominee nominee
12. Account with the The public
Department of entity
Agriculture
----
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or
"doing business as" name. You may use either your Social Security number
or your employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
B. EXEMPT PAYEES--The following lists exempt payees. If you are exempt, you
must nonetheless complete the form and provide your TIN in order to establish
that you are exempt. Check the box in Part 3 of the form, sign and date the
form.
For this purpose, Exempt Payees include: (1) A corporation; (2) An
organization exempt from tax under section 501(a), or an individual retirement
plan (IRA) or a custodial account under section 403(b)(7); (3) The United
States or any of its agencies or instrumentalities; (4) A state, the District
of Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities; (5) A foreign government or any of its
political subdivisions, agencies or instrumentalities; (6) An international
organization or any of its agencies or instrumentalities; (7) A foreign
central bank of issue; (8) A dealer in securities or commodities required to
register in the U.S. or a possession of the U.S.; (9) A real estate investment
trust; (10) An entity or person registered at all times during the tax year
under the Investment Company Act of 1940; (11) A common trust fund operated by
a bank under section 584(a); (12) A financial institution.
C. OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, application for a Social Security Number, or Form
SS-4, Application for Employer Identification Number, at the local office of
the Social Security Administration or the Internal Revenue Service and apply
for a number.
D. PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividend, interest or other
payments to give taxpayer identification numbers to payers who must report the
payments to the IRS. The IRS uses the numbers for identification purposes.
Payers must be
A-16
<PAGE>
given the numbers whether or not payees are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not furnish a taxpayer identification
number. Certain penalties may also apply.
E. PENALTIES
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
A-17
<PAGE>
ANNEX B
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
12 3/4% SENIOR NOTES DUE 2007
OF
CONCENTRIC NETWORK CORPORATION
THIS NOTICE OF GUARANTEED DELIVERY, OR ONE SUBSTANTIALLY EQUIVALENT TO THIS
FORM, MUST BE USED TO ACCEPT THE EXCHANGE OFFER (AS DEFINED BELOW) IF
(I)CERTIFICATES FOR THE COMPANY'S (AS DEFINED BELOW) 12 3/4% SENIOR NOTES DUE
2007 (THE "EXISTING NOTES") ARE NOT IMMEDIATELY AVAILABLE, (II)THE EXISTING
NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS CANNOT BE
DELIVERED TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION (THE
"EXCHANGE AGENT") ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE
PROSPECTUS REFERRED TO BELOW) OR (III)THE PROCEDURES FOR DELIVERY BY BOOK-
ENTRY TRANSFER CANNOT BE COMPLETED ON A TIMELY BASIS. THIS NOTICE OF
GUARANTEED DELIVERY MAY BE DELIVERED BY HAND, OVERNIGHT COURIER OR MAIL, OR
TRANSMITTED BY FACSIMILE TRANSMISSION, TO THE EXCHANGE AGENT. SEE "THE
EXCHANGE OFFER PROCEDURES FOR TENDERING EXISTING NOTES" IN THE PROSPECTUS.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
BY MAIL, OVERNIGHT DELIVERY OR HAND:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
101 CALIFORNIA STREET, SUITE 2725
SAN FRANCISCO, CA 94111
ATTN: PAULA OSWALD
TRUST DEPARTMENT
(CONCENTRIC NETWORK CORPORATION, 12 3/4% SENIOR NOTES DUE 2007)
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
415-954-9526
FACSIMILE TRANSMISSIONS:
415-693-8850
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
B-1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Concentric Network Corporation, a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated [], 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus") and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Existing Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer-Procedures for Tendering
Existing Notes."
DESCRIPTION OF EXISTING NOTES TENDERED
Name(s), Address(es) and Area Code(s) and Telephone
Number(s) of Registered Holder(s): Certificate Number(s) (if available):
Aggregate Principal Amount Tendered: $
Signature(s):
If Existing Notes will be tendered by book-entry transfer, please provide the
following information:
Name of Tendering Institution:
DTC Account Number:
Date:
Transaction Code Number:
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein) (i)a bank; (ii)a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii)a credit union; (iv)a national securities exchange,
registered securities association or clearing agency; or (v)a savings
association, that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program (each of the foregoing being referred to as an
"Eligible Institution"), hereby guarantees to deliver to the Exchange Agent,
at its address set forth above, either the Existing Notes tendered hereby in
proper form for transfer, or confirmation of the book-entry transfer of such
Existing Notes to the Exchange Agent's account at The Depository Trust Company
("DTC"), pursuant to the procedures for book-entry transfer set forth in the
Prospectus, in either case together with one or more properly completed and
duly executed Letter(s) of Transmittal (or facsimile thereof) and any other
required documents within three New York Stock Exchange trading days after the
date of execution of this Notice of Guaranteed Delivery.
B-2
<PAGE>
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Existing Notes tendered hereby to the Exchange Agent
within the time period set forth above and that failure to do so could result
in a financial loss to the undersigned.
Name of Firm: Authorized Signature:
Address: Name (Please Print):
Capacity or Title:
Area Code and Telephone Number: Date:
NOTE: DO NOT SEND EXISTING NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
ACTUAL SURRENDER OF EXISTING NOTES MUST BE MADE PURSUANT TO, AND BE
ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL
AND ANY OTHER REQUIRED DOCUMENTS.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
the Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange of Existing
Notes for Exchange Notes made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as
of any time subsequent to its date. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than
the securities to which it relates. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
----------------
B-3
<PAGE>
$150,000,000
EXCHANGE OFFER
WITH RESPECT TO
12 3/4% SENIOR NOTES DUE 2007
----------------
PROSPECTUS
, 1998
----------------
EXCHANGE AGENT:
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION
101 CALIFORNIA STREET, SUITE 2725
SAN FRANCISCO, CA 94111
ATTENTION: PAULA OSWALD
TEL: (415) 954-9526; FAX: (415) 693-8850
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In May 1997, the Registrant entered into indemnification agreements with its
directors and officers providing for limitations on a director's and officer's
liability for judgments, settlements, penalties, fines and expenses of defense
(including attorneys' fees, bonds and costs of investigation) arising out of
or in any way related to acts or omissions as a director or an officer, or in
any other capacity in which services are rendered to the Registrant. The
Registrant believes its indemnification agreements will assist it in
attracting and retaining qualified individuals to serve as directors and
officers. The agreements provide that a director or officer is not entitled to
indemnification under such agreements (i) if the director or officer is not
relieved of liability under applicable law, (ii) for violations of certain
securities laws, or (iii) for certain claims initiated by the officer or
director. Due to the lack of applicable case law, it is not clear whether
indemnification is available in case of a breach of securities laws of the
U.S.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Second Amended and Restated Certificate of Incorporation includes
a provision that eliminates the personal liability of its directors for
monetary damages for breach or alleged breach of their duty of care. In
addition, as permitted by Section 145 of the Delaware General Corporation Law
the Bylaws, as amended, of the Registrant provide that: the Registrant is
required to indemnify its directors and officers and persons serving in such
capacities in other business enterprises (including, for example, subsidiaries
of the Registrant) at the Registrant's request, to the fullest extent
permitted by Delaware law, including in those circumstances in which
indemnification would otherwise be discretionary; (ii) the Registrant may, in
its discretion, indemnify employees and agents in those circumstances where
indemnification is not required by law; (iii) the Registrant is required to
advance expenses, as incurred, to its directors and officers in connection
with defending a proceeding (except that it is not required to advance
expenses to a person against whom the Registrant brings a claim for breach of
the duty of loyalty, failure to act in good faith, intentional misconduct,
knowing violation of law or deriving an improper personal benefit); (iv) the
rights conferred in the Bylaws, as amended, are not exclusive, and the
Registrant is authorized to enter into indemnification agreements with its
directors, officers and employees; and (v) the Registrant may not
retroactively amend the Bylaw provisions in a way that is adverse to such
directors, officers and employees.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and officers that provide the maximum indemnity allowed
to directors and officers by Section 145 of the Delaware General Corporation
Law and the Bylaws, as amended, as well as certain additional procedural
protections.
The indemnification provisions in the Bylaws, as amended, and the agreements
entered into between the Registrant and its directors and officers may be
sufficiently broad to permit indemnification of the Registrant's directors and
officers for liabilities arising under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
3.2* Form of Amended and Restated Certificate of Incorporation of Registrant.
3.4* Amended and Restated Bylaws of Registrant.
4.2 Indenture, dated as of December 18, 1997 among the Registrant and Chase
Manhattan Bank and Trust Company, National Association, as trustee.
4.3 Form of $150,000,000 12 3/4% Senior Note due 2007
4.4 Form of $150,000,000 new 12 3/4% Senior Notes due 2007.
4.5 Form of Warrant to purchase Common Stock
5.1 Opinion of Wilson Sonsini Goodrich& Rosati, Professional Corporation.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.1* Amended and Restated Registration Rights Agreement, as amended and
restated as of August 21, 1996, by and among the Registrant, GS
Capital Partners, L.P., Kleiner Perkins Caufield & Byers VII,
Comdisco, Inc., Intuit, Inc., certain listed holders of Series C
Convertible Preferred Stock, certain listed holders of Common Stock,
certain listed holders of Series D Convertible Preferred Stock, and
Racal-Datacom, Inc.
10.2* Preferred Stock and Warrant Purchase Agreement, dated as of April 20,
1995, by and among the Registrant, GS Capital Partners, L.P., and
Kleiner Perkins Caufield & Byers VII and KPCB Information Sciences
Zaibatsu Fund 11, as amended.
10.3* Form of Director and Officer Indemnification Agreement.
10.4* 1995 Stock Incentive Plan for Employees and Consultants, as amended
February 21, 1996.
10.5* Amended and Restated 1996 Stock Plan.
10.6* 1997 Stock Plan.
10.7* 1997 Employee Stock Purchase Plan.
10.8* Termination of Services and Indemnification Agreement, dated as of
February 15, 1996, by and between the Registrant and Marc Collins-
Rector and Chad Shackley.
10.9* Agreement, dated as of February 15, 1996, by and between the
Registrant and Randy Maslow.
10.10* Governance Agreement, dated May 15, 1997, by and among the Registrant,
Marc Collins--Rector, Chad Shackley, GS Capital Partners, L.P.,
Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund, KPCB
Information Sciences Zaibatsu Fund II, and Intuit, Inc.
10.11+* Amended and Restated Employee Services and Staffing Agreement, dated
June 19, 1997, between the Registrant and Critical Technologies, Inc.,
as amended on September 30, 1996, and October 23, 1996, including
Colocation Services Agreement, dated as of November 1, 1994, between
the Registrant and Critical Technologies, Inc. and amendments thereto.
10.12+* Internet-Sign Up Wizard Referral and Microsoft Internet Explorer
License and Distribution Agreement, dated March 28, 1997, between the
Registrant and Microsoft Corporation.
10.13+* OEM License Agreement dated July 27, 1995, between the Registrant and
Netscape Communications Corporation, as amended by First Amendment,
dated January 2, 1996, Second Amendment, effective January 2, 1996,
and Third Amendment, dated May 21, 1996.
10.14+* "Dial up Client" Agreement, dated August 21, 1995, between the
Registrant and Netscape Communications Corporation.
10.15+* "Internet Account Server" Participation Agreement, dated as of January
14, 1997, between the Registrant and Netscape Communications
Corporation.
10.16+* Special Customer Arrangement, dated May 17, 1996, between MCI
Telecommunications Corporation and Sattel Communications LLC, as
amended by First Amendment, dated July 2, 1996; assigned to Registrant
by Assignment and Novation Agreement #2, dated as of August 7, 1996.
10.17+* Master Agreement for MCI Enhanced Services, effective November 1,
1996, between the Registrant and MCI Telecommunications Corporation.
10.18+* Amended and Restated Employee Services and Staffing Agreement.
10.19+* Amendment No. 3 to Internet Access Services Agreement, dated August
23, 1996, between the Registrant and Intuit Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.20+* Contract for Services, dated June 17, 1996, by and between the
Registrant and MFS Telephone, Inc.
10.21+* AT&T Contract Tariff Order, dated June 17, 1996, and Addendum of even
date therewith.
10.22+* Master Lease Agreement Number CON01C Between Concentric Research
Corporation and Racal-Datacom, Inc. ("Racal"), dated August 4, 1994,
as Supplemented by Letter Agreement, dated March 30, 1995, Between the
Corporation and Racal.
10.23+* Lease Agreement Number CON04C between Concentric Network Corporation
and Racal-Datacom, Inc., dated June 26, 1996.
10.24+* Master On-site Maintenance Plan Agreement Number CON02C Between
Concentric Research Corporation and Racal-Datacom, Inc., dated August
24, 1994.
10.25* Lease Agreement, dated November 1, 1996, effective March 11, 1996, by
and between the Registrant and Saginaw Video Associates, d.b.a.
Saginaw Conference Center.
10.26* Amended and Restated Lease Agreement, dated as of October 7, 1996,
between the Registrant and Larry Shackley.
10.27* (Master) Lease, dated January 26, 1988, between Tandem Computers
Incorporated and Spicker-French #130, Limited Partnership, as amended
by Lease Amendment No.1, effective February 5, 1990, and Extension
Agreement, dated March 23, 1993.
10.28* Sublease, dated June 22, 1995, between the Registrant and Tandem
Computers Incorporated.
10.29* Sublease, dated April 25, 1995, between Tandem Computers Incorporated
and Passage Systems, Inc.
10.30* Assignment Agreement, dated December 6, 1996, by and between the
Registrant and Passage Systems, Inc.
10.31+* Internet Access Service Agreement, dated December 11, 1995, effective
as of August 1, 1995, between the Registrant and Intuit, Inc., as
amended.
10.32+* Virtual Private Network Services, dated August 16, 1996, between the
Registrant and WebTV Networks, Inc.
10.33+* Support Services Agreement, dated March 31, 1997, by and between the
Registrant and MCI Telecommunications Corporation.
10.34* Note and Warrant Purchase Agreement, dated June 19, 1997, by and
between the Registrant and Williams Communications Group, Inc. ("WCG")
10.35* Service Credits Letter Agreement, dated June 19, 1997, by and between
the Registrant and WCG.
10.36* $1,100,000 Obligation Letter Agreement, dated June 19, 1997, between
the Registrant and WCG.
10.37* Agency Agreement and Distribution Agreement, dated June 19, 1997,
between the Registrant and WCG.
10.38+* Co-Marketing Service Agreement, dated June 23, 1997 between the
Registrant and Netscape Communications, Inc. ("Netscape")
10.39+* Trademark License Agreement, dated June 23, 1997, between the
Registrant and Netscape.
10.40+* Software License Order Form, dated June 23, 1997, between the
Registrant and Netscape.
10.41* Note and Warrant Purchase Agreement, dated June 23, 1997, between the
Registrant, Kleiner Perkins, Caufield& Byers VII and KPCB Information
Science Zaibatsu Fund VII.
10.42** Amendment to Virtual Private Network Services Agreement between the
Registrant and WebTV Networks, Inc., dated November 1, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.43 Registration Rights Agreement, dated as of December 18, 1997 between
the Registrant and UBS Securities LLC, Bear Stearns& Co., Inc., and
Wheat First Securities, Inc. (the "Initial Purchasers")
10.44 Purchase Agreement, dated as of December 15, 1997 between the
Registrant and the Initial Purchasers.
10.45 Warrant Agreement, dated as of December 18, 1997, between the
Registrant and Chase Manhattan Bank and Trust Company, National
Association, as warrant agent.
10.46 Warrant Registration Rights Agreement, dated as of December 18, 1997,
between the Registrant and the Initial Purchasers.
10.47 Escrow Agreement, dated December 18, 1997, between the Registrant and
Chase Manhattan Bank and Trust Company, National Association.
11.1** Statement of computation of earnings per share.
12.1 Statement of computation of ratio of earnings to fixed charges.
21.1* List of Subsidiaries.
23.1 Consent of Wilson Sonsini Goodrich& Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Ernst & Young, LLP, Independent Auditors.
24.1 Power of Attorney (see signature page).
25.1 Statement of Eligibility on Form T-1 for Chase Manhattan Bank and Trust
Company, National Association, to act as Trustee under the Indenture.
27.1** Financial Data Schedule.
99.2 Form of Letter of Transmittal (See Annex A to Prospectus contained
herein).
99.3 Form of Notice of Guaranteed Delivery (See Annex B to Prospectus
contained herein).
</TABLE>
- --------
* Incorporated by reference from Registrant's Registration Statement on Form
S-1 (File No. 333-27241), as amended, declared effective by the Securities
and Exchange Commission ("SEC") on July 31, 1997.
** Incorporated by reference from Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, filed with the SEC on November
14, 1997.
+ Certain information in this exhibit was omitted and filed separately with
the Securities and Exchange Commission pursuant to a confidential treatment
request under 17 C.F.R. (s)(5) 200.80(b)(4), 200.83 and 230.46.
(b) Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus (i)that is filed pursuant to paragraph (1)
immediately preceding, or (ii)that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under
II-4
<PAGE>
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona filed offering thereof.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request, and to
send the incorporated documents by first call mail or other equally
prompt means. This includes information contained in documents filed
subsequent o the effective date of the registration statement through the
date of responding to the request.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CUPERTINO, STATE OF CALIFORNIA, ON THE 28TH DAY OF JANUARY, 1998.
Concentric Network Corporation
/s/ Henry R. Nothhaft
By: _________________________________
HENRY R. NOTHHAFT, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Henry R. Nothhaft and Michael A.
Anthofer, his attorney-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any and all amendments to this Registration
statement (including post-effective amendments), and to file and same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON JANUARY 28, 1998, BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
SIGNATURE TITLE DATE
/s/ Henry R. Nothhaft President and Chief January 28, 1998
- ------------------------------------- Executive Officer
HENRY R. NOTHHAFT (Principal Executive
Officer), Director
/s/ Michael F. Anthofer Chief Financial January 28, 1998
- ------------------------------------- Officer (Principal
MICHAEL F. ANTHOFER Financial and
Accounting Officer)
/s/ Vinod Khosla Director January 28, 1998
- -------------------------------------
VINOD KHOSLA
/s/ Franco Regis Director January 28, 1998
- -------------------------------------
FRANCO REGIS
Director
- -------------------------------------
LOUIS P. BENDER III
/s/ Gary E. Rieschel Director January 28, 1998
- -------------------------------------
GARY E. RIESCHEL
Director
- -------------------------------------
GORDON C. MARTIN
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
3.2* Form of Amended and Restated Certificate of Incorporation of
Registrant.
3.4* Amended and Restated Bylaws of Registrant.
4.2 Indenture, dated as of December 18, 1997 among the Registrant and
Chase Manhattan Bank and Trust Company, National Association, as
trustee.
4.3 Form of $150,000,000 12 3/4% Senior Note due 2007
4.4 Form of $150,000,000 new 12 3/4% Senior Notes due 2007.
4.5 Form of Warrant to purchase Common Stock
5.1 Opinion of Wilson Sonsini Goodrich& Rosati, Professional Corporation.
10.1* Amended and Restated Registration Rights Agreement, as amended and
restated as of August 21, 1996, by and among the Registrant, GS
Capital Partners, L.P., Kleiner Perkins Caufield & Byers VII,Comdisco,
Inc., Intuit, Inc., certain listed holders of Series C Convertible
Preferred Stock, certain listed holders of Common Stock, certain
listed holders of Series D Convertible Preferred Stock, and Racal-
Datacom, Inc.
10.2* Preferred Stock and Warrant Purchase Agreement, dated as of April 20,
1995, by and among the Registrant, GS Capital Partners, L.P., and
Kleiner Perkins Caufield & Byers VII and KPCB Information Sciences
Zaibatsu Fund 11, as amended.
10.3* Form of Director and Officer Indemnification Agreement.
10.4* 1995 Stock Incentive Plan for Employees and Consultants, as amended
February 21, 1996.
10.5* Amended and Restated 1996 Stock Plan.
10.6* 1997 Stock Plan.
10.7* 1997 Employee Stock Purchase Plan.
10.8* Termination of Services and Indemnification Agreement, dated as of
February 15, 1996, by and between the Registrant and Marc Collins-
Rector and Chad Shackley.
10.9* Agreement, dated as of February 15, 1996, by and between the
Registrant and Randy Maslow.
10.10* Governance Agreement, dated May 15, 1997, by and among the Registrant,
Marc Collins-Rector, Chad Shackley, GS Capital Partners, L.P., Kleiner
Perkins Caufield & Byers VII, KPCB VII Founders Fund, KPCB Information
Sciences Zaibatsu Fund II, and Intuit, Inc.
10.11+* Amended and Restated Employee Services and Staffing Agreement, dated
June 19, 1997, between the Registrant and Critical Technologies, Inc.,
as amended on September 30, 1996, and October 23, 1996, including
Colocation Services Agreement, dated as of November 1, 1994, between
the Registrant and Critical Technologies, Inc. and amendments thereto.
10.12+* Internet-Sign Up Wizard Referral and Microsoft Internet Explorer
License and Distribution Agreement, dated March 28, 1997, between the
Registrant and Microsoft Corporation.
10.13+* OEM License Agreement dated July 27, 1995, between the Registrant and
Netscape Communications Corporation, as amended by First Amendment,
dated January 2, 1996, Second Amendment, effective January 2, 1996,
and Third Amendment, dated May 21, 1996.
10.14+* "Dial up Client" Agreement, dated August 21, 1995, between the
Registrant and Netscape Communications Corporation.
10.15+* "Internet Account Server" Participation Agreement, dated as of January
14, 1997, between the Registrant and Netscape Communications
Corporation.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.16+* Special Customer Arrangement, dated May 17, 1996, between MCI
Telecommunications Corporation and Sattel Communications LLC, as
amended by First Amendment, dated July 2, 1996; assigned to Registrant
by Assignment and Novation Agreement #2, dated as of August 7, 1996.
10.17+* Master Agreement for MCI Enhanced Services, effective November 1,
1996, between the Registrant and MCI Telecommunications Corporation.
10.18+* Amended and Restated Employee Services and Staffing Agreement.
10.19+* Amendment No. 3 to Internet Access Services Agreement, dated August
23, 1996, between the Registrant and Intuit Inc.
10.20+* Contract for Services, dated June 17, 1996, by and between the
Registrant and MFS Telephone, Inc.
10.21+* AT&T Contract Tariff Order, dated June 17, 1996, and Addendum of even
date therewith.
10.22+* Master Lease Agreement Number CON01C Between Concentric Research
Corporation and Racal-Datacom, Inc. ("Racal"), dated August 4, 1994,
as Supplemented by Letter Agreement, dated March 30, 1995, Between the
Corporation and Racal.
10.23+* Lease Agreement Number CON04C between Concentric Network Corporation
and Racal-Datacom, Inc., dated June 26, 1996.
10.24+* Master On-site Maintenance Plan Agreement Number CON02C Between
Concentric Research Corporation and Racal-Datacom, Inc., dated August
24, 1994.
10.25* Lease Agreement, dated November 1, 1996, effective March 11, 1996, by
and between the Registrant and Saginaw Video Associates, d.b.a.
Saginaw Conference Center.
10.26* Amended and Restated Lease Agreement, dated as of October 7, 1996,
between the Registrant and Larry Shackley.
10.27* (Master) Lease, dated January 26, 1988, between Tandem Computers
Incorporated and Spicker-French #130, Limited Partnership, as amended
by Lease Amendment No. 1, effective February 5, 1990, and Extension
Agreement, dated March 23, 1993.
10.28* Sublease, dated June 22, 1995, between the Registrant and Tandem
Computers Incorporated.
10.29* Sublease, dated April 25, 1995, between Tandem Computers Incorporated
and Passage Systems, Inc.
10.30* Assignment Agreement, dated December 6, 1996, by and between the
Registrant and Passage Systems, Inc.
10.31+* Internet Access Service Agreement, dated December 11, 1995, effective
as of August 1, 1995, between the Registrant and Intuit, Inc., as
amended.
10.32+* Virtual Private Network Services, dated August 16, 1996, between the
Registrant and Web TV Networks, Inc.
10.33+* Support Services Agreement, dated March 31, 1997, by and between the
Registrant and MCI Telecommunications Corporation.
10.34* Note and Warrant Purchase Agreement, dated June 19, 1997, by and
between the Registrant and Williams Communications Group, Inc. ("WCG")
10.35* Service Credits Letter Agreement, dated June 19, 1997, by and between
the Registrant and WCG.
10.36* $1,100,000 Obligation Letter Agreement, dated June 19, 1997, between
the Registrant and WCG.
10.37* Agency Agreement and Distribution Agreement, dated June 19, 1997,
between the Registrant and WCG.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.38+* Co-Marketing Service Agreement, dated June 23, 1997 between the
Registrant and Netscape Communications, Inc. ("Netscape")
10.39+* Trademark License Agreement, dated June 23, 1997, between the
Registrant and Netscape.
10.40+* Software License Order Form, dated June 23, 1997, between the
Registrant and Netscape.
10.41* Note and Warrant Purchase Agreement, dated June 23, 1997, between the
Registrant, Kleiner Perkins, Caufield & Byers VII and KPCB Information
Science Zaibatsu Fund VII.
10.42** Amendment to Virtual Private Network Services Agreement between the
Registrant and WebTV Networks, Inc., dated November 1, 1997.
10.43 Registration Rights Agreement, dated as of December 18, 1997 between
the Registrant and UBS Securities LLC, Bear Stearns & Co., Inc., and
Wheat First Securities, Inc. (the "Initial Purchasers")
10.44 Purchase Agreement, dated as of December 15, 1997 between the
Registrant and the Initial Purchasers.
10.45 Warrant Agreement, dated as of December 18, 1997, between the
Registrant and Chase Manhattan Bank and Trust Company, National
Association, as warrant agent.
10.46 Warrant Registration Rights Agreement, dated as of December 18, 1997,
between the Registrant and the Initial Purchasers.
10.47 Escrow Agreement, dated December 18, 1997, between the Registrant and
Chase Manhattan Bank and Trust Company, National Association.
11.1** Statement of computation of earnings per share.
12.1 Statement of computation of ratio of earnings to fixed charges.
21.1* List of Subsidiaries.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Ernst & Young, LLP, Independent Auditors.
24.1 Power of Attorney (see signature page).
25.1 Statement of Eligibility on Form T-1 for Chase Manhattan Bank and
Trust Company, National Association, to act as Trustee under the
Indenture.
27.1** Financial Data Schedule.
99.2 Form of Letter of Transmittal (See Annex A to Prospectus contained
herein).
99.3 Form of Notice of Guaranteed Delivery (See Annex B to Prospectus
contained herein).
</TABLE>
- --------
* Incorporated by reference from Registrant's Registration Statement on Form
S-1 (File No. 333-27241), as amended, declared effective by the Securities
and Exchange Commission ("SEC") on July 31, 1997.
** Incorporated by reference from Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, filed with the SEC on November
14, 1997.
+ Certain information in this exhibit was omitted and filed separately with
the Securities and Exchange Commission pursuant to a confidential treatment
request under 17 C.F.R. (s)(5) 200.80(b)(4), 200.83 and 230.46.
<PAGE>
Exhibit 4.2
CONCENTRIC NETWORK CORPORATION, AS ISSUER,
AND
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION, AS TRUSTEE
_______
INDENTURE
DATED AS OF DECEMBER 18, 1997
_______
$150,000,000
12 3/4% SENIOR NOTES DUE 2007
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939,
as amended, and Indenture, dated as of December 18, 1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
------------ ---------
<S> <C>
(S) 310 (a)(1)................................609
(a)(2)................................609
(b)...................................607, 610
(S) 311 (a)...................................613
(S) 312 (a)...................................701
(c)...................................702
(S) 313 (a)...................................703
(c)...................................703, 704
(S) 314 (a)...................................704
(a)(4)................................1018
(c)(1)................................103
(c)(2)................................103
(e)...................................103
(S) 315 (a)...................................601(b)
(b)...................................602
(c)...................................601(a)
(d)...................................601(c), 603
(e)...................................514
(S) 316 (a)(last sentence)....................101 ("Outstanding")
(a)(1)(A).............................502, 512
(a)(1)(B).............................513
(b)...................................508
(c)...................................105
(S) 317 (a)(1)................................503
(a)(2)................................504
(b)...................................1003
(S) 318 (a)...................................108
</TABLE>
____________
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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<S> <C>
RECITALS OF THE COMPANY........................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.................................................... 1
Section 102. Other Definitions.............................................. 22
Section 103. Compliance Certificates and Opinions........................... 23
Section 104. Form of Documents Delivered to Trustee......................... 23
Section 105. Acts of Holders................................................ 24
Section 106. Notices, etc., to the Trustee, the Company and any Guarantor... 25
Section 107. Notice to Holders; Waiver...................................... 26
Section 108. Conflict with Trust Indenture Act.............................. 26
Section 109. Effect of Headings and Table of Contents....................... 27
Section 110. Successors and Assigns......................................... 27
Section 111. Separability Clause............................................ 27
Section 112. Benefits of Indenture.......................................... 27
Section 113. Governing Law.................................................. 27
Section 114. Legal Holidays................................................. 27
Section 115. Independence of Covenants...................................... 28
Section 116. Schedules and Exhibits......................................... 28
Section 117. Counterparts................................................... 28
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally................................................ 28
Section 202. Form of Face of Security....................................... 29
Section 203. Form of Reverse of Securities.................................. 41
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms................................................ 47
Section 302. Denominations.................................................. 48
Section 303. Execution, Authentication, Delivery and Dating................. 48
Section 304. Temporary Securities........................................... 50
Section 305. Registration, Registration of Transfer and Exchange............ 50
Section 306. Book Entry Provisions for Global Securities.................... 51
Section 307. Special Transfer and Exchange Provisions....................... 53
Section 308. Mutilated, Destroyed, Lost and Stolen Securities............... 55
Section 309. Payment of Interest; Interest Rights Preserved................. 56
Section 310. CUSIP Numbers.................................................. 57
</TABLE>
i
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Section 311. Persons Deemed Owners.......................................... 57
Section 312. Cancellation................................................... 58
Section 313. Computation of Interest........................................ 58
ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. Company's Option to Effect Defeasance or Covenant Defeasance... 58
Section 402. Defeasance and Discharge....................................... 58
Section 403. Covenant Defeasance............................................ 59
Section 404. Conditions to Defeasance or Covenant Defeasance................ 59
Section 405. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions..................... 61
Section 406. Reinstatement.................................................. 62
ARTICLE FIVE
REMEDIES
Section 501. Events of Default............................................. 62
Section 502. Acceleration of Maturity; Rescission and Annulment............ 64
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee..................................................... 65
Section 504. Trustee May File Proofs of Claim.............................. 66
Section 505. Trustee May Enforce Claims without Possession of Securities... 67
Section 506. Application of Money Collected................................ 67
Section 507. Limitation on Suits........................................... 67
Section 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest................................................ 68
Section 509. Restoration of Rights and Remedies............................ 68
Section 510. Rights and Remedies Cumulative................................ 69
Section 511. Delay or Omission Not Waiver.................................. 69
Section 512. Control by Holders............................................ 69
Section 513. Waiver of Past Defaults....................................... 69
Section 514. Undertaking for Costs......................................... 70
Section 515. Waiver of Stay, Extension or Usury Laws....................... 70
Section 516. Remedies Subject to Applicable Law............................ 70
ARTICLE SIX
THE TRUSTEE
Section 601. Duties of Trustee............................................. 71
Section 602. Notice of Defaults............................................ 72
Section 603. Certain Rights of Trustee..................................... 72
Section 604. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof............... 73
Section 605. Trustee and Agents May Hold Securities; Collections; etc...... 74
</TABLE>
ii
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<TABLE>
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<S> <C>
Section 606. Money Held in Trust........................................... 74
Section 607. Compensation and Indemnification of Trustee and Its Prior
Claim...................................................... 74
Section 608. Conflicting Interests......................................... 75
Section 609. Trustee Eligibility........................................... 75
Section 610. Resignation and Removal; Appointment of Successor Trustee..... 75
Section 611. Acceptance of Appointment by Successor........................ 77
Section 612. Merger, Conversion, Consolidation or Succession to Business... 77
Section 613. Preferential Collection of Claims Against Company............. 78
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of Holders..... 78
Section 702. Disclosure of Names and Addresses of Holders.................. 78
Section 703. Reports by Trustee............................................ 79
Section 704. Reports by Company............................................ 79
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 801. Company and Guarantors May Consolidate, etc., Only on Certain
Terms...................................................... 80
Section 802. Successor Substituted......................................... 81
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Agreements without Consent of
Holders.................................................... 81
Section 902. Supplemental Indentures and Agreements
with Consent of Holders.................................... 82
Section 903. Execution of Supplemental Indentures
and Agreements............................................. 84
Section 904. Effect of Supplemental Indentures............................. 84
Section 905. Conformity with Trust Indenture Act........................... 84
Section 906. Reference in Securities to Supplemental
Indentures................................................. 84
Section 907. Notice of Supplemental Indentures............................. 84
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest................... 85
Section 1002. Maintenance of Office or Agency.............................. 85
Section 1003. Money for Security Payments to Be Held in Trust.............. 85
</TABLE>
iii
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<TABLE>
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Section 1004. Corporate Existence.......................................... 87
Section 1005. Payment of Taxes and Other Claims............................ 87
Section 1006. Maintenance of Properties.................................... 87
Section 1007. Maintenance of Insurance..................................... 88
Section 1008. Limitation on Indebtedness................................... 88
Section 1009. Limitation on Restricted Payments............................ 90
Section 1010. Limitation on Transactions with Affiliates................... 93
Section 1011. Limitation on Liens.......................................... 94
Section 1012. Limitation on Sale of Assets................................. 94
Section 1013. Limitation on Issuances of Guarantees of Indebtedness........ 95
Section 1014. Purchase of Securities upon a Change of Control.............. 96
Section 1015. Limitation on Sale and Leaseback Transactions................ 99
Section 1016. Limitation on Subsidiary Capital Stock....................... 99
Section 1017. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.................................... 100
Section 1018. Limitations on Unrestricted Subsidiaries..................... 100
Section 1019. Provision of Financial Statements............................ 100
Section 1020. Statement by Officers as to Default.......................... 101
Section 1021. Waiver of Certain Covenants.................................. 101
Section 1022. Limitation on Business....................................... 102
Section 1023. Deposit of Funds with Escrow Agent........................... 102
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Rights of Redemption......................................... 102
Section 1102. Applicability of Article..................................... 103
Section 1103. Election to Redeem; Notice to Trustee........................ 103
Section 1104. Selection by Trustee of Securities to Be Redeemed............ 103
Section 1105. Notice of Redemption......................................... 103
Section 1106. Deposit of Redemption Price.................................. 104
Section 1107. Securities Payable on Redemption Date........................ 105
Section 1108. Securities Redeemed or Purchased in Part..................... 105
ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 1201. Satisfaction and Discharge of Indenture...................... 105
Section 1202. Application of Trust Money................................... 106
ARTICLE THIRTEEN
COLLATERAL AND SECURITY
Section 1301. Escrow Agreement............................................ 107
Section 1302. Recording and Opinions...................................... 107
</TABLE>
iv
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<S> <C>
Section 1303. Release of Collateral....................................... 108
Section 1304. Authorization of Actions to Be Taken by the Trustee Under
the Escrow Agreement..................................... 108
Section 1305. Authorization of Receipt of Funds by the Trustee Under the
Escrow Agreement......................................... 108
Section 1306. Termination of Security Interest............................... 109
</TABLE>
TESTIMONIUM
SIGNATURES AND SEALS
ACKNOWLEDGMENTS
EXHIBIT A Regulation S Certificate
EXHIBIT B Restricted Security Certificate
EXHIBIT C Unrestricted Security Certificate
APPENDIX I Form of Transferee Certificate for Series A Securities
APPENDIX II Form of Transferee Certificate for Series B Securities
v
<PAGE>
INDENTURE, dated as of December 18, 1997, between CONCENTRIC NETWORK
CORPORATION, a Delaware corporation (the "Company"), and CHASE MANHATTAN BANK
AND TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as
trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 12 3/4%
Senior Notes due 2007, Series A (the "Series A Securities"), and an issue of 12
3/4% Senior Notes due 2007, Series B (the "Series B Securities" and, together
with the Series A Securities, the "Securities"), of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture and the Securities;
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act that are required to be part of and to govern
indentures qualified under the Trust Indenture Act;
All acts and things necessary have been done to make the Securities,
when duly issued and executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company and this Indenture a valid
agreement of the Company and each of the Guarantors in accordance with the terms
of this Indenture;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
1
<PAGE>
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States of America; and
(f) all references herein to particular Sections or Articles refer to
this Indenture unless otherwise so indicated.
Certain terms used principally in Article Four are defined in Article
Four.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at
the time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition, as the case may be, provided that Indebtedness
of such Person which is redeemed, defeased, retired or otherwise repaid at the
time of or immediately upon consummation of the transactions by which such
Person becomes a Subsidiary or such asset acquisition shall not constitute
Acquired Indebtedness.
"Acquired Person" means, with respect to any specified Person, any
other Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Subsidiary to any other Person, or any acquisition or purchase of Capital Stock
of any other Person by the Company or any Subsidiary, in either case pursuant to
which such Person shall become a Subsidiary or shall be consolidated, merged
with or into the Company or any Subsidiary or (ii) any acquisition by the
Company or any Subsidiary of the assets of any Person which constitute
substantially all of an operating unit or line of business of such Person or
which is otherwise outside of the ordinary course of business of the Company or
such Subsidiary.
"Additional Interest" has the meaning provided in Section 5 of the
Registration Rights Agreement.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the
2
<PAGE>
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security to the extent
applicable to such transaction and as in effect at the time of such transfer or
transaction.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of: (i) any
Capital Stock of any Subsidiary; (ii) all or substantially all of the properties
and assets of any division or line of business of the Company or its
Subsidiaries; or (iii) any other properties or assets of the Company or any
Subsidiary other than in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include any transfer of
properties and assets (A) that is governed by the provisions described under
"Consolidation, Merger, Sale of Assets," (B) that is by the Company to any
Subsidiary or by any Subsidiary to the Company or any other Subsidiary in
accordance with the terms of this Indenture, (C) that is of obsolete equipment
in the ordinary course of business, (D) the Fair Market Value of which in the
aggregate does not exceed $200,000 in any transaction or series of related
transactions, (E) that is made in accordance with the provisions described in
Section 1009, (F) which constitutes the granting of any Permitted Lien and (G)
in which assets will be transferred in exchange for one or more like-kind
assets; provided that if the Fair Market Value of the assets to be transferred
by the Company or such Subsidiary under this clause G, plus the Fair Market
Value of any other consideration paid or credited by the Company or such
Subsidiary exceeds $1 million, such transaction shall require approval of the
Board of Directors of the Company.
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such principal
payment; by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means the board of directors of the Company or
any Guarantor, as the case may be, or any duly authorized committee of such
board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or any Guarantor, as the case
may be, to have been duly adopted by the Board of Directors and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
3
<PAGE>
"Book-Entry Security" means any Global Securities bearing the legend
specified in Section 202 evidencing all or part of a series of Securities,
authenticated and delivered to the Depositary for such series or its nominee,
and registered in the name of such Depositary or nominee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions or trust companies in
The City of New York or the city in which the Corporate Trust Office of the
Trustee is located are authorized or obligated by law, regulation or executive
order to close.
"Capital Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capital lease obligation.
"Capital Stock" of (i) with respect to any Person that is a
corporation, and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of common stock and preferred stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership,
membership or other equity interests of such Person.
"Cash Equivalents" means (i) any evidence of Indebtedness, maturing
not more than one year after the date of acquisition, issued by the United
States of America, or an instrumentality or agency thereof, and guaranteed fully
as to principal, premium, if any, and interest by the United States of America,
(ii) any certificate of deposit, maturing not more than one year after the date
of acquisition, issued by, or time deposit of, a commercial banking institution
that is a member of the Federal Reserve System and that has combined capital and
surplus and undivided profits of not less than $500 million, whose short term
debt has a rating, at the time as of which any investment therein is made, of
"P-1" (or higher) according to Moody's or any successor rating agency or "A-1"
(or higher) according to S&P or any successor rating agency, (iii) commercial
paper, maturing not more than 270 days after the date of acquisition, issued by
a corporation (other than an Affiliate or Subsidiary of the Company) organized
and existing under the laws of the United States of America with a rating, at
the time as of which any investment therein is made, of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P and (iv) any money
market deposit accounts issued or offered by a domestic commercial bank having
capital and surplus in excess of $500 million; provided that the short term debt
of such commercial bank has a rating, at the time of Investment, of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total outstanding
Voting Stock of the Company; (ii) during any period of two consecutive years,
individuals who at the beginning of
4
<PAGE>
such period constituted the Board of Directors of the Company (together with any
new directors whose election to such board or whose nomination for election by
the stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of such Board of
Directors then in office; (iii) the Company consolidates with or merges with or
into any Person or conveys, transfers or leases all or substantially all of its
assets to any Person, or any corporation consolidates with or merges into or
with the Company in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Stock of the Company is not changed or exchanged at all
(except to the extent necessary to reflect a change in the jurisdiction of
incorporation of the Company or where no "person" or "group" owns, immediately
after such transaction, directly or indirectly, more than 50% of the total
outstanding Voting Stock of the surviving corporation); or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under Article
Eight.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning provided in Section 6 of the Escrow
Agreement.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act then the
body performing such duties at such time.
"Commodity Price Protection Agreement" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value which is dependent upon, fluctuations in
commodity prices.
"Common Stock" means the common stock, par value $0.001 per share, of
the Company.
"Company" means Concentric Network Corporation, a corporation
incorporated under the laws of Delaware, until a successor Person shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
President, its Chief Executive Officer, its Chief Financial Officer or a Vice
President (regardless of Vice Presidential designation), and by any one of its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Consolidated" means, consolidated in accordance with GAAP.
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"Consolidated Income Tax Expense" of any Person means, for any period,
the provision for federal, state, local and foreign income taxes of such Person
and its Consolidated subsidiaries for such period as determined in accordance
with GAAP.
"Consolidated Interest Expense" of any Person means, without
duplication, for any period, the sum of (a) the interest expense of such Person
and its subsidiaries for such period, on a Consolidated basis, including,
without limitation, (i) amortization of debt discount, (ii) the net costs
associated with Interest Rate Agreements, Currency Hedging Agreements and
Commodity Price Protection Agreements (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation and (iv) accrued
interest, plus (b) (i) the interest component of the Capital Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
subsidiaries during such period and (ii) all capitalized interest of such Person
and its subsidiaries plus (c) the interest expense actually paid by such Person
under any Guaranteed Debt of such Person and any subsidiary to the extent not
included under clause (a)(iv) above, plus (d) the aggregate amount for such
period of cash or non-cash dividends on any Redeemable Capital Stock or
Preferred Stock of the Company and its Subsidiaries, in each case as determined
on a Consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net
income of the Company and any Subsidiary for such period determined on a
consolidated basis in accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding, without duplication, (a) other than
for purposes of calculating the Basket, all extraordinary gains or losses for
such period, (b) other than for purposes of calculating the Basket, all gains or
losses from the sales or other dispositions of assets out of the ordinary course
of business (net of taxes, fees and expenses relating to the transaction giving
rise thereto) for such period: (c) that portion of such net income derived from
or in respect of investments in Persons other than Subsidiaries, except to the
extent actually received in cash by the Company or any Subsidiary (subject, in
the case of any Subsidiary, to the provisions of clause (f) of this definition);
(d) the portion of such net income (or loss) allocable to minority interests in
any Person (other than a Subsidiary) for such period, except to the extent the
Company's allocation portion of such Person's net income for such period is
actually received in cash by the Company or any Subsidiary (subject, in the case
of any Subsidiary, to the provisions of clause (f) of this definition); (e) the
net income (or loss) or any other Person combined with the Company or any
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination; and (f) the net income of any Subsidiary to the extent
that the declaration of dividends or similar distributions by that Subsidiary of
that income is not at the time (regardless of any waiver) permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Subsidiary or its Capital Stock holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication), to the
extent deducted in calculating such Consolidated Net Income, by (a) Consolidated
Income Tax Expense for such period; (b) Consolidated Interest Expense for such
period; and (c) depreciation, amortization and any other non-cash items for such
period (other than any non-cash item which requires the
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accrual of, or a reserve for, cash charges for any future period) of the Company
and any Subsidiary, including, without limitation, amortization of capitalized
debt issuance costs for such period, all of the foregoing determined on a
consolidated basis in accordance with GAAP minus non-cash items to the extent
they increase Consolidated Net Income (including the partial or entire reversal
of reserves taken in prior periods) for such period.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 101
California Street, Suite 2725, San Francisco, CA 94111.
"Cumulative Operating Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the original issue date of the Securities and
ending on the last day of the most recent fiscal quarter immediately preceding
the date of determination for which consolidated financial information of the
Company is available or, if such cumulative Consolidated Operating Cash Flow for
such period is negative, the negative amount by which cumulative Consolidated
Operating Cash Flow is less than zero.
"Currency Hedging Arrangements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar agreements
or arrangements designed to protect against the fluctuations in currency values.
"Debt to Annualized Operating Cash Flow Ratio" means the ratio of (a)
the Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") to (b) two times the Consolidated Operating Cash Flow for
the latest two fiscal quarters for which financial information is available
immediately preceding such Determination Date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the Measurement
Period immediately prior to the relevant Determination Date, (i) any Person that
is a Subsidiary on the Determination Date (or would become a Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed to have
been a Subsidiary at all times during such Measurement Period, (ii) any Person
that is not a Subsidiary on such Determination Date (or would cease to be a
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such Consolidated Operating Cash Flow) will be
deemed not to have been a Subsidiary at any time during such Measurement Period,
and (iii) if the Company or any Subsidiary shall have in any manner (x) acquired
(through an Acquisition or the commencement of activities constituting such
operating business) or (y) disposed of (by of an Asset Sale or the termination
or discontinuance of activities constituting such operating business) any
operating business during such Measurement Period or after the end of such
period and on or prior to such Determination Date, such calculation will be made
on a pro forma basis in accordance with GAAP as if, in the case of an
Acquisition or the commencement of activities constituting such operating
business, all such transactions had been consummated prior to the first day of
such Measurement Period (it being understood that in calculating Consolidated
Operating Cash Flow
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the exclusions set forth in clauses (a) through (f) of the definition of
Consolidated Net Income shall apply to an Acquired Person as if it were a
Subsidiary).
"Default" means any event which is, or after notice or passage of any
time or both would be, an Event of Default.
"Depositary" means, with respect to the Securities issued in the form
of one or more Book-Entry Securities, The Depositary Trust Company ("DTC"), its
nominees and successors, or another Person designated as Depositary by the
Company, which must be a clearing agency registered under the Exchange Act.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligations or otherwise, or becomes exchangeable for Indebtedness at the option
of the holder thereof, or becomes redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity date of the
Securities; provided such Capital Stock shall only constitute Disqualified Stock
to the extent it so matures or becomes so redeemable or exchangeable on or prior
to the final maturity date of the Securities; provided, further, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the final maturity date of the Securities shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in Section 1012 and Section
1014 and such Capital Stock specifically provides that such person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Issuer's repurchase of such Securities as are required to be repurchased
pursuant to Section 1012 and Section 1014.
"Escrow Account" has the meaning set forth in Section 2 of the Escrow
Agreement.
"Escrow Agent" means Chase Manhattan Bank and Trust Company, National
Association, as escrow agent under the Escrow Agreement, until a successor
replaces it in accordance with the provisions of the Escrow Agreement and
thereafter means such successor.
"Escrow Agreement" means the Escrow Agreement dated as of December 18,
1997 among the Company, the Escrow Agent and the Trustee.
"Escrow Funds" has the meaning specified in the Escrow Agreement.
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"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"Exchange Offer" means the exchange offer by the Company of Series B
Securities for Series A Securities to be effected pursuant to Section 3 of the
Registration Rights Agreement.
"Exchange Offer Registration Statement" means the registration
statement under the Securities Act contemplated by Section 3(a) of the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be reasonably expected to be obtained in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy. Fair Market Value
shall be determined by the Board of Directors of the Company acting in good
faith and shall be evidenced by a Board Resolution.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date hereof.
"Global Securities" means the Rule 144A Global Securities, the
Regulation S Global Securities and the Series B Global Securities to be issued
as Book-Entry Securities issued to the Depositary in accordance with Section
306.
"Guarantee" means the guarantee by any Guarantor of the Company's
Indenture Obligations.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to, or in any other manner invest in, the debtor (including any
agreement to pay for property or services without requiring that such property
be received or such services be rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a creditor
against loss; provided that the term "guarantee" shall not include endorsements
for collection or deposit, in either case in the ordinary course of business.
"Guarantor" means any Subsidiary which is a guarantor of the
Securities, including any Person that is required after the date hereof to
execute a guarantee of the Securities
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pursuant to Section 1013 until a successor replaces such party pursuant to the
applicable provisions of this Indenture and, thereafter, shall mean such
successor.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of a Person existing at the time
such Person becomes a Subsidiary or is merged or consolidated with or into the
Company or any Subsidiary shall be deemed to be Incurred at such time.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, (ii) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (unless 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), but excluding trade payables arising in the ordinary course
of business, (iv) all obligations under Interest Rate Agreements, Currency
Hedging Agreements or Commodity Price Protection Agreements of such Person, (v)
all Capital Lease Obligations of such Person, (vi) all Indebtedness referred to
in clauses (i) through (v) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Redeemable Capital Stock issued by such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends, and (viii) any amendment, supplement, modification, deferral,
renewal, extension, refunding or refinancing of any liability of the types
referred to in clauses (i) through (vii) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to be
determined in good faith by the Board of Directors of the issuer of such
Redeemable Capital Stock. In no event shall "Indebtedness" include any trade
payable or other current liabilities arising in the ordinary course of business.
The amount of any item of Indebtedness shall be the amount of such Indebtedness
properly classified as a liability on a balance sheet prepared in accordance
with GAAP.
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"Indenture" means this instrument as originally executed (including
all exhibits and schedules thereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under this Indenture or under the Securities including any
Guarantor, to pay principal of, premium, if any, and interest when due and
payable, and all other amounts due or to become due under or in connection with
this Indenture, the Securities and the performance of all other obligations to
the Trustee and the holders under this Indenture and the Securities, according
to the respective terms thereof.
"Initial Purchasers" means UBS Securities LLC, Bear, Stearns & Co.
Inc. and Wheat, First Securities, Inc.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan (including guarantees), or other extension of
credit or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities issued or owned by
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP.
"Issue Date" means the date on which the Securities are originally
issued under this Indenture.
"Lien" means any mortgage or deed of trust, pledge, lien (statutory or
otherwise), security interest, easement, hypothecation, or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired. A Person shall be deemed to own
subject to a Lien any property which such Person has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement, other than any lease properly
classified as an operating lease under GAAP and intellectual property licensing
arrangements.
"Maturity" means, when used with respect to the Securities, the date
on which the principal of the Securities becomes due and payable as therein
provided or as provided in this Indenture, whether at Stated Maturity, the Offer
Date or the redemption date and whether by declaration of acceleration, Offer in
respect of Excess Proceeds, Change of Control Offer in
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respect of a Change of Control, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor
rating agency.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof (without duplication in respect of all Asset Sales)
in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Subsidiary) net of (i) brokerage commissions and other reasonable fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such Asset
Sale, (iv) amounts required to be paid to any Person (other than the Company or
any Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock as referred to in Section 1009, the proceeds of such issuance
or sale in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Subsidiary), net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale (or conversion in the case of debt
securities or Capital Stock that have been converted) and net of taxes paid or
payable as a result thereof.
"Non-U.S. Person" means a Person that is not a "U.S. person" as
defined in Regulation S under the Securities Act.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President, the Chief Executive Officer, the Chief Financial
Officer or a Vice President (regardless of Vice Presidential designation), and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company or any Guarantor, as the case may be, and in form and
substance reasonably satisfactory to, and delivered to, the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, any Guarantor or the Trustee, unless an Opinion of
Independent Counsel is required pursuant to the terms of this Indenture, and who
shall be acceptable to the Trustee, and which opinion shall be in form and
substance reasonably satisfactory to the Trustee.
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"Opinion of Independent Counsel" means a written opinion of counsel,
who may be regular outside counsel for the Company, but which is issued by a
Person who is not an employee or consultant (other than non-employee legal
counsel) of the Company, or any Guarantor and who shall be reasonably acceptable
to the Trustee, and which opinion shall be in form and substance reasonably
satisfactory to the Trustee.
"Outstanding" when used with respect to Securities means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent) for
the Holders of such Securities; provided that if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor reasonably satisfactory to the Trustee has been
made;
(c) Securities, except to the extent provided in Sections 402 and 403,
with respect to which the Company has effected defeasance or covenant defeasance
as provided in Article Four; and
(d) Securities in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to the
Trustee and the Company proof reasonably satisfactory to each of them that such
Securities are held by a bona fide purchaser in whose hands the Securities are
valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company, any Guarantor, or any other obligor upon the Securities or any
Affiliate of the Company, any Guarantor or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the reasonable satisfaction of the Trustee the pledgee's right so
to act with respect to such Securities and that the pledgee is not the Company,
any Guarantor or any other obligor upon the Securities or any Affiliate of the
Company, any Guarantor or such other obligor.
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company
which ranks pari passu in right of payment to the Securities and (b) with
respect to any Guarantee, Indebtedness which ranks pari passu in right of
payment to such Guarantee.
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"Paying Agent" means any Person (including the Company) authorized by
the Company to pay the principal of, premium, if any, or interest on, any
Securities on behalf of the Company.
"Permitted Investment" means (i) Investments in any Wholly Owned
Subsidiary or any Person which, as a result of such Investment, (a) becomes a
Wholly Owned Subsidiary or (b) is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, or is liquidated
into, the Company or any Wholly Owned Subsidiary; (ii) Indebtedness of the
Company or a Subsidiary described under clauses (iv) and (vii) of paragraph (b)
of Section 1008; (iii) Investments in any of the Securities; (iv) Investments in
Cash Equivalents; (v) Investments acquired by the Company or any Subsidiary in
connection with an Asset Sale permitted under Section 1012 to the extent such
Investments are non-cash proceeds as permitted under such covenant; (vi)
Investments in existence on the date of the Indenture; (vii) guarantees of
Indebtedness of a Wholly Owned Subsidiary given by the Company or another Wholly
Owned Subsidiary and guarantees of Indebtedness of the Company given by any
Subsidiary, in each case, in accordance with the terms of the Indenture; (viii)
advances to employees or officers of the Company in the ordinary course of
business so long as the aggregate amount of such advances shall not exceed $1
million outstanding at any one time; (ix) any Investment in the Company by any
Subsidiary of the Company; provided, that any such Investment in the form of
Indebtedness shall be Subordinated Indebtedness; (x) accounts receivable created
or acquired in the ordinary course of business of the Company or any Subsidiary
and Investments arising from transactions by the Company or any Subsidiary with
trade creditors or customers in the ordinary course of business (including any
such Investment received pursuant to any plan of reorganization or similar
arrangement pursuant to the bankruptcy or insolvency of such trade creditors or
customers or otherwise in settlement of a claim); (xi) loans in the ordinary
course of business to employees of the Company or a Subsidiary to purchase
Capital Stock of the Company pursuant to the terms of employee stock benefit
plans; (xii) Investments the consideration of which is Capital Stock of the
Company; (xiii) stock obligations or securities received in satisfaction of
judgments; (xiv) Investments in prepaid expenses, negotiable instruments held
for collection, and lease, utility and workers' compensation, performance and
other similar deposits; and (xv) any other Investments in an aggregate amount
not to exceed $20 million at any one time outstanding. In connection with any
assets or property contributed or transferred to any Person as an Investment,
such property and assets shall be equal to the Fair Market Value (as determined
by the Company's Board of Directors) at the time of such Investment.
"Permitted Lien" means:
(a) any Lien existing as of the date of this Indenture;
(b) any Lien arising by reason of (1) any judgment, decree or order
of any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired; (2) taxes
not yet delinquent or which are being contested in good faith; (3) security
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for payment of workers' compensation or other insurance or arising under
worker's compensation laws or similar legislation; (4) good faith deposits in
connection with bids, tenders, leases, contracts (other than contracts
evidencing Indebtedness); (5) zoning restrictions, easements, licenses,
reservations, title defects, rights of others for rights of way, utilities,
sewers, electric lines, telephone or telegraph lines, and other similar
purposes, provisions, covenants, conditions, waivers, restrictions on the use of
property or minor irregularities of title (and with respect to leasehold
interests, mortgages, obligations, liens and other encumbrances incurred,
created, assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without consent of the
lessee), none of which materially impairs the use of any parcel of property
material to the operation of the business of the Company or any Subsidiary or
the value of such property for the purpose of such business; (6) deposits to
secure public or statutory obligations, or in lieu of surety or appeal bonds; or
(7) operation of law in favor of landlords, carriers, warehousemen, bankers,
mechanics, materialmen, laborers, employees or suppliers, incurred in the
ordinary course of business for sums which are not yet delinquent or are being
contested in good faith by negotiations or by appropriate proceedings which
suspend the collection thereof;
(c) any Lien to secure the performance bids, trade contracts, leases
(including, without limitation, statutory and common law landlord's liens),
statutory obligations, surety and appeal bonds, letters of credit and other
obligations of a like nature and incurred in the ordinary course of business of
the Company or any Subsidiary;
(d) any Lien securing obligations in connection with Indebtedness
permitted under clause (i) of paragraph (b) of Section 1008 which are incurred
or assumed in connection with the acquisition, development or construction of
real or personal, moveable or immovable property within 180 days of such
incurrence or assumption; provided that such Liens only extend to such acquired,
developed or constructed property and any accessories, accessions, additions,
replacements and proceeds thereof; and
(e) any Lien arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(f) any Lien securing obligations in connection with Indebtedness
permitted in clauses (ii) or (iii) of paragraph (b) of Section 1008;
(g) any Lien in favor of the Company or any Subsidiary;
(h) any Lien securing obligations in connection with Acquired
Indebtedness; provided that any such Lien does not extend to or cover any
property or assets of the Company or any of its Subsidiaries other than the
property or assets of the Acquired Person covered thereby or the property assets
so acquired;
(i) any Lien in favor of the Trustee for the benefit of the Holders
or the Trustee arising under the provisions in the Indenture or the Escrow
Agreement;
15
<PAGE>
(j) any Lien encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the Company
or any Subsidiary if and to the extent arising in the ordinary course of
business, including rights of offset and set-off;
(k) any Lien in favor of customs or revenue authorities to secure
payment of customs duties in connection with the importation of goods in the
ordinary course of business;
(l) leases or subleases granted to third Persons not interfering with
the ordinary course of business of the Company or its Subsidiaries;
(m) any Lien securing any extension, renewal, refinancing or
replacement, in whole or in part, of any obligation or Indebtedness described in
the foregoing clauses (a) through (d) and (f) through (h) so long as no
additional collateral is granted as security thereby.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 308 in exchange for a mutilated
Security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any Capital Stock
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Prospectus" means the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Series A Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Public Equity Offering" means an underwritten offering of Common
Stock of the Company with gross proceeds to the Company of at least $25 million
pursuant to a registration statement that has been declared effective by the
Commission pursuant to the Securities Act (other than a registration statement
on Form S-8 or otherwise relating to equity securities issuable under any
employee benefit plan of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien
on assets related to the business of the Company and any additions and
accessions thereto, which are purchased by the Company at any time after the
Securities are issued; provided that (i) the
16
<PAGE>
security agreement or conditional sales or other title retention contract
pursuant to which the Lien on such assets is created (collectively a "Purchase
Money Security Agreement") shall be entered into within 90 days after the
purchase or substantial completion of the construction of such assets and shall
at all times be confined solely to the assets so purchased or acquired, any
additions and accessions thereto and any proceeds therefrom, (ii) at no time
shall the aggregate principal amount of the outstanding Indebtedness secured
thereby be increased, except in connection with the purchase of additions and
accessions thereto and except in respect of fees and other obligations in
respect of such Indebtedness and (iii) (A) the aggregate outstanding principal
amount of Indebtedness secured thereby (determined on a per asset basis in the
case of any additions and accessions) shall not at the time such Purchase Money
Security Agreement is entered into exceed 100% of the purchase price to the
Company of the assets subject thereto or (B) the Indebtedness secured thereby
shall be with recourse solely to the assets so purchased or acquired, any
additions and accessions thereto and any proceeds therefrom.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A under
the Securities Act.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be, required to be redeemed prior to the Stated Maturity of the
principal of the Securities or is redeemable at the option of the holder thereof
at any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof.
"Redemption Date" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the price at which it
is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 18, 1997, between the Company and the Initial
Purchasers.
"Registration Statement" means any registration statement of the
Company which covers any of the Series A Securities or Series B Securities
pursuant to the provisions of the Registration Rights Agreement, and all
amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Regular Record Date" for the interest payable on any Interest Payment
Date
17
<PAGE>
means the June 1 or December 1 (whether or not a Business Day) next preceding
such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act, as amended
from time to time.
"Regulation S Global Securities" means one or more permanent global
Securities in registered form representing the aggregate principal amount of
Securities sold in reliance on Regulation S under the Securities Act.
"Responsible Officer" when used with respect to the Trustee means any
officer or employee assigned to the Corporate Trust Office or any agent of the
Trustee appointed hereunder, including any vice president, assistant vice
president, secretary, assistant secretary, or any other officer or assistant
officer of the Trustee or any agent of the Trustee appointed hereunder to whom
any corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Rule 144A" means Rule 144A under the Securities Act, as amended from
time to time.
"Rule 144A Global Securities" means one or more permanent global
Securities in registered form representing the aggregate principal amount of
Securities sold in reliance on Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which the Company or a Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
"S&P" means Standard & Poor's Rating Group, a division of McGraw Hill,
Inc. or any successor rating agency.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Series B Global Securities" means one or more permanent Global
Securities in registered form representing the aggregate principal amount of
Series B Securities exchanged for Series A Securities pursuant to the Exchange
Offer.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company pursuant to Section 4 of the Registration Rights
Agreement, which covers all of the Registrable Securities (as defined in the
Registration Rights Agreement) on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the Commission, and
all amendments and supplements to such registration statement, including post-
effective amendments, in each case including the Prospectus contained therein,
all exhibits
18
<PAGE>
thereto and all material incorporated by reference therein.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Indebtedness or
any installment of interest thereon, the dates specified in such Indebtedness as
the fixed date on which the principal of such Indebtedness or such installment
of interest, as the case may be, is due and payable.
"Strategic Investor" means any Person which is (or a controlled
Affiliate of any Person which is or a controlled Affiliate of which is) engaged
principally in the Telecommunications Business and which has a Total Market
Capitalization of at least $1.0 billion.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor subordinated in right of payment to the Securities or the Guarantee of
such Guarantor, as the case may be.
"subsidiary" means, with respect to any Person, an corporation,
association or other business entity (i) of which outstanding Capital Stock
having at least the majority of the votes entitled to be cast in the election of
directors is owned, directly or indirectly, by such Person and/or any one or
more subsidiaries of such Person, or (ii) of which at least a majority of voting
interest is owned, directly or indirectly, by such Person and/or one or more
subsidiaries of such Person.
"Subsidiary" means any subsidiary of the Company other than an
Unrestricted Subsidiary.
"Successor Security" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that evidenced
by, such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 308 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Telecommunications Business" means, when used in reference to any
Person, that such Person is engaged primarily in (i) the business of
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii) the business
of creating, developing or marketing communications related network equipment,
software and other devices for use in a Telecommunications Business or (iii)
businesses reasonably related or incidental thereto.
"Total Consolidated Indebtedness" means, as at any date of
determination, an amount equal to the aggregate amount of all Indebtedness of
the Company and any Subsidiary, on a Consolidated basis, outstanding as of such
date of determination, after giving effect to any
19
<PAGE>
Incurrence of Indebtedness and the application of the proceeds therefrom giving
rise to such determination.
"Total Market Capitalization" of any Person means, as of any day of
determination, the sum of (a) the consolidated Indebtedness of such Person and
any Subsidiaries on such day, plus (b) the product of (i) the aggregate number
of outstanding shares of common stock of such Person on such day (which shall
not include any options or warrants on, or securities convertible or
exchangeable into, shares of common stock of such Person) and (ii) the average
closing price of such common stock over the 10 consecutive Trading Days ending
not earlier than 10 Trading Days immediately prior to such date of
determination, plus (c) the liquidation value of any outstanding shares of
preferred stock of such Person on such day. If no such closing price exists
with respect to shares of any such class, the value of such shares for purposes
of clause (b) of the preceding sentence shall be determined by the Board of
Directors in good faith and evidenced by a Board Resolution filed with the
Trustee. Notwithstanding the foregoing, unless the Person's Common Stock is
listed on any national securities exchange or on the Nasdaq National Market, the
"Total Market Capitalization" of the Person shall mean, as of any day of
determination, the enterprise value (without duplication) of the Person and any
subsidiaries (including the fair market value of their debt and equity), as
determined by an independent banking firm of national standing with experience
in such valuations and evidenced by a written opinion in customary form filed
with the Trustee; provided that for purposes of any such determination, the
enterprise value of the Person shall be calculated as if the Person were a
publicly held corporation without a controlling stockholder. For purposes of any
such determination, such banking firm's written opinion may state that such fair
market value is no less than a specified amount and such opinion may be as of a
date no earlier than 90 days prior to the date of such determination.
"Trading Day" with respect to a securities exchange or automated
quotation system means a day on which such exchange or system is open for a full
day of trading.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, or any successor statute.
"Unrestricted Subsidiary" means (i) any subsidiary of the Company that
at the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any subsidiary of the Company (including any newly acquired or
newly formed subsidiary) to be an Unrestricted Subsidiary if all of the
following conditions apply: (a) neither the Company nor any of its Subsidiaries
provides credit support for Indebtedness of such subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (b) such
subsidiary is not liable, directly or indirectly, with respect to any
Indebtedness other than Unrestricted Subsidiary
20
<PAGE>
Indebtedness, (c) any Investment in such subsidiary made as a result of
designating such subsidiary an Unrestricted Subsidiary shall not violate the
provisions of Section 1018 and such Unrestricted Subsidiary is not party to any
agreement, contract, arrangement or understanding at such time with the Company
or any Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company; and (v) such Unrestricted Subsidiary does not
own any Capital Stock in any Subsidiary of the Company which is not
simultaneously being designated an Unrestricted Subsidiary. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
filing with the Trustee a board resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complies with the
foregoing conditions and shall be deemed a Restricted Payment on the date of
designation in an amount equal to the greater of (1) the net book value of such
Investment or (2) the fair market value of such Investment as determined in good
faith by the Company's Board of Directors. The Board of Directors of the Company
may designate any Unrestricted Subsidiary as a Subsidiary; provided that (i)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness pursuant to Section 1008(a) and (ii) all
Indebtedness of such Subsidiary shall be deemed to be incurred on the date such
Subsidiary becomes a Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary
means Indebtedness of such Unrestricted Subsidiary (i) as to which neither the
Company nor any Subsidiary is directly or indirectly liable (by virtue of the
Company or any such Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), except Guaranteed Debt
of the Company or any Subsidiary to any Affiliate, in which case (unless the
incurrence of such Guaranteed Debt resulted in a Restricted Payment at the time
of incurrence) the Company shall be deemed to have made a Restricted Payment
equal to the principal amount of any such Indebtedness to the extent guaranteed
at the time such Affiliate is designated an Unrestricted Subsidiary and (ii)
which, upon the occurrence of a default with respect thereto, does not result
in, or permit any holder of any Indebtedness of the Company or any Subsidiary to
declare, a default on such Indebtedness of the Company or any Subsidiary or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"U.S. Government Securities" means securities that are direct
obligations of the United States of America, the payment of which its full faith
and credit is pledged.
"Voting Stock" means Capital Stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which is owned by the Company or another Wholly Owned Subsidiary. For the
purposes of this definition, any director qualifying shares or investments by
foreign nationals mandated by applicable law shall be disregarded in determining
the ownership of a Subsidiary.
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Section 102. Other Definitions.
-----------------
<TABLE>
<CAPTION>
Term Defined in Section
- ---- ------------------
<S> <C>
"Act" 105
"Agent Members" 306
"Basket" 1009
"Change of Control Offer" 1015
"Change of Control Purchase Date" 1015
"Change of Control Purchase Notice" 1015
"Change of Control Purchase Price" 1015
"covenant defeasance" 403
"Defaulted Interest" 309
"defeasance" 402
"Defeasance Redemption Date" 404
"Defeased Securities" 401
"Excess Proceeds" 1012
"Offer" 1012
"Offer Date" 1012
"Offered Price" 1012
"Pari Passu Debt Amount" 1012
"Pari Passu Offer" 1012
"Permitted Indebtedness" 1008
"Permitted Payment" 1009
"Physical Securities" 306
"Private Placement Legend" 202
"Purchase Money Security Agreement" 101
"Refinancing" 1009
"Required Filing Date" 1020
"Restricted Payments" 1009
"Securities" Recitals
"Security Amount" 1012
"Security Register" 305
"Security Registrar" 305
"Series A Securities" Recitals
"Series B Securities" Recitals
"Special Payment Date" 309
"Surviving Entity" 801
"Surviving Guarantor Entity" 801
"U.S. Government Obligations" 404
</TABLE>
Section 103. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company and any Guarantor
(if applicable) and any
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<PAGE>
other obligor on the Securities (if applicable) shall furnish to the Trustee an
Officers' Certificate in a form and substance reasonably acceptable to the
Trustee stating that all conditions precedent, if any, provided for in this
Indenture (including any covenant compliance with which constitutes a condition
precedent) relating to the proposed action have been complied with, and an
Opinion of Counsel in a form and substance reasonably acceptable to the Trustee
stating that in the opinion of such counsel all such conditions precedent, if
any, have been complied with, except that, in the case of any such application
or request as to which the furnishing of such certificates or opinions is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
individual or firm signing such opinion has read and understands such covenant
or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary to
enable him or it to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual
or such firm, such condition or covenant has been complied with.
Section 104. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate of an officer of the Company, any Guarantor or other
obligor on the Securities may be based, insofar as it relates to legal matters,
upon a certificate or opinion of, or representations by, counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion is based are erroneous. Any such certificate or
opinion may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company, any Guarantor or other obligor on the Securities stating that the
information with respect to such factual matters is in the possession of the
Company, any
23
<PAGE>
Guarantor or other obligor on the Securities, unless such officer or counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Opinions of Counsel required to be delivered to the Trustee may have
qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact, including that various
financial covenants have been complied with.
Any certificate or opinion of an officer of the Company, any Guarantor
or other obligor on the Securities may be based, insofar as it relates to
accounting matters, upon a certificate or opinion of, or representations by, an
accountant or firm of accountants in the employ of the Company, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the accounting matters
upon which his certificate or opinion may be based are erroneous. Any
certificate or opinion of any independent firm of public accountants filed with
the Trustee shall contain a statement that such firm is independent with respect
to the Company.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 105. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section 105.
(b) The ownership of Securities shall be proved by the Security
Register.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Security shall bind every future Holder
of the same Security or the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be done by the Trustee, any Paying Agent or the Company,
any Guarantor or any other obligor of the Securities in reliance thereon,
whether or not notation of such action is made upon such Security.
(d) The fact and date of the execution by any Person of any such
instrument or
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<PAGE>
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding Trust
Indenture Act Section 316(c), any such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such first solicitation is
completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for purposes of determining
whether Holders of the requisite proportion of Securities then Outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for this purpose the
Securities then Outstanding shall be computed as of such record date; provided
that no such request, demand, authorization, direction, notice, consent, waiver
or other Act by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not later
than six months after such record date.
(f) For purposes of this Indenture, any action by the Holders which
may be taken in writing may be taken by electronic means or as otherwise
reasonably acceptable to the Trustee.
Section 106. Notices, etc., to the Trustee, the Company and any
--------------------------------------------------
Guarantor.
---------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any Guarantor or
any other obligor on the Securities shall be sufficient for every purpose
(except as provided in Section 501(c)) hereunder if in writing and mailed,
first-class postage prepaid, or delivered by recognized overnight courier, to or
with the Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration, or at any other address previously furnished in writing to the
Holders or the Company, any Guarantor or any other obligor on the Securities by
the Trustee; or
25
<PAGE>
(b) the Company or any Guarantor by the Trustee or any Holder shall
be sufficient for every purpose (except as provided in Section 501(c)) hereunder
if in writing and mailed, first-class postage prepaid, or delivered by
recognized overnight courier, to the Company or such Guarantor addressed to it
c/o Concentric Network Corporation, 10590 N. Tantau Avenue, Cupertino,
California 95014, Attention: Chief Financial Officer or at any other address
previously furnished in writing to the Trustee by the Company or such Guarantor.
Section 107. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, or delivered by
recognized overnight courier, to each Holder affected by such event, at its
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner shall
be conclusively deemed to have been received by such Holder whether or not
actually received by such Holder. Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Section 108. Conflict with Trust Indenture Act.
----------------------------------
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 109. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 110. Successors and Assigns.
----------------------
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<PAGE>
All covenants and agreements in this Indenture by the Company and the
Guarantors shall bind their respective successors and assigns, whether so
expressed or not.
Section 111. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 112. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person (other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders) any benefit or any legal or
equitable right, remedy or claim under this Indenture.
Section 113. Governing Law.
-------------
THIS INDENTURE, THE SECURITIES AND ANY GUARANTEE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 114. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, Maturity
or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on such Interest Payment Date or Redemption Date, or at
the Maturity or Stated Maturity and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 115. Independence of Covenants.
-------------------------
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
Section 116. Schedules and Exhibits.
----------------------
All schedules and exhibits attached hereto are by this reference made
a part hereof with the same effect as if herein set forth in full.
27
<PAGE>
Section 117. Counterparts.
------------
This Indenture may be executed in any number of counterparts, each of
which shall be deemed an original; but all such counterparts shall together
constitute but one and the same instrument.
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.
---------------
The Securities and the Trustee's certificate of authentication thereon
shall be in substantially the forms set forth in this Article Two, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted hereby and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, any organizational
document or governing instrument or applicable law or as may, consistently
herewith, be determined by the officers executing such Securities, as evidenced
by their execution of the Securities. Any portion of the text of any Security
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
Series A Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more Rule 144A Global Securities,
substantially in the form set forth in Section 202, deposited upon issuance with
the Trustee, as custodian for the Depositary, registered in the name of the
Depositary, or its nominee, in each case for credit to an account of a direct or
indirect participant of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Rule 144A Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Series A Securities offered and sold in reliance on Regulation S shall
be issued in the form of one or more Regulation S Global Securities,
substantially in the form set forth in Section 202, deposited upon issuance with
the Trustee, as custodian for the Depositary, registered in the name of the
Depositary, or its nominee in each case for credit by the Depositary to an
account of a direct or indirect participant of the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided; provided,
however, that upon such deposit through and including the 40th day after the
later of the commencement of the Offering and the original issue date of the
Securities (such period through and including such 40th day, the
28
<PAGE>
"Restricted Period"), all such Securities shall be credited to or through
accounts maintained at the Depositary unless exchanged for interests in the Rule
144A Global Securities in accordance with the transfer and certification
requirements described below. The aggregate principal amount of the Regulation S
Global Securities may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian for the Depositary or its
nominee, as hereinafter provided.
Series B Securities exchanged for Series A Securities shall be issued
initially in the form of one or more Series B Global Securities, substantially
in the form set forth in Section 202, deposited upon issuance with the Trustee,
as custodian for the Depositary, registered in the name of the Depositary or its
nominee, in each case for credit to an account of a direct or indirect
participant of the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of the
Series B Global Securities may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depositary
or its nominee, as hereinafter provided.
Section 202. Form of Face of Security.
------------------------
(a) The form of the face of any Series A Securities authenticated and
delivered hereunder shall be substantially as follows:
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for a Series B
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, then such Initial Security shall
bear the legend set forth below (the "Private Placement Legend") on the face
thereof:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION AS SET FORTH BELOW.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A")) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
29
<PAGE>
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A INSIDE THE UNITED STATES, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) OUTSIDE THE UNITED STATES PURSUANT TO OFFERS AND SALES TO NON-
U.S. PERSONS IN AN OFFSHORE TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, (E) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (A)(2), (A)(3) OR (A)(7)
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER (I) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY
IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. AS USED HEREIN, THE
TERMS "UNITED STATES," "OFFSHORE TRANSACTION," AND "U.S. PERSON" HAVE THE
RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
[Legend if Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS
OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY TRUST COMPANY, A NEW YORK
30
<PAGE>
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
31
<PAGE>
CONCENTRIC NETWORK CORPORATION
___________________
12 3/4% SENIOR NOTE DUE 2007, SERIES A
CUSIP NO. ______________
No. __________ $_______________________
Concentric Network Corporation, a Delaware corporation (herein called
the "Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_______________ or registered assigns, the principal sum of _______________
United States dollars on December 15, 2007, at the office or agency of the
Company referred to below, and to pay interest thereon from December 18, 1997,
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semiannually on June 15 and December 15, in each year,
commencing June 15, 1998 at the rate of 12 3/4% per annum, subject to
adjustments as described in the second following paragraph, in United States
dollars, until the principal hereof is paid or duly provided for. Interest
shall be computed on the basis of a 360-day year comprised of twelve 30-day
months.
The Holder of this Series A Security is entitled to the benefits of
the Registration Rights Agreement between the Company and the Initial
Purchasers, dated December 18, 1997, pursuant to which, subject to the terms and
conditions thereof, the Company is obligated to consummate the Exchange Offer
pursuant to which the Holder of this Security shall have the right to exchange
this Security for 12 3/4% Senior Notes due 2007, Series B (herein called the
"Series B Securities") in like principal amount as provided therein. The Series
A Securities and the Series B Securities are together referred to as the
"Securities." The Series A Securities rank pari passu in right of payment with
the Series B Securities.
In the event that (a) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the date specified in the Registration
Rights Agreement, (b) the Exchange Offer Registration Statement has not been
declared effective on or prior to the date specified in the Registration Rights
Agreement, (c) the Exchange Offer is not consummated or a Shelf Registration
Statement is not declared effective, in either case, on or prior to the date
specified in the Registration Rights Agreement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of the
Series A Securities during the periods specified in the Registration Rights
Agreement, without being succeeded immediately by a post effective amendment to
such Registration Statement that cures such failure and that is itself declared
effective within a five Business Day period after filing such post effective
amendment (each such event referred to in clauses (a) through (d) above, a
"Registration Default"), then commencing on the day following the date on which
such Registration Default occurs, the interest rate borne by the Series A
Securities shall be increased by one-half of one percent per annum for the 90-
day
32
<PAGE>
period following such Registration Default, which rate will increase by one-half
of one percent per annum with respect to each subsequent 90-day period up to a
maximum of one and one half percent (1.50%) per annum until cured ("Additional
Interest"). Following the cure of all Registration Defaults, the accrual of
Additional Interest will cease and the interest rate will revert to the original
rate.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the June 1 or December 1 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid, or duly provided for, and
interest on such defaulted interest at the interest rate borne by the Series A
Securities, to the extent lawful, shall forthwith cease to be payable to the
Holder on such Regular Record Date, and may either be paid to the Person in
whose name this Security (or any Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by this Indenture not inconsistent with the
requirements of such exchange, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of San Francisco maintained for that
purpose (which initially will be a corporate trust office of the Trustee located
at 101 California Street, Suite 2725, San Francisco, California 94111), or at
such other office or agency as may be maintained for such purpose, or, at the
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Security Register, and provided, that payment by wire transfer of immediately
available funds will be required with respect to principal of and interest on
all Gobal Securities and all other Securities the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature of an authorized
signer, this Security shall not be entitled to any benefit under the Indenture,
or be valid or obligatory for any purpose.
33
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
CONCENTRIC NETWORK CORPORATION
[Seal] By:___________________________
Title:________________________
Attest:
____________________________
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12 3/4% Senior Notes due 2007, Series A referred to
in the within-mentioned Indenture.
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Trustee
By: _________________________________
Authorized Signer
Dated:
34
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 1012 or Section 1014, as applicable, of the Indenture, check the Box:
[_].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1012 or Section 1014 as applicable, of the
Indenture, state the amount (in original principal amount):
$ _______________.
Date: ___________________ Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: __________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
(b) The form of the face of any Series B Securities authenticated and
delivered hereunder shall be substantially as follows:
[Legend if Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING
OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF
A DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO
A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND
ANY SUCH
35
<PAGE>
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
36
<PAGE>
CONCENTRIC NETWORK CORPORATION
__________________
12 3/4% SENIOR NOTE DUE 2007, SERIES B
CUSIP NO. ______________
No. __________ $_______________________
Concentric Network Corporation, a Delaware corporation (herein called
the "Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_____________ or registered assigns, the principal sum of _______________ United
States dollars on December 15, 2007, at the office or agency of the Company
referred to below, and to pay interest thereon from December 18, 1997, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on June 15 and December 15 in each year, commencing
June 15, 1998 at the rate of 12 3/4% per annum, in United States dollars, until
the principal hereof is paid or duly provided for; provided that to the extent
interest has not been paid or duly provided for with respect to the Series A
Security exchanged for this Series B Security, interest on this Series B
Security shall accrue from the most recent Interest Payment Date to which
interest on the Series A Security which was exchanged for this Series B Security
has been paid or duly provided for. Interest shall be computed on the basis of
a 360-day year comprised of twelve 30-day months.
This Series B Security was issued pursuant to the Exchange Offer
pursuant to which the 12 3/4% Senior Notes due 2007, Series A (herein called the
"Series A Securities") in like principal amount were exchanged for the Series B
Securities. The Series B Securities rank pari passu in right of payment with
the Series A Securities.
In addition, for any period in which the Series A Security exchanged
for this Series B Security was outstanding, in the event that (a) the Exchange
Offer Registration Statement is not filed with the Commission on or prior to the
date specified in the Registration Rights Agreement, (b) the Exchange Offer
Registration Statement has not been declared effective on or prior to the date
specified in the Registration Rights Agreement, (c) the Exchange Offer is not
consummated or a Shelf Registration Statement is not declared effective, in
either case, on or prior to the date specified in the Registration Rights
Agreement the date of original issue of the Series A Security, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of the Series A Securities during the periods specified above, without
being succeeded immediately by a post effective amendment to such Registration
Statement that cures such failure and that is itself declared effective within a
five Business Day period after filing such post effective amendment (each such
event referred to in clauses (a) through (d) above, a "Registration Default"),
then commencing on the day following the date on which such Registration Default
occurs, the interest rate borne by the Series A Securities shall be increased by
one-half of one percent per annum for the 90-day period following such
Registration Default, which rate will increase by one-half of one percent per
annum with respect to each subsequent
37
<PAGE>
90-day period up to a maximum of one and one half percent (1.50%) per annum
until cured ("Additional Interest"). Following the cure of all Registration
Defaults, the accrual of Additional Interest will cease and the interest rate
will revert to the original rate; provided that, to the extent interest at such
increased interest rate has been paid or duly provided for with respect to the
Series A Security, interest at such increased interest rate, if any, on this
Series B Security shall accrue from the most recent Interest Payment Date to
which such interest on the Series A Security has been paid or duly provided for;
provided, however, that, if after any such reduction in interest rate, a
different event specified in clause (a), (b), (c) or (d) above occurs, the
interest rate shall again be increased pursuant to the foregoing provisions.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the June 1 or December 1 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid, or duly provided for, and
interest on such defaulted interest at the interest rate borne by the Series B
Securities, to the extent lawful, shall forthwith cease to be payable to the
Holder on such Regular Record Date, and may either be paid to the Person in
whose name this Security (or any Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in this
Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of San Francisco maintained for such
purpose (which initially will be a corporate trust office of the Trustee located
at 101 California Street, Suite 2725, San Francisco, California 94111), or at
such other office or agency as may be maintained for such purpose, or at such
other office or agency as may be maintained for such purpose, or, at the option
of the Company, payment of interest may be made by check mailed to the address
of the Person entitled thereto as such address shall appear on the Security
Register, and provided, that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest on all Gobal
Securities and all other Securities the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent. Such payment
shall be in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature of an authorized
signer, this Security shall not be entitled to
38
<PAGE>
any benefit under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
CONCENTRIC NETWORK CORPORATION
[Seal] By:__________________________________
Title:_______________________________
Attest:
____________________________
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12 3/4% Senior Notes due 2007, Series B referred to in
the within-mentioned Indenture.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee
By: ________________________________
Authorized Signer
Dated:
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 1012 or Section 1014, as applicable, of the Indenture, check the Box:
[_].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1012 or Section 1014 as applicable, of the
Indenture, state the amount (in original principal amount):
$ _______________.
Date: ___________________ Your Signature: _____________________
39
<PAGE>
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: __________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
40
<PAGE>
Section 203. Form of Reverse of Securities.
-----------------------------
(a) The form of the reverse of the Series A Securities shall be
substantially as follows:
Concentric Network Corporation
12 3/4% Senior Note due 2007, Series A
This Security is one of a duly authorized issue of Securities of the
Company designated as its 12 3/4% Senior Notes due 2007, Series A (herein called
the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to $150,000,000, issued under
and subject to the terms of an indenture (herein called the "Indenture") dated
as of December 18, 1997, between the Company and Chase Manhattan Bank and Trust
Company, National Association, as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Guarantors, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after
December 15, 2002, at the option of the Company, in whole or in part, on not
less than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an
integral multiple thereof, at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning December 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002........................... 106.375%
2003........................... 104.250%
2004........................... 102.125%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to December 15, 2000, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
or the sale of Common Stock (other than Disqualified Stock) of the Company to a
Strategic Investor in a single transaction or in a series of related
transactions, to redeem up to an aggregate of 35% of the aggregate principal
amount of Securities originally issued under the Indenture at a redemption price
equal to 112 3/4% of the aggregate principal amount thereof, plus accrued and
unpaid
41
<PAGE>
interest thereon, if any, to the Redemption Date; provided that at least 65%
aggregate principal amount of Securities remains outstanding immediately after
the occurrence of such redemption. In order to effect the foregoing redemption,
the Company must mail a notice of redemption no later than 45 days after the
closing of the related Public Equity Offering and must consummate such
redemption within 60 days of the closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by lot
or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay any Pari Passu Indebtedness of the Company or any Subsidiary or invested
in properties or other assets that replace the properties and assets that were
the subject of the Asset Sale or which will be used in the Telecommunications
Business, exceeds a specified amount the Company will be required to apply such
proceeds to the repayment of the Securities and certain Indebtedness ranking
pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the Guarantors and the rights of the Holders under the Indenture and the
Securities and the Guarantees at any time by the Company and the Trustee with
the consent of the Holders of at least a majority in aggregate principal amount
of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities (100% of the
42
<PAGE>
Holders in certain circumstances) at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company and the
Guarantors with certain provisions of the Indenture and the Securities and the
Guarantees and certain past Defaults under the Indenture and the Securities and
the Guarantees and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Securities (in the event such Guarantor or
such other obligor is obligated to make payments in respect of the Securities),
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on, this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial holders
in exchange for their beneficial interests in the Rule 144A Global Securities or
the Regulation S Global Securities if (x) the Depositary notifies the Company
that it is unwilling or unable to continue as depository for such Global
Security and a successor depository is not appointed by the Company within 90
days or (y) there shall have occurred and be continuing an Event of Default and
the Security Registrar has received a request from the Depositary. Upon any
such issuance, the Trustee is required to register such certificated Series A
Securities in the name of, and cause the same to be delivered to, such Person or
Persons (or the nominee of any thereof). All such certificated Series A
Securities would be required to include the Private Placement Legend.
Series A Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series A Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d) of
the Exchange Act, upon the written request of a Holder of a Series A Security,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto) to such Holder or to a prospective purchaser of
such Series A Security who such Holder informs the Company is
43
<PAGE>
reasonably believed to be a "Qualified Institutional Buyer" within the meaning
of Rule 144A under the Securities Act, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any such agent
shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
[The Transferee Certificate, in the form of Appendix I hereto, will be
attached to the Series A Security.]
(b) The form of the reverse of the Series B Securities shall be
substantially as follows:
Concentric Network Corporation
12 3/4% Senior Note due 2007, Series B
This Security is one of a duly authorized issue of Securities of the
Company designated as its 12 3/4% Senior Notes due 2007, Series B (herein called
the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to $150,000,000, issued under
and subject to the terms of an indenture (herein called the "Indenture") dated
as of December 18, 1997, between the Company and Chase Manhattan Bank and Trust
Company, National Association, as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Guarantors, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
44
<PAGE>
The Securities are subject to redemption at any time on or after
December 15, 2002, at the option of the Company, in whole or in part, on not
less than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an
integral multiple thereof, at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning December 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002............................ 106.375%
2003............................ 104.250%
2004............................ 102.125%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to December 15, 2000, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
or the sale of Common Stock (other than Disqualified Stock) of the Company to a
Strategic Investor in a single transaction or in a series of related
transactions, to redeem up to an aggregate of 35% of the aggregate principal
amount of Securities originally issued under the Indenture at a redemption price
equal to 112 3/4% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Redemption Date; provided that at least
65% aggregate principal amount of Securities remains outstanding immediately
after the occurrence of such redemption. In order to effect the foregoing
redemption, the Company must mail a notice of redemption no later than 45 days
after the closing of the related Public Equity Offering and must consummate such
redemption within 60 days of the closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by lot
or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to Change of Control Offer and in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay any Pari Passu Indebtedness of the Company or any Subsidiary or invested
in properties or other assets that replace the properties and assets that were
the subject of the Asset Sale or which will be used in the Telecommunications
Business, exceeds a specified amount, the Company will be required to apply such
proceeds to the repayment of the Securities and certain Indebtedness ranking
pari
45
<PAGE>
passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which required the consent of all of the Holders) as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the Guarantors and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Company and the Trustee
with the consent of the Holders of at least a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities (100% of the Holders in certain circumstances) at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company and the Guarantors with certain provisions of the
Indenture and the Securities and the Guarantees and certain past Defaults under
the Indenture and the Securities and the Guarantees and their consequences. Any
such consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Securities (in the event such Guarantor or
such other obligor is obligated to make payments in respect of the Securities),
which is absolute and unconditional, to pay the principal of, and premium, if
any, and interest on, this Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
46
<PAGE>
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial holders
in exchange for their beneficial interests in the Rule 144A Global Securities or
the Regulation S Global Securities if (x) the Depositary notifies the Company
that it is unwilling or unable to continue as depository for such Global
Security and a successor depository is not appointed by the Company within 90
days or (y) there shall have occurred and be continuing an Event of Default and
the Security Registrar has received a request from the Depositary. Upon any such
issuance, the Trustee is required to register such certificated Series B
Securities in the name of, and cause the same to be delivered to, such Person or
Persons (or the nominee of any thereof).
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any such agent
shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
[The Transferee Certificate, in the form of Appendix II hereto, will
be attached to the Series B Security.]
47
<PAGE>
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $150,000,000 in
principal amount of Securities, except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 303, 304, 305, 306, 307, 308, 906, 1012,
1014 or 1108.
The Securities shall be known and designated as the "12 3/4% Senior
Notes due 2007" of the Company. The Stated Maturity of the Securities shall be
December 15, 2007, and the Securities shall each bear interest at the rate of 12
3/4% per annum, as such interest rate may be adjusted as set forth in the
Securities, from December 18, 1997, or from the most recent Interest Payment
Date to which interest has been paid, payable semiannually on June 15 and
December 15 in each year, commencing June 15, 1998, until the principal thereof
is paid or duly provided for. Interest on any overdue principal, interest (to
the extent lawful) or premium, if any, shall be payable on demand.
The principal of, premium, if any, and interest on, the Securities
shall be payable and the Securities shall be exchangeable and transferable at an
office or agency of the Company in The City of San Francisco maintained for such
purposes (which initially will be a corporate trust office of the Trustee
located at 101 California Street, Suite 2725, San Francisco, California 94111);
provided, however, that payment of interest may be made at the option of the
Company by check mailed to addresses of the Persons entitled thereto as shown on
the Security Register.
For all purposes hereunder, the Series A Securities and the Series B
Securities will be treated as one class and are together referred to as the
"Securities." The Series A Securities rank pari passu in right of payment with
the Series B Securities.
The Securities shall be subject to repurchase by the Company pursuant
to an Offer as provided in Section 1012.
Holders shall have the right to require the Company to purchase their
Securities, in whole or in part, in the event of a Change of Control pursuant to
Section 1014.
The Securities shall be redeemable as provided in Article Eleven and
in the Securities.
At the election of the Company, the entire Indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Events of Default thereunder may be defeased as provided in Article Four.
Section 302. Denominations.
-------------
48
<PAGE>
The Securities shall be issuable only in fully registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Section 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by one of
its Chairman of the Board, its President, its Chief Executive Officer, its Chief
Financial Officer or one of its Vice Presidents under its corporate seal
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signatures of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee (with or without Guarantees endorsed thereon) for authentication,
together with a Company Order for the authentication and delivery of such
Securities; and the Trustee in accordance with such Company Order shall
authenticate and make available for delivery such Securities as provided in this
Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security or Guarantee endorsed thereon shall be entitled to any
benefit under this Indenture or be valid or obligatory for any purpose unless
there appears on such Security a certificate of authentication substantially in
the form provided for herein duly executed by the Trustee by manual signature of
an authorized officer, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder and is entitled to the benefits of this
Indenture.
In case the Company or any Guarantor, pursuant to Article Eight,
shall, in a single transaction or through a series of related transactions, be
consolidated or merged with or into any other Person or shall sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of its
properties and assets to any Person, and the successor Person resulting from
such consolidation or surviving such merger, or into which the Company or such
Guarantor shall have been merged, or the successor Person which shall have
participated in the sale, assignment, conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Securities executed in the name of
the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as
49
<PAGE>
specified in such request for the purpose of such exchange. If Securities shall
at any time be authenticated and delivered in any new name of a successor Person
pursuant to this Section 303 in exchange or substitution for or upon
registration of transfer of any Securities, such successor Person, at the option
of the Holders but without expense to them, shall provide for the exchange of
all Securities at the time Outstanding for Securities authenticated and
delivered in such new name.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities on behalf of the Trustee. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Security Registrar or Paying
Agent to deal with the Company and its Affiliates.
If an officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates such Security such Security shall
be valid nevertheless.
Section 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten or otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Securities in lieu of which they are issued and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities may determine, as conclusively
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the Trustee (in
accordance with a Company Order for the authentication of such Securities) shall
authenticate and make available for delivery in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged the temporary Securities shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities.
Section 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause the Trustee to keep, so long as it is the
Security Registrar, at the Corporate Trust Office of the Trustee, or such other
office as the Trustee may designate, a register (the register maintained in such
office or in any other office or agency designated pursuant to Section 1002
being herein sometimes referred to as the "Security Register") in which, subject
to such reasonable regulations as the Security Registrar may prescribe, the
Company shall provide for the registration of Securities and of transfers of
50
<PAGE>
Securities. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Company may change the Security Registrar or appoint one or more
co-Security Registrars without notice.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall (in accordance with a Company Order for the
authentication of such Securities) authenticate and make available for delivery,
in the name of the designated transferee or transferees, one or more new
Securities of the same series of any authorized denomination or denominations,
of a like aggregate principal amount.
Furthermore, any Holder of the Global Security shall, by acceptance of
such Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Holder of such Global Security (or its agent), and that ownership of a
beneficial interest in a Security shall be required to be reflected in a book
entry.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall (in accordance with a Company Order
for the authentication of such Securities) authenticate and make available for
delivery, Securities of the same series which the Holder making the exchange is
entitled to receive; provided that no exchange of Series A Securities for Series
B Securities shall occur until an Exchange Offer Registration Statement shall
have been declared effective by the Commission and that the Series A Securities
exchanged for the Series B Securities shall be canceled.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer,
or for exchange, repurchase or redemption, shall (if so required by the Company
or the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer, exchange or redemption of Securities, except for any tax or other
governmental charge that may be imposed in connection therewith, other than
exchanges pursuant to Sections 303, 304, 305, 906, 1012, 1015 or 1108 not
involving any transfer.
Neither the Company nor the Trustee shall be required (a) to issue,
register the transfer of or exchange any Security during a period beginning at
the opening of business 15 days before the mailing of a notice of redemption of
the Securities selected for redemption under
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<PAGE>
Section 1104 and ending at the close of business on the day of such mailing or
(b) to register the transfer of or exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of Securities
being redeemed in part.
Every Security shall be subject to the restrictions on transfer
provided in the legend required to be set forth on the face of each Security
pursuant to Section 202, and the restrictions set forth in this Section 305, and
the Holder of each Security, by such Holder's acceptance thereof (or interest
therein), agrees to be bound by such restrictions on transfer.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any Global Security, whether pursuant to this Section 305,
Section 304, 308, 906 or 1108 or otherwise, shall also be a Global Security and
bear the legend specified in Section 202.
Section 306. Book Entry Provisions for Global Securities.
-------------------------------------------
(a) Each Global Security initially shall (i) be registered in the
name of the nominee of the Depositary, (ii) be deposited with, or on behalf of,
the Depositary and (iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Participants") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary, or the Trustee as its custodian, or under such
Global Security, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall impair, as between the
Depositary and its Participants, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary (A) has notified the Company that it is
unwilling or unable to continue as Depositary for such Global Security or (B)
has ceased to be a clearing agency registered as such under the Exchange Act,
and in either case the Company fails to appoint a successor Depositary, (ii) the
Company, at its option, executes and delivers to the Trustee a Company Order
stating that it elects to cause the issuance of the Securities in certificated
form and that all Global Securities shall be exchanged in whole for Securities
that are not Global Securities (in which case such exchange shall be effected by
the Trustee) or (iii) there shall have occurred and be continuing an Event of
Default or any event which after notice or lapse of time or both would be an
Event of Default with respect to such Global Security.
(c) If any Global Security is to be exchanged for other Securities or
canceled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Trustee,
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as Security Registrar, for exchange or cancellation as provided in this Article
Three. If any Global Security is to be exchanged for other Securities or
canceled in part, or if another Security is to be exchanged in whole or in part
for a beneficial interest in any Global Security, then either (i) such Global
Security shall be so surrendered for exchange or cancellation as provided in
this Article Three or (ii) the principal amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so exchanged or
canceled, or equal to the principal amount of such other Security to be so
exchanged for a beneficial interest therein, as the case may be, by means of an
appropriate adjustment made on the records of the Trustee, as Security
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security, the Trustee shall, subject to this Section 306(c) and as
otherwise provided in this Article Three, authenticate and deliver any
Securities issuable in exchange for such Global Security (or any portion
thereof) to or upon the order of, and registered in such names as may be
directed by, the Depositary or its authorized representative. Upon the request
of the Trustee in connection with the occurrence of any of the events specified
in the preceding paragraph, the Company shall promptly make available to the
Trustee a reasonable supply of Securities that are not in the form of Global
Securities. The Trustee shall be entitled to rely upon any order, direction or
request of the Depositary or its authorized representative which is given or
made pursuant to this Article Three if such order, direction or request is given
or made in accordance with the Applicable Procedures.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article Three or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under the
Indenture and the Securities, and owners of beneficial interests in a Global
Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Participants.
Section 307. Special Transfer and Exchange Provisions.
----------------------------------------
(a) Certain Transfers and Exchanges. Transfers and exchanges of
-------------------------------
Securities and beneficial interests in a Global Security of the kinds specified
in this Section 307 shall be made only in accordance with this Section 307.
(i) Rule 144A Global Security to Regulation S Global Security.
---------------------------------------------------------
If the owner of a beneficial interest in the Rule 144A Global
Security wishes at any time to transfer such interest to a Person who
wishes to acquire the same in the form of a beneficial interest in the
Regulation S Global Security, such transfer may be effected only in
accordance with the provisions of this paragraph
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and paragraph (iv) below and subject to the Applicable Procedures.
Upon receipt by the Trustee, as Security Registrar, of (a) an order
given by the Depositary or its authorized representative directing
that a beneficial interest in the Regulation S Global Security in a
specified principal amount be credited to a specified Participant's
account and that a beneficial interest in the Rule 144A Global
Security in an equal principal amount be debited from another
specified Participant's account and (b) a Regulation S Certificate in
the form of Exhibit A hereto, satisfactory to the Trustee and duly
executed by the owner of such beneficial interest in the Rule 144A
Global Security or his attorney duly authorized in writing, then the
Trustee, as Security Registrar but subject to paragraph (iv) below,
shall reduce the principal amount of the Rule 144A Global Security and
increase the principal amount of the Regulation S Global Security by
such specified principal amount as provided in Section 306(c).
(ii) Regulation S Global Security to Rule 144A Global Security.
---------------------------------------------------------
If the owner of a beneficial interest in the Regulation S Global
Security wishes at any time to transfer such interest to a Person who
wishes to acquire the same in the form of a beneficial interest in the
Rule 144A Global Security, such transfer may be effected only in
accordance with this paragraph (ii) and subject to the Applicable
Procedures. Upon receipt by the Trustee, as Security Registrar, of
(a) an order given by the Depositary or its authorized representative
directing that a beneficial interest in the Rule 144A Global
Security in a specified principal amount be credited to a specified
Participant's account and that a beneficial interest in the Regulation
S Global Security in an equal principal amount be debited from another
specified Participant's account and (b) if such transfer is to occur
during the Restricted Period, a Restricted Securities Certificate in
the form of Exhibit B hereto, satisfactory to the Trustee and duly
executed by the owner of such beneficial interest in the Regulation S
Global Security or his attorney duly authorized in writing, then the
Trustee, as Security Registrar, shall reduce the principal amount of
the Regulation S Global Security and increase the principal amount of
the Rule 144A Global Security by such specified principal amount as
provided in Section 306(c).
(iii) Exchanges between Global Security and Non-Global Security.
---------------------------------------------------------
A beneficial interest in a Global Security may be exchanged for
a Security that is not a Global Security as provided in Section
--------
307(b), provided that, if such interest is a beneficial interest in
the Rule 144A Global Security, or if such interest is a beneficial
interest in the Regulation S Global Security and such exchange is to
occur during the Restricted Period, then such interest shall bear the
Private Placement Legend (subject in each case to Section 307(b)).
(b) Private Placement Legends.
-------------------------
Rule 144A Securities and their Successor Securities and Regulation S
Securities
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and their Successor Securities shall bear a Private Placement Legend, subject to
the following:
(i) subject to the following clauses of this Section 307(b), a
Security or any portion thereof which is exchanged, upon transfer or
otherwise, for a Global Security or any portion thereof shall bear the
Private Placement Legend borne by such Global Security while
represented thereby;
(ii) subject to the following clauses of this Section 307(b), a
new Security which is not a Global Security and is issued in exchange
for another Security (including a Global Security) or any portion
thereof, upon transfer or otherwise, shall bear the Private Placement
Legend borne by such other Security;
(iii) Series B Securities, and all other Securities sold or
otherwise disposed of pursuant to an effective registration statement
under the Securities Act, together with their respective Successor
Securities, shall not bear a Private Placement Legend;
(iv) at any time after the Securities may be freely transferred
without registration under the Securities Act or without being subject
to transfer restrictions pursuant to the Securities Act, a new
Security which does not bear a Private Placement Legend may be issued
in exchange for or in lieu of a Security (other than a Global
Security) or any portion thereof which bears such a legend if the
Trustee has received an Unrestricted Securities Certificate
substantially in the form of Exhibit C hereto, satisfactory to the
Trustee and duly executed by the Holder of such legended Security or
his attorney duly authorized in writing, and after such date and
receipt of such certificate, the Trustee shall authenticate and
deliver such a new Security in exchange for or in lieu of such other
Security as provided in this Article Three;
(v) a new Security which does not bear a Private Placement
Legend may be issued in exchange for or in lieu of a Security (other
than a Global Security) or any portion thereof which bears such a
legend if, in the Company's judgment, placing such a legend upon such
new Security is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at
the direction of the Company, shall authenticate and deliver such a
new Security as provided in this Article Three; and
(vi) notwithstanding the foregoing provisions of this Section
307(b), a Successor Security of a Security that does not bear a
particular form of Private Placement Legend shall not bear such form
of legend unless the Company has reasonable cause to believe that such
Successor Security is a "restricted security" within the meaning of
Rule 144, in which case the Trustee, at the direction of the Company,
shall authenticate and deliver a new Security bearing a Private
Placement Legend in exchange for such Successor Security as provided
in this Article Three.
55
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By its acceptance of any Security bearing the Private Placement
Legend, each Holder of such a Security acknowledges the restrictions on transfer
of such Security set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Security only as provided in this
Indenture.
The Security Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 306 or this Section
307. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Security Registrar.
In the event that Regulation S is amended during the term of this
Indenture to alter the applicable holding period, all reference in this
Indenture to a holding period for Non-U.S. Persons will be deemed to include
such amendment.
Section 308. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If (a) any mutilated Security is surrendered to the Trustee, or (b)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, any Guarantor or the Trustee, such security or indemnity, in each case,
as may be required by them to save each of them harmless, then, in the absence
of notice to the Company, any Guarantor or the Trustee that such Security has
been acquired by a bona fide purchaser, the Company shall execute and upon a
Company Request the Trustee shall authenticate and make available for delivery,
in exchange for any such mutilated Security or in lieu of any such destroyed,
lost or stolen Security, a replacement Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Securities under this Section,
the Company may require the payment of a sum sufficient to pay all documentary,
stamp or similar issue or transfer taxes or other governmental charges that may
be imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company and any Guarantor, whether or not the
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 309. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
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Interest on any Security which is payable, and is punctually paid or
duly provided for, on the Stated Maturity of such interest shall be paid to the
Person in whose name the Security (or any Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest payment.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on the Stated Maturity of such interest, and interest
on such defaulted interest at the then applicable interest rate borne by the
Securities, to the extent lawful (such defaulted interest and interest thereon
herein collectively called "Defaulted Interest"), shall forthwith cease to be
payable to the Holder on the Regular Record Date; and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in
Subsection (a) or (b) below:
(i) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or any relevant
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be
paid on each Security and the date (not less than 30 days after such
notice) of the proposed payment (the "Special Payment Date"), and at
the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the Special Payment Date, such money
when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Subsection provided.
Thereupon the Trustee shall fix a Special Record Date for the payment
of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the Special Payment Date
and not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company in writing of such Special Record Date. In the name and at
the expense of the Company, the Trustee shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class postage prepaid, to each
Holder at its address as it appears in the Security Register, not less
than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record
Date and Special Payment Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the
Securities are registered on such Special Record Date and shall no
longer be payable pursuant to the following Subsection (b).
(ii) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by this Indenture not inconsistent with
the requirements of such exchange, if, after written notice given by
the Company to the Trustee of the proposed payment pursuant to this
Subsection, such payment shall be deemed practicable by the Trustee.
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<PAGE>
Subject to the foregoing provisions of this Section 309, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 310. CUSIP Numbers.
-------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and the Company, or the Trustee on behalf of the Company,
shall use CUSIP numbers in notices of redemption or exchange as a convenience to
Holders; provided, however, that any such notice shall state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or exchange and
that reliance may be placed only on the other identification numbers printed on
the Securities; and provided further, however, that failure to use CUSIP numbers
in any notice of redemption or exchange shall not affect the validity or
sufficiency of such notice.
Section 311. Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer,
the Company, any Guarantor, the Trustee and any agent of the Company, any
Guarantor or the Trustee may treat the Person in whose name any Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of, premium, if any, and (subject to Section 309) interest on, such
Security and for all other purposes whatsoever, whether or not such Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any agent of
the Company, any Guarantor or the Trustee shall be affected by notice to the
contrary.
Section 312. Cancellation.
------------
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company and any
Guarantor may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company or such
Guarantor may have acquired in any manner whatsoever, and all Securities so
delivered shall be promptly canceled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section 312, except as expressly permitted by this Indenture. All
canceled Securities held by the Trustee shall be returned to the Company. The
Trustee shall provide the Company a list of all Securities that have been
canceled from time to time as requested by the Company.
Section 313. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
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ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- ----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 402 or Section 403 be
applied to all of the Outstanding Securities (the "Defeased Securities"), upon
compliance with the conditions set forth below in this Article Four.
Section 402. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 401 of the option applicable
to this Section 402, the Company, each Guarantor and any other obligor upon the
Securities, if any, shall be deemed to have been discharged from its obligations
with respect to the Defeased Securities on the date the conditions set forth in
Section 404 below are satisfied (hereinafter, "defeasance"). For this purpose,
such defeasance means that the Company, each Guarantor and any other obligor
upon the Securities shall be deemed to have paid and discharged the entire
Indebtedness represented by the Defeased Securities, which shall thereafter be
deemed to be "Outstanding" only for the purposes of Section 405 and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company and upon Company Request, shall execute proper instruments acknowledging
the same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of Defeased
Securities to receive, solely from the trust fund described in Section 404 and
as more fully set forth in such Section, payments in respect of the principal
of, premium, if any, and interest on, such Securities, when such payments are
due, (b) the Company's obligations with respect to such Defeased Securities
under Sections 304, 305, 308, 1002 and 1003, (c) the rights, powers, trusts,
duties and immunities of the Trustee hereunder, including, without limitation,
the Trustee's rights under Section 607, and (d) this Article Four. Subject to
compliance with this Article Four, the Company may exercise its option under
this Section 402 notwithstanding the prior exercise of its option under Section
403 with respect to the Securities.
Section 403. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 401 of the option applicable
to this Section 403, the Company and each Guarantor shall be released from its
obligations under any covenant or provision contained or referred to in Sections
1005 through 1022, inclusive, and the provisions of clauses (iii) and (v) of
Section 801(a) with respect to the Defeased Securities on and after the date the
conditions set forth in Section 404 below are satisfied (hereinafter, "covenant
defeasance"), and the Defeased Securities shall thereafter be deemed to be not
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be
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deemed "Outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to the Defeased Securities, the
Company and each Guarantor may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such Section,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such Section or by reason of any reference in any such Section to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 501(c) but, except as
specified above, the remainder of this Indenture and such Defeased Securities
shall be unaffected thereby.
Section 404. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
402 or Section 403 to the Defeased Securities:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Securities, (1) cash in United States
dollars, (2) U.S. Government Obligations, or (3) a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee to pay and
discharge, the principal of, premium, if any, and interest on, the Defeased
Securities, on the Stated Maturity of such principal or interest (or on any date
after December 15, 2002 (such date being referred to as the "Defeasance
Redemption Date"), if at or prior to electing to exercise either its option
applicable to Section 402 or its option applicable to Section 403, the Company
has delivered to the Trustee an irrevocable notice to redeem the Defeased
Securities on the Defeasance Redemption Date). For this purpose, "U.S.
Government Obligations" means securities that are (I) direct obligations of the
United States of America for the timely payment of which its full faith and
credit is pledged or (II) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt;
(b) In the case of an election under Section 402, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States stating that (1) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (2) since the date
hereof, there has been a change in the applicable federal income tax
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law, in either case to the effect that, and based thereon such Opinion of
Independent Counsel in the United States shall confirm that, the Holders of the
Outstanding Securities will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance had not occurred;
(c) In the case of an election under Section 403, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States to the effect that the Holders of the Outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred;
(d) No Default or Event of Default (other than a Default or Event of
Default under this Indenture resulting from the borrowing of funds to be applied
to such deposit) shall have occurred and be continuing on the date of such
deposit or insofar as Section 501(h) or (i) is concerned, at any time during the
period ending on the 91st day after the date of deposit (it being understood
that this condition shall not be deemed satisfied until the expiration of such
period);
(e) Such defeasance or covenant defeasance shall not cause the
Trustee for the Securities to have a conflicting interest for purposes of the
Trust Indenture Act with respect to any other securities of the Company or any
Guarantor;
(f) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, this Indenture or any
other material agreement or instrument to which the Company, any Guarantor or
any Subsidiary is a party or by which it is bound;
(g) Such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(h) The Company shall have delivered to the Trustee an Opinion of
Independent Counsel in the United States to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(i) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Securities or any Guarantee over the other
creditors of the Company or any Guarantor with the intent of defeating,
hindering, delaying or defrauding creditors of the Company, any Guarantor or
others;
(j) No event or condition shall exist that would prevent the Company
from making payments of the principal of, premium, if any, and interest on the
Securities on the date
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of such deposit or at any time ending on the 91st day after the date of such
deposit; and
(k) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, each stating that all
conditions precedent provided for relating to either the defeasance under
Section 402 or the covenant defeasance under Section 403 (as the case may be)
have been complied with.
Opinions of Counsel or Opinions of Independent Counsel required to be
delivered under this Section shall be in form and substance reasonably
satisfactory to the Trustee may have qualifications customary for opinions of
the type required and counsel delivering such opinions may rely on certificates
of the Company or government or other officials customary for opinions of the
type required, which certificates shall be limited as to matters of fact,
including that various financial covenants have been complied with.
Section 405. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
United States dollars and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 404 in respect of the
Defeased Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (excluding the Company or
any of its Affiliates acting as Paying Agent), as the Trustee may determine, to
the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 404 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
imposed, assessed or for the account of the Holders of the Defeased Securities.
Anything in this Article Four to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 404 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect defeasance or covenant defeasance.
Section 406. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 402 or 403, as
the case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the
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Securities and any Guarantor's obligations under any Guarantee shall be revived
and reinstated, with present and prospective effect, as though no deposit had
occurred pursuant to Section 402 or 403, as the case may be, until such time as
the Trustee or Paying Agent is permitted to apply all such United States dollars
or U.S. Government Obligations in accordance with Section 402 or 403, as the
case may be; provided, however, that if the Company makes any payment to the
Trustee or Paying Agent of principal of, premium, if any, or interest on any
Security following the reinstatement of its obligations, the Trustee or Paying
Agent shall promptly pay any such amount to the Holders of the Securities and
the Company shall be subrogated to the rights of the Holders of such Securities
to receive such payment from the United States dollars and U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
Section 501. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) there shall be a default in the payment of any interest on any
Security when it becomes due and payable, and such default shall continue for a
period of 30 days;
(b) there shall be a default in the payment of the principal of (or
premium, if any, on) any Security at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(c) (i) there shall be a default in the performance, or breach, of
any covenant or agreement of the Company or any Guarantor under this Indenture,
the Escrow Agreement, the Registration Rights Agreement or any Guarantee (other
than a default in the performance, or breach, of a covenant or agreement which
is specifically dealt with in clause (a), (b) or in clause (ii), (iii) or (iv)
of this clause (c)) and such default or breach shall continue for a period of 30
days after written notice has been given, by certified mail, (x) to the Company
by the Trustee or (y) to the Company and the Trustee by the Holders of at least
25% in aggregate principal amount of the outstanding Securities; (ii) there
shall be a default in the performance or breach of the provisions of Article
Eight; (iii) the Company shall have failed to make or consummate an Offer in
accordance with the provisions of Section 1012; or (iv) the Company shall have
failed to make or consummate a Change of Control Offer in accordance with the
provisions of Section 1014;
(d) (i) any default by the Company or any Subsidiary in the payment
of the principal, premium, if any, or interest has occurred with respect to
amounts in excess of $5 million under any agreement, indenture or instrument
evidencing Indebtedness when the same shall become due and payable in full and
such default shall have continued after any applicable
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grace period and shall not have been cured or waived and, if not already matured
at its final maturity in accordance with its terms, the holder of such
Indebtedness shall have the right to accelerate such Indebtedness or (ii) any
event of default as defined in any agreement, indenture or instrument of the
Company evidencing Indebtedness in excess of $5 million shall have occurred and
the Indebtedness thereunder, if not already matured at its final maturity in
accordance with its terms, shall have been accelerated;
(e) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in full
force and effect and enforceable in accordance with its terms, except to the
extent contemplated by this Indenture and any such Guarantee;
(f) one or more judgments, orders or decrees for the payment of money
in excess of $5 million, either individually or in the aggregate, shall be
rendered against the Company not paid or covered by financially sound third-
party insurers, or any Subsidiary or any of their respective properties and
there shall not be discharged and there shall have been a period of 60
consecutive days during which a stay of enforcement of such judgment or order,
by reason of an appeal or otherwise, shall not be in effect;
(g) any holder or holders of at least $5 million in aggregate
principal amount of Indebtedness of the Company or any Subsidiary after a
default under such Indebtedness shall notify the Trustee of its commencement of
proceedings to foreclose on any assets of the Company or any Subsidiary that
have been pledged to or for the benefit of such holder or holders to secure such
Indebtedness or shall commence proceedings, or take any action (including by way
of set-off), to retain in satisfaction of such Indebtedness or to collect on,
seize, dispose of or apply in satisfaction of Indebtedness, assets of the
Company or any Subsidiary (including funds on deposit or held pursuant to lock-
box and other similar arrangements);
(h) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company or
any Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or (ii) a decree or order adjudging the Company or any Subsidiary
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Subsidiary under any
applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Company or any Subsidiary or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their respective
affairs, and any such decree or order for relief shall continue to be in effect,
or any such other decree or order shall be unstayed and in effect, for a period
of 60 consecutive days; or
(i) (i) the Company or any Subsidiary commences a voluntary case or
proceeding under any applicable Bankruptcy Law or any other case or proceeding
to be adjudicated bankrupt or insolvent, (ii) the Company or any Subsidiary
consents to the entry of a decree or order for relief in respect of the Company
or such Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, (iii) the Company or any Subsidiary files a petition or
answer or consent seeking reorganization or relief under any applicable federal
or state law,
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(iv) the Company or any Subsidiary (1) consents to the filing of such petition
or the appointment of, or taking possession by, a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the Company
or such Subsidiary or of any substantial part of the Company's Consolidated
properties, (2) makes an assignment for the benefit of creditors or (3) admits
in writing its inability to pay its debts generally as they become due or (v)
the Company, any Guarantor or any Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (i); or
(j) the Company challenges the Lien on the Collateral under the
Escrow Agreement prior to such time as the Collateral is to be released to the
Company, or the Collateral becomes subject to any Lien other than the Lien under
the Escrow Agreement.
Section 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Sections 501(h) and (i) with respect to the Company) shall occur and be
continuing with respect to this Indenture, the Trustee or the Holders of not
less than 25% in aggregate principal amount of the Securities then Outstanding
may, and the Trustee at the request of such Holders shall, declare all unpaid
principal of, premium, if any, and accrued interest on all Securities to be due
and payable, by a notice in writing to the Company (and to the Trustee if given
by the Holders of the Securities) and upon any such declaration, such principal,
premium, if any, and interest shall become due and payable immediately. If an
Event of Default specified in clause (h) or (i) of Section 501 occurs with
respect to the Company and is continuing, then all the Securities shall ipso
facto become and be due and payable immediately in an amount equal to the
principal amount of the Securities, together with accrued and unpaid interest,
if any, to the date the Securities become due and payable, without any
declaration or other act on the part of the Trustee or any Holder. Thereupon,
the Trustee may, at its discretion, proceed to protect and enforce the rights of
the Holders of the Securities by appropriate judicial proceedings.
After a declaration of acceleration with respect to the Securities,
but before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in aggregate principal amount of the Securities Outstanding, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Outstanding Securities,
(iii) the principal of and premium, if any, on any Outstanding
Securities which have become due otherwise than by such declaration of
acceleration and
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interest thereon at a rate borne by the Securities, and
(iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities;
and
(b) all Events of Default, other than the non-payment of principal of
the Securities which have become due solely by such declaration of acceleration,
have been cured or waived as provided in Section 513. No such rescission shall
affect any subsequent Default or impair any right consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company and each Guarantor covenant that if
(a) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(b) default is made in the payment of the principal of or premium, if
any, on any Security at the Stated Maturity thereof,
the Company and such Guarantor will, upon demand of the Trustee, pay to it, for
the benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal and premium, if any, and interest, with
interest upon the overdue principal and premium, if any, and, to the extent that
payment of such interest shall be legally enforceable, upon overdue installments
of interest, at the rate borne by the Securities; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company or any Guarantor, as the case may be, fails to pay such
amounts forthwith upon such demand, the Trustee, in its own name and as trustee
of an express trust, may institute a judicial proceeding for the collection of
the sums so due and unpaid and may prosecute such proceeding to judgment or
final decree, and may enforce the same against the Company or any Guarantor or
any other obligor upon the Securities and collect the moneys adjudged or decreed
to be payable in the manner provided by law out of the property of the Company,
any Guarantor or any other obligor upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture, the Escrow Agreement or any Guarantee by such
appropriate private or judicial proceedings as the Trustee shall deem most
effectual to protect and enforce such rights, including seeking recourse against
any Guarantor pursuant to the terms of any Guarantee, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein or therein, or to enforce any other proper
remedy, including, without limitation, seeking recourse against any Guarantor
pursuant to the terms of a Guarantee, or to enforce any other proper remedy,
subject however to Section 512. No recovery of any such
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judgment upon any property of the Company or any Guarantor shall affect or
impair any rights, powers or remedies of the Trustee or the Holders.
Section 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor, including any
Guarantor, upon the Securities or the property of the Company or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of principal, and
premium, if any, and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 505. Trustee May Enforce Claims without Possession of
------------------------------------------------
Securities.
- ----------
All rights of action and claims under this Indenture, the Securities
or the Guarantees may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name and as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
Section 506. Application of Money Collected.
------------------------------
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Any money collected by the Trustee pursuant to this Article or the
Escrow Agreement or otherwise on behalf of the Holders or the Trustee pursuant
to this Article or the Escrow Agreement or through any proceeding or any
arrangement or restructuring in anticipation or in lieu of any proceeding
contemplated by this Article or the Escrow Agreement shall be applied, subject
to applicable law, in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities for principal, premium, if any, and interest, in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company, provided that all sums due and owing to the
Holders and the Trustee have been paid in full as required by this Indenture.
Section 507. Limitation on Suits.
-------------------
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
trustee hereunder;
(c) such Holder or Holders have offered to the Trustee an indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 15 days after its receipt of such notice, request
and offer (and if requested, provision) of indemnity has failed to institute any
such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 15-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner
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whatever by virtue of, or by availing of, any provision of this Indenture, any
Security or any Guarantee to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture, any Security or any
Guarantee, except in the manner provided in this Indenture and for the equal and
ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right based on the terms stated herein, which is
absolute and unconditional, to receive payment of the principal of, premium, if
any, and (subject to Section 309) interest on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repurchase, on the Redemption Date or the repurchase date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
Section 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Guarantee and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, any Guarantor, any other obligor on the Securities, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
------------------------------
No right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
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Section 512. Control by Holders.
------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities shall have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, provided
that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture (including, without limitation, Section 507), the Escrow
Agreement or any Guarantee, expose the Trustee to personal liability, or be
unduly prejudicial to Holders not joining therein; and
(b) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities may on behalf of the Holders of all Outstanding
Securities waive any past Default hereunder and its consequences, except a
Default
(a) in the payment of the principal of, premium, if any, or interest
on any Security; or
(b) in respect of a covenant or a provision hereof which under this
Indenture cannot be modified or amended without the consent of the Holder of
each Security Outstanding affected by such modification or amendment.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any
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Holder for the enforcement of the payment of the principal of, premium, if any,
or interest on, any Security on or after the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on or after the
Redemption Date).
Section 515. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company or any Guarantor
from paying all or any portion of the principal of, premium, if any, or interest
on the Securities contemplated herein or in the Securities or which may affect
the covenants or the performance of this Indenture; and each of the Company and
the Guarantors (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
Section 516. Remedies Subject to Applicable Law.
----------------------------------
All rights, remedies and powers provided by this Article Five may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable or
not entitled to be recorded, registered or filed under the provisions of any
applicable law.
ARTICLE SIX
THE TRUSTEE
Section 601. Duties of Trustee.
-----------------
Subject to the provisions of Trust Indenture Act Sections 315(a)
through 315(d):
(a) if a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs;
(b) except during the continuance of a Default or an Event of
Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee; and
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(2) in the absence of bad faith or willful misconduct on its
part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to
the requirements of this Indenture or the Escrow Agreement. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture or
the Escrow Agreement;
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this Subsection (c) does not limit the effect of Subsection
(b) of this Section 601;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith, in accordance with a
direction of the Holders of a majority in principal amount of
Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power confirmed upon the Trustee under this
Indenture;
(d) no provision of this Indenture or the Escrow Agreement shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it;
(e) whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to Subsections
(a), (b), (c) and (d) and (f) of this Section 601; and
(f) the Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
Section 602. Notice of Defaults.
------------------
Within 30 days after a Responsible Officer of the Trustee receives
notice of the occurrence of any Default, the Trustee shall transmit by mail to
all Holders and any other Persons entitled to receive reports pursuant to
Section 313(c) of the Trust Indenture Act, as their names and addresses appear
in the Security Register, notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except
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in the case of a Default in the payment of the principal of, premium, if any, or
interest on any Security or a Default in complying with any of the provisions of
the Escrow Agreement, the Trustee shall be protected in withholding such notice
if and so long as a trust committee of Responsible Officers of the Trustee in
good faith determines that the withholding of such notice is in the interest of
the Holders.
Section 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601 hereof and Trust Indenture
Act Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon receipt by it of any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of Indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) the Trustee may consult with counsel of its selection and any
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon in accordance with such
advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or the Escrow Agreement at the
request or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities which
might be incurred thereby;
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of the negligence, bad faith or willful misconduct of
the Trustee;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, approval,
appraisal, bond, debenture, note, coupon, security or other paper or document
unless requested in writing to do so by the Holders of not less than a majority
in aggregate principal amount of the Securities then Outstanding; provided that,
if the payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a condition to
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proceeding; the reasonable expenses of every such investigation so requested by
the Holders of not less than 25% in aggregate principal amount of the Securities
Outstanding shall be paid by the Company or, if paid by the Trustee or any
predecessor Trustee, shall be repaid by the Company upon demand; provided,
further, the Trustee in its discretion may make such further inquiry or
investigation into such facts or matters as it may deem fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney; provided, further, that no permissive power, right or
remedy conferred upon the Trustee under this Indenture shall be construed to
impose a duty to exercise such power, right or remedy; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 604. Trustee Not Responsible for Recitals, Dispositions of
-----------------------------------------------------
Securities or Application of Proceeds Thereof.
- ---------------------------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture, the Escrow Agreement or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture and
the Escrow Agreement, authenticate the Securities and perform its obligations
hereunder and that the statements made by it in any Statement of Eligibility and
Qualification on Form T-1 supplied to the Company are true and accurate subject
to the qualifications set forth therein. The Trustee shall not be accountable
for the use or application by the Company of Securities or the proceeds thereof.
Section 605. Trustee and Agents May Hold Securities; Collections;
----------------------------------------------------
etc.
- ----
The Trustee, any Paying Agent, Security Registrar or any other agent
of the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities, with the same rights it would have if it were not the
Trustee, Paying Agent, Security Registrar or such other agent and, subject to
Trust Indenture Act Sections 310 and 311, may otherwise deal with the Company
and receive, collect, hold and retain collections from the Company with the same
rights it would have if it were not the Trustee, Paying Agent, Security
Registrar or such other agent.
Section 606. Money Held in Trust.
-------------------
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by
mandatory provisions of law. Except for funds or securities deposited with the
Trustee pursuant to Article Four, the Trustee shall be required to
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invest all moneys received by the Trustee, until used or applied as herein
provided, in Cash Equivalents in accordance with the directions of the Company;
provided, however, that nothing herein shall be deemed to require the Trustee or
any other Person acting as Paying Agent to invest or pay interest on funds held
for the payment of any Securities after the Maturity thereof.
Section 607. Compensation and Indemnification of Trustee and Its
---------------------------------------------------
Prior Claim.
- -----------
The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, such compensation as the parties
shall agree in writing from time to time for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all agents and other persons
not regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence, bad faith or willful misconduct. The Company also
covenants and agrees to indemnify the Trustee and each predecessor Trustee for,
and to hold it harmless against, any claim, loss, liability, tax, assessment or
other governmental charge (other than taxes applicable to the Trustee's
compensation hereunder) or expense incurred without negligence, bad faith or
willful misconduct on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trusts hereunder and its
duties hereunder, including enforcement of this Section 607 and also including
any liability which the Trustee may incur as a result of failure to withhold,
pay or report any tax, assessment or other governmental charge, and the costs
and expenses of defending itself against or investigating any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The
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obligations of the Company under this Section 607 to compensate and indemnify
the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and
each predecessor Trustee for reasonable expenses, disbursements and advances
shall constitute an additional obligation hereunder and shall survive the
satisfaction and discharge of this Indenture and the resignation or removal of
the Trustee and each predecessor Trustee. As security for the performance of the
obligations of the Company under this Section 607, the Trustee shall have a lien
prior to the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the Holders of
particular Securities.
Section 608. Conflicting Interests.
---------------------
The Trustee shall comply with the provisions of Section 310(b) of the
Trust Indenture Act.
Section 609. Trustee Eligibility.
-------------------
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a) and which
shall have a combined capital and surplus of at least $10,000,000, to the extent
there is an institution eligible and willing to serve. If the Trustee does not
have a Corporate Trust Office in The City of New York, the Trustee may appoint
an agent in The City of New York reasonably acceptable to the Company to conduct
any activities which the Trustee may be required under this Indenture to conduct
in The City of New York. If such Trustee publishes reports of condition at least
annually, pursuant to law or to the requirements of federal, state, territorial
or District of Columbia supervising or examining authority, then for the
purposes of this Section 609, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
609, the Trustee shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 610. Resignation and Removal; Appointment of Successor
-------------------------------------------------
Trustee.
- -------
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor trustee under Section 611.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice thereof to the Company. Upon
receiving such notice or resignation, the Company shall promptly appoint a
successor trustee by written instrument executed by authority of the Board of
Directors of the Company, a copy of which shall be delivered to the resigning
Trustee and a copy to the successor trustee. If an instrument of acceptance by a
successor trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may, or
any Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor trustee. Such court
may thereupon, after such notice, if any, as it may deem proper,
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appoint and prescribe a successor trustee.
(c) The Trustee may be removed at any time for any cause or for no
cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
Trust Indenture Act Section 310(b) after written request therefor by
the Company or by any Holder who has been a bona fide Holder of a
Security for at least six months,
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 514, the Holder of any Security who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor trustee and
shall comply with the applicable requirements of Section 611. If, within 60 days
after such resignation, removal or incapability, or the occurrence of such
vacancy, the Company has not appointed a successor Trustee, a successor trustee
shall be appointed by the Act of the Holders of a majority in principal amount
of the Outstanding Securities delivered to the Company and the retiring Trustee.
Such successor trustee so appointed shall forthwith upon its acceptance of such
appointment become the successor trustee and supersede the successor trustee
appointed by the Company. If no successor trustee shall have been so appointed
by the Company or the Holders of the Securities and accepted appointment in the
manner hereinafter provided, the Trustee or the Holder of any Security who has
been a bona fide Holder for at least six months may, subject to Section 514, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses
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appear in the Security Register. Each notice shall include the name of the
successor trustee and the address of its Corporate Trust Office or agent
hereunder.
Section 611. Acceptance of Appointment by Successor.
--------------------------------------
Every successor trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee as if originally named as Trustee hereunder;
but, nevertheless, on the written request of the Company or the successor
trustee, upon payment of its charges pursuant to Section 607 then unpaid, such
retiring Trustee shall pay over to the successor trustee all moneys at the time
held by it hereunder and shall execute and deliver an instrument transferring to
such successor trustee all such rights, powers, duties and obligations. Upon
request of any such successor trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor trustee all such rights and powers.
No successor trustee with respect to the Securities shall accept
appointment as provided in this Section 611 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $10,000,000 and have a Corporate
Trust Office or an agent selected in accordance with Section 609.
Upon acceptance of appointment by any successor trustee as provided in
this Section 611, the Company shall give notice thereof to the Holders of the
Securities, by mailing such notice to such Holders at their addresses as they
shall appear on the Security Register. If the acceptance of appointment is
substantially contemporaneous with the appointment, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
610. If the Company fails to give such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Company.
Section 612. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture) shall be
the successor of the Trustee hereunder, provided that such corporation shall be
eligible under Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 609,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to the
trusts created
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by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor Trustee and deliver such Securities so
authenticated; and, in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor trustee; and in all such cases such certificate shall have the full
force which it is anywhere in the Securities or in this Indenture provided that
the certificate of the Trustee shall have; provided that the right to adopt the
certificate of authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
Section 613. Preferential Collection of Claims Against Company.
-------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company
(or other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor). A Trustee who has resigned or been
removed shall be subject to Trust Indenture Act Section 311(a) to the extent
indicated therein.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of
-------------------------------------------------
Holders.
- -------
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a list
of similar form and content to that in subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 702. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Holders may communicate pursuant to Trust Indenture Act Section 312(b)
with other Holders with respect to their rights under this Indenture or the
Securities, and the Trustee shall comply with Trust Indenture Act Section
312(b). The Company, the Trustee, the Security Registrar and any other Person
shall have the protection of Trust Indenture Act Section 312(c).
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Further, every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any information as to the names and addresses of the Holders in accordance with
Trust Indenture Act Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Trust Indenture
Act Section 312.
Section 703. Reports by Trustee.
------------------
(a) Within 60 days after May 15 of each year commencing with the
first May 15 after the issuance of Securities, the Trustee, if so required under
the Trust Indenture Act, shall transmit by mail to all Holders, in the manner
and to the extent provided in Trust Indenture Act Section 313(c), a brief report
dated as of such May 15 in accordance with and with respect to the matters
required by Trust Indenture Act Section 313(a). The Trustee shall also transmit
by mail to all Holders, in the manner and to the extent provided in Trust
Indenture Act Section 313(c), a brief report in accordance with and with respect
to the matters required by Trust Indenture Act Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to this
Section 703 shall, at the time of such transmission, be mailed to the Company
and filed with each stock exchange, if any, upon which the Securities are listed
and also with the Commission. The Company will notify the Trustee promptly if
the Securities are listed on any stock exchange.
Section 704. Reports by Company.
------------------
The Company and any Guarantor, as the case may be, shall:
(a) file with the Trustee, within 15 days after the Company or any
Guarantor, as the case may be, is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company or any
Guarantor may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company or any Guarantor, as the
case may be, is not required to file information, documents or reports pursuant
to either of said Sections, then it shall (i) deliver to the Trustee annual
audited financial statements of the Company and its Subsidiaries, prepared on a
Consolidated basis in conformity with GAAP, within 120 days after the end of
each fiscal year of the Company, and (ii) file with the Trustee and, to the
extent permitted by law, the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with the
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company or any Guarantor, as the case
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may be, with the conditions and covenants of this Indenture as are required from
time to time by such rules and regulations (including such information,
documents and reports referred to in Trust Indenture Act Section 314(a)); and
(c) within 15 days after the filing thereof with the Trustee,
transmit by mail to all Holders in the manner and to the extent provided in
Trust Indenture Act Section 313(c), such summaries of any information, documents
and reports required to be filed by the Company or any Guarantor, as the case
may be, pursuant to Section 1020 hereunder and subsections (a) and (b) of this
Section as are required by rules and regulations prescribed from time to time by
the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 801. Company and Guarantors May Consolidate,
--------------------------------------
etc., Only on Certain Terms.
- ---------------------------
(a) The Company will not, in a single transaction or through a series
of related transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, or permit any of its Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Subsidiaries on a Consolidated
basis to any other Person or group of affiliated Persons, unless at the time and
after giving effect thereto:
(i) either (a) the Company will be the continuing corporation in
the case of a consolidation or merger involving the Company or (b) the
Person (if other than the Company) formed by such consolidation or
into which the Company is merged or the Person which acquires by sale,
assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a Consolidated basis (the "Surviving Entity") will be
a corporation duly organized and validly existing under the laws of
the United States of America, any state thereof or the District of
Columbia and such Person expressly assumes, by a supplemental
indenture, in a form reasonably satisfactory to the Trustee, all the
obligations of the Company under the Securities, this Indenture, the
Escrow Agreement and the Registration Rights Agreement, as the case
may be, and the Securities, this Indenture, the Escrow Agreement and
the Registration Rights Agreement will remain in full force and effect
as so supplemented;
(ii) immediately before and immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness
not previously an
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obligation of the Company or any of its Subsidiaries which becomes the
obligation of the Company or any of its Subsidiaries as a result of
such transaction as having been incurred at the time of such
transaction), no Default or Event of Default will have occurred and be
continuing;
(iii) immediately before and immediately after giving effect to
such transaction on a pro forma basis (on the assumption that the
transaction occurred on the first day of the four-quarter period for
which financial statements are available ending immediately prior to
the consummation of such transaction with the appropriate adjustments
with respect to the transaction being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is
not the continuing obligor hereunder) could incur $1.00 of additional
Indebtedness under Section 1008(a);
(iv) at the time of the transaction, each Guarantor, if any,
unless it is the other party to the transactions described above, will
have by supplemental indenture confirmed that its Guarantee shall
apply to such Person's obligations under this Indenture and under the
Securities;
(v) at the time of the transaction if any of the property or
assets of the Company or any of its Subsidiaries would thereupon
become subject to any Lien, the provisions of Section 1011 are
complied with; and
(vi) at the time of the transaction the Company or the Surviving
Entity will have delivered, or caused to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each to the effect
that such consolidation, merger, transfer, sale, assignment,
conveyance, transfer, lease or other transaction and the supplemental
indenture in respect thereof comply with this Indenture and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
(b) Notwithstanding the foregoing, the provisions of Section 801(a)
shall not apply to (i) a merger or consolidation between the Company and any of
its Subsidiaries, and (ii) a merger or consolidation of the Company into any
Person in a transaction designed solely for the purpose of effecting a change in
the jurisdiction of incorporation of the Company within the United States of
America.
Section 802. Successor Substituted.
---------------------
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in Section 801 in which the Company is not
the Surviving Person, such Surviving Person shall succeed to, and be substituted
for, and may exercise every right and power of, the Company and the Company
shall be discharged from all obligations and covenants under this Indenture, the
Securities, the Escrow Agreement and the Registration Rights Agreement.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Agreements without Consent of
---------------------------------------------------------
Holders.
- -------
Without the consent of any Holders, the Company, the Guarantors, if
any, and any other obligor under the Securities when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto or agreements or other instruments
with respect to any Guarantee, in form and substance satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company or a
Guarantor and the assumption by any such successor of the covenants of the
Company or such Guarantor herein and in the Securities, the Registration Rights
Agreement, the Escrow Agreement and in any Guarantee in accordance with Article
Eight;
(b) to add to the covenants of the Company, any Guarantor or any
other obligor upon the Securities for the benefit of the Holders, or to
surrender any right or power conferred upon the Company or any Guarantor or any
other obligor upon the Securities, as applicable, herein, in the Securities or
in any Guarantee;
(c) to cure any ambiguity, or to correct or supplement any provision
herein or in any supplemental indenture, the Securities or any Guarantee which
may be defective or inconsistent with any other provision herein or in the
Securities or any Guarantee or to make any other provisions with respect to
matters or questions arising under this Indenture, the Securities or any
Guarantee; provided that, in each case, such provisions shall not adversely
affect the interest of the Holders;
(d) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act, as contemplated by Section 905 or otherwise;
(e) to add a Guarantor pursuant to the requirements of Section 1013;
(f) to evidence and provide the acceptance of the appointment of a
successor trustee hereunder; or
(g) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security for
the payment and performance of the Company's or any Guarantor's Indenture
Obligations, in any property, or assets, including any of which are required to
be mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to this Indenture or otherwise.
Section 902. Supplemental Indentures and Agreements with Consent of
------------------------------------------------------
Holders.
- -------
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Except as permitted by Section 901, with the consent of the Holders of
at least a majority in aggregate principal amount of the Outstanding Securities,
by Act of said Holders delivered to the Company, each Guarantor, if any, and the
Trustee, the Company and each Guarantor (if a party thereto) when authorized by
Board Resolutions, and the Trustee may (i) enter into an indenture or indentures
supplemental hereto or agreements or other instruments with respect to any
Guarantee in form and substance satisfactory to the Trustee, for the purpose of
adding any provisions to or amending, modifying or changing in any manner or
eliminating any of the provisions of this Indenture, the Securities or any
Guarantee (including but not limited to, for the purpose of modifying in any
manner the rights of the Holders under this Indenture, the Securities or any
Guarantee) or (ii) waive compliance with any provision in this Indenture, the
Securities or any Guarantee (other than waivers of past Defaults covered by
Section 513 and waivers of covenants which are covered by Section 1021);
provided, however, that no such supplemental indenture, agreement or instrument
shall, without the consent of the Holder of each Outstanding Security affected
thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, or change to an earlier date any redemption date of,
or waive a default in the payment of the principal or interest on, any such
Security or reduce the principal amount thereof or the rate of interest thereon
or any premium payable upon the redemption thereof, or change the coin or
currency in which the principal of any Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date);
(b) amend, change or modify the obligation of the Company to make and
consummate an Offer with respect to any Asset Sale or Asset Sales in accordance
with Section 1012 or the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control in accordance with
Section 1014, including, in each case, amending, changing or modifying any
definitions relating thereto;
(c) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver or
compliance with certain provisions of this Indenture;
(d) modify any of the provisions of this Section 902 or Section 513
or 1021, except to increase the percentage of such Outstanding Securities
required for any such actions or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the Holder of
each such Security affected thereby;
(e) except as otherwise permitted under Article Eight, consent to the
assignment or transfer by the Company or any Guarantor of any of its rights and
obligations hereunder;
(f) amend or modify any of the provisions of this Indenture in any
manner which subordinates the Securities issued hereunder in right of payment to
any other Indebtedness of the Company or which subordinates any Guarantee in
right of payment to any other Indebtedness of the Guarantor issuing such
Guarantee; or
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(g) modify the provisions of the Escrow Agreement or this Indenture
relating to the Collateral in any manner adverse to the Holders or release any
of the Collateral from the Lien under the Escrow Agreement or permit any other
obligation to be secured by the Collateral.
Upon the written request of the Company and each Guarantor, if any,
accompanied by a copy of Board Resolutions authorizing the execution of any such
supplemental indenture or Guarantee, and upon the filing with the Trustee of
evidence of the consent of Holders as aforesaid, the Trustee shall join with the
Company and each Guarantor in the execution of such supplemental indenture or
Guarantee.
It shall not be necessary for any Act of Holders under this Section
902 to approve the particular form of any proposed supplemental indenture or
Guarantee or agreement or instrument relating to any Guarantee, but it shall be
sufficient if such Act shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures and Agreements.
---------------------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Trust
Indenture Act Sections 315(a) through 315(d) and Section 603 hereof) shall be
fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate stating that the execution of such supplemental indenture, agreement
or instrument is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture, agreement
or instrument which affects the Trustee's own rights, duties or immunities under
this Indenture, any Guarantee or otherwise.
Section 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
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executed by the Company and each Guarantor and authenticated and delivered by
the Trustee in exchange for Outstanding Securities.
Section 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company, any Guarantor and the
Trustee of any supplemental indenture pursuant to the provisions of Section 902,
the Company shall give notice thereof to the Holders of each Outstanding
Security affected, in the manner provided for in Section 106, setting forth in
general terms the substance of such supplemental indenture. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest.
------------------------------------------
The Company shall duly and punctually pay the principal of, premium,
if any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain an office or agency where Securities may be
presented or surrendered for payment. The Company also will maintain in The City
of New York an office or agency where Securities may be surrendered for
registration of transfer, redemption or exchange and where notices and demands
to or upon the Company in respect of the Securities and this Indenture may be
served. The office of the Trustee, at its Corporate Trust Office initially
located at 101 California Street, Suite 2725, San Francisco, CA 94111, will be
such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company will give prompt written notice to the Trustee of the location and any
change in the location of any such offices or agencies. If at any time the
Company shall fail to maintain any such required offices or agencies or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the office of the
Trustee and the Company hereby appoints the Trustee such agent as its agent to
receive all such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all such purposes, and may from time to time
rescind such designation. The Company will give prompt written notice to the
Trustee of any such designation or rescission and any change in the location of
any such office or agency.
The Trustee shall initially act as Paying Agent for the Securities.
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Section 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company or any of its Affiliates shall at any time act as
Paying Agent, it will, on or before each due date of the principal of, premium,
if any, or interest on any of the Securities, segregate and hold in trust for
the benefit of the Holders entitled thereto a sum sufficient to pay the
principal, premium, if any, or interest so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided, and will
promptly notify the Trustee of its action or failure so to act.
If the Company or any of its Affiliates is not acting as Paying Agent,
the Company will, on or before each due date of the principal of, premium, if
any, or interest on any of the Securities, deposit with a Paying Agent a sum in
same day funds sufficient to pay the principal, premium, if any, or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
If the Company is not acting as Paying Agent, the Company will cause
each Paying Agent other than the Trustee to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with the Trustee, subject
to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on the Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company or any
Guarantor (or any other obligor upon the Securities) in the making of any
payment of principal, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and disabilities of
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the
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Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal and premium, if any, or interest has become due and payable shall
promptly be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
-------------- ---
Wall Street Journal (national edition), and mail to each such Holder, notice
- -------------------
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such notification,
publication and mailing, any unclaimed balance of such money then remaining will
promptly be repaid to the Company.
Section 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence and related rights and franchises (charter and statutory) of the
Company and each Subsidiary; provided, however, that the Company shall not be
required to preserve any such right or franchise or the corporate existence of
any such Subsidiary if the Board of Directors of the Company shall determine
that the preservation thereof is no longer necessary or desirable in the conduct
of the business of the Company and its Subsidiaries as a whole; and provided,
further, however, that the foregoing shall not prohibit a sale, transfer or
conveyance of a Subsidiary or any of the assets of the Company or any Subsidiary
in compliance with the terms of this Indenture.
Section 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
on or before the date the same shall become due and payable, (a) all taxes,
assessments and governmental charges levied or imposed upon the Company or any
of its Subsidiaries shown to be due on any return of the Company or any of its
Subsidiaries or otherwise assessed or upon the income, profits or property of
the Company or any of its Subsidiaries if failure to pay or discharge the same
could reasonably be expected to have a material adverse effect on the ability of
the Company or any Guarantor to perform its obligations hereunder and (b) all
lawful claims for labor, materials and supplies, which, if unpaid, would by law
become a Lien upon the property of the Company or any of its Subsidiaries,
except for any Lien permitted to be incurred under Section 1011, if failure to
pay or discharge the same could reasonably be expected to have a material
adverse effect on the ability of the Company or any Guarantor to perform its
obligations hereunder; provided, however, that the Company shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings properly instituted and diligently
conducted and in respect of which appropriate reserves (in the good faith
judgment of management of the Company) are being maintained in accordance with
GAAP.
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Section 1006. Maintenance of Properties.
-------------------------
The Company shall cause all material properties owned by the Company
or any of its Subsidiaries or used or held for use in the conduct of its
business or the business of any of its Subsidiaries to be maintained and kept in
good condition, repair and working order (ordinary wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the reasonable judgment of the Company may be consistent with sound business
practice and necessary so that the business carried on in connection therewith
may be properly conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the maintenance of any of
such properties if such discontinuance is, in the reasonable judgment of the
Company, desirable in the conduct of its business or the business of any of its
Subsidiaries; and provided, further, however, that the foregoing shall not
prohibit a sale, transfer or conveyance of a Subsidiary or any of its properties
or assets in compliance with the terms of this Indenture.
Section 1007. Maintenance of Insurance.
------------------------
The Company shall at all times keep all of its and its Subsidiaries'
properties which are of an insurable nature insured with insurers, believed by
the Company in good faith to be financially sound and responsible, against loss
or damage to the extent that property of similar character is usually so insured
by corporations similarly situated and owning like properties in the same
general geographic areas in which the Company and its Subsidiaries operate,
except where the failure to do so could not reasonably be expected to have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs or prospects of the Company and its Subsidiaries, taken as a
whole.
Section 1008. Limitation on Indebtedness.
--------------------------
(a) The Company shall not, and shall not cause or permit any
Subsidiary to, directly or indirectly, Incur any Indebtedness (other than the
Securities); provided, however, that the Company may Incur Indebtedness, and the
Company or any Subsidiary may Incur Acquired Indebtedness, if, at the time of
such Incurrence, the Debt to Annualized Operating Cash Flow Ratio would be less
than or equal to 5.5 to 1.0 prior to December 15, 2000, or less than or equal to
5.0 to 1.0 after December 15, 2000.
(b) The foregoing limitations of paragraph (a) of this Section 1008
will not apply to any of the following, each of which shall be given independent
effect:
(i) the Incurrence by the Company or any of its Subsidiaries of
Indebtedness (other than Acquired Indebtedness) consisting of Capital
Lease Obligations, Purchase Money Obligations, mortgage financings or
other obligations incurred for the purpose of financing all or any
part of the purchase price, cost of construction or improvement of
property, plant or equipment used in connection with the
Telecommunications Business or a credit facility or a master lease
arrangement entered into for the purpose of providing such financing,
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provided that such Indebtedness does not exceed the lesser of Fair
Market Value or the purchase price of such property, plant or
equipment at the time of such Incurrence.
(ii) Indebtedness of the Company or any of its Subsidiaries,
and any renewals, extensions, substitutions, refinancings or
replacements of such Indebtedness, so long as the aggregate principal
amount of such Indebtedness shall not exceed $35 million outstanding
at any one time in the aggregate;
(iii) the Incurrence by the Company of Indebtedness (other than
secured Acquired Indebtedness) in an aggregate principal amount not to
exceed 2.0 times the sum of the Net Cash Proceeds received by the
Company after the date of the Indenture (other than from the issuance
of Disqualified Stock) in connection with any Public Equity Offerings;
provided that such Indebtedness does not mature prior to the Stated
Maturity of the Securities or has an Average Life to Stated Maturity
at least equal to the Securities;
(iv) Indebtedness of the Company or any Subsidiary entered
into in the ordinary course of business (a) pursuant to Interest Rate
Agreements designed to protect the Company or any Subsidiary against
fluctuations in interest rates in respect of Indebtedness of the
Company or any Subsidiary as long as the notional principal amount of
such Interest Rate Agreements do not exceed the aggregate principal
amount of such Indebtedness then outstanding, (b) under any Currency
Hedging Arrangements designed to protect the Company or any Subsidiary
against fluctuations in the value of any currency or (c) under any
Commodity Price Protection Agreements designed to protect the Company
or any Subsidiary against fluctuations in the price of any commodity;
(v) the Incurrence by the Company or any of its Subsidiaries
of Indebtedness in respect of bid, performance or advance payment
bonds and appeal or surety bonds;
(vi) Indebtedness existing on the date of this Indenture;
(vii) the Incurrence of (a) Indebtedness of any Subsidiary owed
to and held by the Company or another Subsidiary and (b) Indebtedness
of the Company owed to and held by any Subsidiary; and
(viii) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "refinancing") of any
Indebtedness described in clauses (i), (ii), (iii), (vi) and (vii) of
this definition of "Permitted Indebtedness," including any successive
refinancings so long as the borrower under such refinancing is the
Company or, if not the Company, the same as the borrower of the
Indebtedness being refinanced and the aggregate principal amount of
Indebtedness represented thereby is not increased by such refinancing
plus the lesser of (I) the stated amount of any premium or other
payment required to be
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paid in connection with such a refinancing pursuant to the terms of
the Indebtedness being refinanced or (II) the amount of premium or
other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing and, in the case
of any refinancing of Indebtedness that is Subordinated Indebtedness,
such new Indebtedness is made subordinated to the Securities at least
to the same extent as the Indebtedness being refinanced and such
refinancing does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Subordinated Indebtedness.
(c) For purposes of determining any particular amount of Indebtedness
under this covenant, Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included; provided, however, that the foregoing
shall not in any way be deemed to limit the provisions of Section 1013.
(d) For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness may be Incurred through the first paragraph
of this covenant or by meeting the criteria of one or more of the types of
Indebtedness described in the second paragraph of this covenant (or the
definitions of the terms used therein), the Company, in its sole discretion, (i)
may classify such item of Indebtedness under and comply with either of such
paragraphs (or any of such definitions), as applicable, (ii) may classify and
divide such item of Indebtedness into more than one of such paragraphs (or
definitions), as applicable, and (iii) may elect to comply with such paragraphs
(or definitions), as applicable, in any order.
Section 1009. Limitation on Restricted Payments.
---------------------------------
(a) The Company will not, and will not permit any Subsidiary to,
directly or indirectly:
(i) declare or pay any dividend on, or make any distribution
on any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock
or in options, warrants or other rights to acquire shares of such
Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, the Company's Capital Stock or any Capital
Stock of any Affiliate of the Company (other than Capital Stock of any
Wholly Owned Subsidiary of the Company) or options, warrants or other
rights to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem,
defease, retire or otherwise acquire for value, prior to any scheduled
principal payment, sinking fund payment or maturity, any Subordinated
Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital
Stock of any Subsidiary to any Person (other than (a) to the Company
or any of its Wholly
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Owned Subsidiaries or (b) to all holders of Capital Stock of such
Subsidiary on a pro rata basis); or
(v) make any Investment in any Person (other than any
Permitted Investments)
(any of the foregoing actions described in clauses (i) through (v), other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") (the amount of any such Restricted Payment, if other than
cash, as determined by the board of directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution), unless
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a pro forma basis, no Default or Event of Default shall
have occurred and be continuing; (2) immediately before and immediately after
giving effect to such Restricted Payment on a pro forma basis, the Company could
incur $1.00 of additional Indebtedness under the provisions described in Section
1008(a); and (3) after giving effect to the proposed Restricted Payment, the
aggregate amount of all such Restricted Payments declared or made after the date
of the date hereof, does not exceed the sum of the following (the "Basket"):
(A) (i) the Cumulative Operating Cash Flow determined at the
time of such Restricted Payment less (ii) 150% of cumulative
Consolidated Interest Expense determined for the period (treated as
one accounting period) commencing on the date of the original issue of
the Securities and ending on the last day of the most recent fiscal
quarter immediately preceding the date of such Restricted Payment for
which consolidated financial information of the Company is required to
be available;
(B) (i) capital contributions to the Company after the date
of this Indenture or (ii) the aggregate Net Cash Proceeds received
after the date of this Indenture by the Company from the issuance or
sale (other than to any of its Subsidiaries) of Qualified Capital
Stock of the Company or any options, warrants or rights to purchase
such Qualified Capital Stock of the Company (except, in each case, to
the extent such proceeds are used to purchase, redeem or otherwise
retire Capital Stock or Subordinated Indebtedness as set forth below
in clause (ii) or (iii) of paragraph (b) below);
(C) the aggregate Net Cash Proceeds received after the date
of this Indenture by the Company (other than from any of its
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase Qualified Capital Stock of the Company;
(D) the aggregate Net Cash Proceeds received after the date
of this Indenture by the Company from the conversion or exchange, if
any, of debt securities or Redeemable Capital Stock of the Company or
its Subsidiaries into or for Qualified Capital Stock of the Company
plus, to the extent such debt securities or Redeemable Capital Stock
were issued after the date of this Indenture, the aggregate of Net
Cash Proceeds from their original issuance; and
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(E) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment, an amount equal to the
return of capital with respect to such Investment and the initial
amount of such Investment.
(b) Notwithstanding the foregoing, and in the case of clauses (ii)
through (vi) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not prohibit the following actions
(each of clauses (i) through (vi) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this Section and such
payment shall have been deemed to have been paid on such date of
declaration and shall not have been deemed a Permitted Payment for
purposes of the calculation required by paragraph (a) of this Section
1009;
(ii) the repurchase, redemption, or other acquisition or
retirement for value of any shares of any class of Capital Stock of
the Company in exchange for (including any such exchange pursuant to
the exercise of a conversion right or privilege in connection with
which cash is paid in lieu of the issuance of fractional shares or
scrip), or out of the Net Cash Proceeds of a substantially concurrent
issuance and sale for cash (other than to a Subsidiary) of, other
shares of Qualified Capital Stock of the Company; provided that the
Net Cash Proceeds from the issuance of such shares of Qualified
Capital Stock are excluded from clause (3)(B) of paragraph (a) of this
Section 1009;
(iii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness or Redeemable Capital Stock in exchange for, or in an
amount not in excess of the Net Cash Proceeds of, a substantially
concurrent issuance and sale for cash (other than to any Subsidiary of
the Company) of any Qualified Capital Stock of the Company, provided
that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (3)(B) of paragraph
(a) of this Section 1009;
(iv) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of principal of any
Subordinated Indebtedness (other than Redeemable Capital Stock) (a
"refinancing") through the substantially concurrent issuance of new
Subordinated Indebtedness of the Company, provided that any such new
Subordinated Indebtedness (1) shall be in a principal amount that does
not exceed the principal amount so refinanced (or, if such
Subordinated Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, then such lesser amount as of the date of
determination), plus the lesser of (I) the stated amount of any
premium or other payment required to be paid in connection with such a
refinancing pursuant to the terms of the Indebtedness being refinanced
or (II) the
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amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of
expenses of the Company incurred in connection with such refinancing;
(2) has an Average Life to Stated Maturity greater than the remaining
Average Life to Stated Maturity of the Securities; (3) has a Stated
Maturity for its final scheduled principal payment later than the
Stated Maturity for the final scheduled principal payment of the
Securities; and (4) is expressly subordinated in right of payment to
the Securities at least to the same extent as the Subordinated
Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of any Redeemable
Capital Stock through the substantially concurrent issuance of new
Redeemable Capital Stock of the Company, provided that any such new
Redeemable Capital Stock (1) shall have an aggregate liquidation
preference that does not exceed the aggregate liquidation preference
of the amount so refinanced; (2) has an Average Life to Stated
Maturity greater than the remaining Average Life to Stated Maturity of
the Securities; and (3) has a Stated Maturity later than the Stated
Maturity for the final scheduled principal payment of the Securities;
and
(vi) the repurchase of shares of, or options to purchase shares
of, common stock of the Company or any of its Subsidiaries from
employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant
to the terms of the agreements (including employment agreements) or
plans (or amendments thereto) approved by the Board of Directors under
which such individuals purchase or sell or are granted the option to
purchase or sell, shares of such common stock; provided, however, that
the aggregate amount of such repurchases in any calendar year shall
not exceed $1 million and $5 million in the aggregate.
Section 1010. Limitation on Transactions with Affiliates.
------------------------------------------
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with or for the benefit of any Affiliate
of the Company (other than the Company or a Wholly Owned Subsidiary) unless such
transaction or series of related transactions is entered into in good faith and
in writing and (a) such transaction or series of related transactions is on
terms that are no less favorable to the Company or such Subsidiary, as the case
may be, than those that would be reasonably expected to be available in a
comparable transaction in arm's-length dealings with an unrelated third party,
(b) with respect to any transaction or series of related transactions involving
aggregate value in excess of $3 million, the Company delivers an Officers'
Certificate to the Trustee certifying that such transaction or series of related
transactions complies with clause (a) above, and (c) with respect to any
transaction or series of related transactions involving aggregate value in
excess of $7 million, either (A) such transaction or series of related
transactions has been approved by a majority of the Disinterested Directors of
the Company, or
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in the event there is only one Disinterested Director, by such Disinterested
Director, or (B) the Company delivers to the Trustee a written opinion of an
investment banking firm of national standing or other recognized independent
expert with experience appraising the terms and conditions of the type of
transaction or series of related transactions for which an opinion is required
stating that the transactions or series of related transactions is fair to the
Company or such Subsidiary from a financial point of view; provided, however,
that this provision shall not apply to: (a) compensation and employee benefit
arrangements with any officer, director or employee of the Company, including
under any stock option or stock incentive plans, in the ordinary course of
business; (b) any transaction solely between or among the Company and/or any
Subsidiaries, if such transaction is otherwise in compliance with the Indenture
and is on fair and reasonable terms; (c) any transaction otherwise permitted by
the terms of the section of the Indenture described in Section 1009; (d) the
execution and delivery of or payments made under any tax sharing agreement
between or among any of the Company and any Subsidiary; (e) licensing or
sublicensing of use of any intellectual property by the Company or any
Subsidiary to any Subsidiary of the Company; provided that the licensor shall
continue to have access to such intellectual property to the extent necessary
for the conduct of its respective business; (f) arrangements between the Company
and any Subsidiary of the Company for the purpose of providing services or
employees to such Subsidiary; (g) any transaction entered into for the purpose
of granting or altering registration rights with respect to the Capital Stock of
the Company; and (h) any transaction or series of related transactions entered
into prior to the date hereof.
Section 1011. Limitation on Liens.
-------------------
The Company will not, and will not permit any Subsidiary to, directly
or indirectly, create, incur or affirm any Lien of any kind upon any property or
assets (including any intercompany notes) of the Company or any Subsidiary owned
on the date hereof, or acquired after the date hereof, or any income or profits
therefrom, unless the Securities are directly secured equally and ratably with
(or, in the case of Subordinated Indebtedness, prior or senior thereto, with the
same relative priority as the Securities shall have with respect to such
Subordinated Indebtedness) the obligation or liability secured by such Lien
except for any Permitted Liens.
Section 1012. Limitation on Sale of Assets.
----------------------------
(a) The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, consummate an Asset Sale unless (i) at least 75% of
the consideration from such Asset Sale is received in cash or other comparable
consideration (as described below), and (ii) the Company or such Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the shares or assets subject to such Asset Sale (as determined
by the board of directors of the Company and evidenced in a board resolution).
The following types of consideration shall be deemed "comparable consideration"
for the purposes of this covenant: (A) Cash Equivalents, (B) liabilities
(contingent or otherwise) of the Company or a Subsidiary assumed by the
transferee (or its designee) such that the Company or such Subsidiary has no
further liability therefor, and (C) any securities, notes or other obligations
received by the Company or any such Subsidiary from such transferee that are
immediately converted by the
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Company or such Subsidiary into cash.
(b) The Company or a Subsidiary may, within 365 days of the Asset Sale
invest the Net Cash Proceeds in properties and other assets that will be used in
Telecommunications Businesses or to repay any Pari Passu Indebtedness of the
Company or any Subsidiary (including the repurchase of the Securities). The
amount of such Net Cash Proceeds not used or invested within 365 days of the
Asset Sale as set forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million
or more, the Company will apply the Excess Proceeds to the repayment of the
Securities and any other Pari Passu Indebtedness outstanding with similar
provisions requiring the Company to make an offer to purchase such Indebtedness
with the proceeds from any Asset Sale as follows: (A) the Company will make an
offer to purchase (an "Offer") from all holders of the Securities in accordance
with the procedures set forth in the Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Securities that may be purchased out of
an amount (the "Security Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Securities, and the denominator of which is the sum of the
outstanding principal amount of the Securities and such Pari Passu Indebtedness
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all Securities tendered) and (B) to the
extent required by such Pari Passu Indebtedness to permanently reduce the
principal amount of such Pari Passu Indebtedness, the Company will make an offer
to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari
Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of
the Excess Proceeds over the Security Amount; provided that in no event will the
Company be required to make a Pari Passu Offer in a Pari Passu Debt Amount
exceeding the principal amount of such Pari Passu Indebtedness plus the amount
of any premium required to be paid to repurchase such Pari Passu Indebtedness.
The offer price for the Securities will be payable in cash in an amount equal to
100% of the principal amount of the Securities plus accrued and unpaid interest,
if any, to the date (the "Offer Date") such Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth herein. To the extent that
the aggregate Offered Price of the Securities tendered pursuant to the Offer is
less than the Security Amount relating thereto or the aggregate amount of Pari
Passu Indebtedness that is purchased in a Pari Passu Offer is less than the Pari
Passu Debt Amount, the Company will use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Securities and
Pari Passu Indebtedness surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Securities to be purchased on a
pro rata basis. Upon the completion of the purchase of all the Securities
tendered pursuant to an Offer and the completion of a Pari Passu Offer, the
amount of Excess Proceeds, if any, shall be reset at zero.
(d) If the Company becomes obligated to make an Offer pursuant to
clause (c) above, the Securities and the Pari Passu Indebtedness shall be
purchased by the Company, at the option of the holders thereof, in whole or in
part in integral multiples of $1,000, on a date that is not earlier than 30 days
and not later than 60 days from the date the notice of the Offer is given to
holders, or such later date as may be necessary for the Company to comply with
the requirements under the Exchange Act.
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(e) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
Section 1013. Limitation on Issuances of Guarantees of Indebtedness.
-----------------------------------------------------
(a) The Company will not permit any Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Pari Passu Indebtedness or Subordinated Indebtedness of the
Company unless such Subsidiary simultaneously executes and delivers a
supplemental indenture to this Indenture providing for a Guarantee of the
Securities on the same terms as the guarantee of such Indebtedness except that
(A) such guarantee need not be secured unless required pursuant to Section 1011
and (B) if such Indebtedness is by its terms expressly subordinated to the
Securities, any such assumption, guarantee or other liability of such Subsidiary
with respect to such Indebtedness shall be subordinated to such Subsidiary's
Guarantee of the Securities at least to the same extent as such Indebtedness is
subordinated to the Securities; provided that this paragraph shall not apply to
any guarantee or assumption of liability of Indebtedness permitted under clauses
(i), (ii), (iv), (v), (vii) and (viii) of paragraph (b) of Section 1008.
(b) Notwithstanding the foregoing, any Guarantee by a Subsidiary of
the Securities shall provide by its terms that it (and all Liens securing the
same) shall be automatically and unconditionally released and discharged upon
any sale, exchange or transfer, to any Person not an Affiliate of the Company,
of all of the Company's Capital Stock in, or all or substantially all the assets
of, such Subsidiary, which transaction is in compliance with the terms of this
Indenture and pursuant to which transaction such Subsidiary is released from all
guarantees, if any, by it of other Indebtedness of the Company or any
Subsidiaries.
Section 1014. Purchase of Securities upon a Change of Control.
-----------------------------------------------
(a) If a Change of Control shall occur at any time, then each Holder
shall have the right to require that the Company purchase such Holder's
Securities in whole or in part in integral multiples of $1,000, at a purchase
price (the "Change of Control Purchase Price") in cash, in an amount equal to
101% of the principal amount of such Securities or portion thereof, plus accrued
and unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), pursuant to the offer described below in this Section 1014 (the
"Change of Control Offer") and in accordance with the other procedures set forth
in subsections (b), (c), (d) and (e) of this Section 1014.
(b) Within 30 days of any Change of Control, the Company shall notify
the Trustee thereof and give written notice (a "Change of Control Purchase
Notice") of such Change of Control to each Holder by first-class mail, postage
prepaid, at his address appearing in the Security Register, stating among other
things:
(1) that a Change of Control has occurred, the date of such
event, and that such Holder has the right to require the Company to
repurchase such Holder's Securities at the Change of Control Purchase
Price;
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(2) the circumstances and relevant facts regarding such Change of
Control;
(3) that the Change of Control Offer is being made pursuant to
this Section 1014 and that all Securities properly tendered pursuant
to the Change of Control Offer will be accepted for payment at the
Change of Control Purchase Price;
(4) the Change of Control Purchase Date, which shall be a
Business Day no earlier than 30 days and not later than 60 days from
the date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act;
(5) the Change of Control Purchase Price;
(6) the names and addresses of the Paying Agent and the offices
or agencies referred to in Section 1002;
(7) that Securities must be surrendered on or prior to the Change
of Control Purchase Date to the Paying Agent at the office of the
Paying Agent or to an office or agency referred to in Section 1002 to
collect payment;
(8) that the Change of Control Purchase Price for any Security
which has been properly tendered and not withdrawn will be paid
promptly following the Change of Control Offer Purchase Date;
(9) the procedures that a Holder must follow to accept a Change
of Control Offer or to withdraw such acceptance;
(10) that any Security not tendered will continue to accrue
interest; and
(11) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date.
(c) Upon receipt by the Company of the proper tender of Securities,
the Holder of the Security in respect of which such proper tender was made shall
(unless the tender of such Security is properly withdrawn) thereafter be
entitled to receive solely the Change of Control Purchase Price with respect to
such Security. Upon surrender of any such Security for purchase in accordance
with the foregoing provisions, such Security shall be paid by the Company at the
Change of Control Purchase Price; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Change of Control Purchase
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such on the relevant Regular Record Dates
according to the terms and the provisions of Section 309. If any Security
tendered for purchase in accordance with the provisions of this Section
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1014 shall not be so paid upon surrender thereof, the principal thereof (and
premium, if any, thereon) shall, until paid, bear interest from the Change of
Control Purchase Date at the rate borne by such Security. Holders electing to
have Securities purchased will be required to surrender such Securities to the
Paying Agent at the address specified in the Change of Control Purchase Notice
prior to 5:00 p.m. (New York time) at least one Business Day prior to the Change
of Control Purchase Date. Any Security that is to be purchased only in part
shall be surrendered to a Paying Agent at the office of such Paying Agent (with,
if the Company, the Security Registrar or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Security Registrar or the Trustee, as the case may be, duly
executed by, the Holder thereof or such Holder's attorney duly authorized in
writing), and the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security, without service charge to the Holder,
one or more new Securities of any authorized denomination as requested by such
Holder in an aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Security so surrendered that is not
purchased.
(d) The Company shall (i) not later than the Change of Control
Purchase Date, accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 12:00 a.m. (New
York time) on the Change of Control Purchase Date, deposit with the Trustee or
with a Paying Agent an amount of money in same day funds (or New York Clearing
House funds if such deposit is made prior to the Change of Control Purchase
Date) sufficient to pay the aggregate Change of Control Purchase Price of all
the Securities or portions thereof which are to be purchased as of the Change of
Control Purchase Date and (iii) not later than 12:00 a.m. (New York time) on the
Change of Control Purchase Date, deliver to the Paying Agent an Officers'
Certificate stating the aggregate principal amount of Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail or
deliver to Holders of Securities so accepted payment in an amount equal to the
Change of Control Purchase Price of the Securities purchased from each such
Holder, and the Company shall execute and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Securities not so accepted shall be promptly mailed or delivered by the Paying
Agent at the Company's expense to the Holder thereof. The Company will publicly
announce the results of the Change of Control Offer on the Change of Control
Purchase Date. For purposes of this Section 1014, the Company shall choose a
Paying Agent which shall not be the Company.
(e) A tender made in response to a Change of Control Purchase Notice
may be withdrawn if the Company or its agent receives, not later than 5:00 p.m.
(New York time) one Business Day prior to the Change of Control Purchase Date, a
signed letter, delivered to the address specified in the change of Control
Purchase Notice specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect of which
such notice of withdrawal is being submitted;
(3) the principal amount of the Security (which shall be $1,000
or an
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integral multiple thereof) delivered for purchase by the Holder as to
which such notice of withdrawal is being submitted;
(4) a statement that such Holder is withdrawing his election to
have such principal amount of such Security purchased; and
(5) the principal amount, if any, of such Security (which shall
be $1,000 or an integral multiple thereof) that remains subject to the
original Change of Control Purchase Notice and that has been or will
be delivered for purchase by the Company.
(f) Subject to applicable escheat laws, the Trustee and the Paying
Agent shall return to the Company any cash that remains unclaimed, together with
interest or dividends, if any, thereon, held by them for the payment of the
Change of Control Purchase Price; provided, however, that, (x) to the extent
that the aggregate amount of cash deposited by the Company pursuant to clause
(ii) of paragraph (d) above exceeds the aggregate Change of Control Purchase
Price of the Securities or portions thereof to be purchased, then the Trustee
shall hold such excess for the Company and (y) unless otherwise directed by the
Company in writing, promptly after the Business Day following the Change of
Control Purchase Date the Trustee shall return any such excess to the Company
together with interest, if any, thereon.
(g) The Company shall comply, to the extent applicable, with the
applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and
any other applicable securities laws or regulations in connection with a Change
of Control Offer.
(h) Notwithstanding the foregoing, the Company will not be required
to make a Change of Control Offer if a third party makes the Change of Control
Offer, in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all the Securities validly tendered and not
withdrawn under such Change of Control Offer.
Section 1015. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company will not, and will not permit any Subsidiary of the
Company to, directly or indirectly, enter into any Sale and Leaseback
Transaction with respect to any property or assets (whether now owned or
hereafter acquired), unless (i) the sale or transfer of such property or assets
to be leased is treated as an Asset Sale and complies with the provisions of
Section 1012 and (ii) the Company or such Subsidiary would be entitled under
Section 1008 to incur any Indebtedness (with the lease obligations being treated
as Indebtedness for purposes of ascertaining compliance with this covenant
unless such lease is properly classified as an operating lease under GAAP) in
respect of such Sale and Leaseback Transaction.
Section 1016. Limitation on Subsidiary Capital Stock.
---------------------------------------
The Company will not permit (a) any Subsidiary of the Company to issue
any Capital Stock, except for (i) Capital Stock issued or sold to, held by or
transferred to the
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Company or a Wholly Owned Subsidiary, and (ii) Capital Stock issued by a Person
prior to the time (A) such Person becomes a Subsidiary, (B) such Person merges
with or into a Subsidiary or (C) a Subsidiary merges with or into such Person;
provided that such Capital Stock was not issued or incurred by such Person in
anticipation of the type of transaction contemplated by subclause (A), (B) or
(C) or (b) any Person (other than the Company or a Wholly Owned Subsidiary) to
acquire Capital Stock of any Subsidiary from the Company or any Subsidiary,
except, in the case of clause (a) or (b), (1) upon the acquisition of all the
outstanding Capital Stock of such Subsidiary in accordance with the terms
hereof, (2) if, immediately after giving effect to such issuance or sale, such
Subsidiary would no longer constitute a Subsidiary, and any Investment in such
Person remaining after giving effect to such issuance or sale would have been
permitted to be made under the provisions of Section 1009 if made on the date of
such issuance or sale, (3) issuances of director's qualifying shares, or sales
to foreign nationals of shares of Capital Stock of foreign Subsidiaries, to the
extent required by applicable law, (4) issuances or sales of common stock of a
Subsidiary, provided that the Company or such Subsidiary applies the Net Cash
Proceeds, if any, in accordance with the provisions of this Indenture to the
extent applicable, (5) issuances after which the Company maintains its direct or
indirect percentage of beneficial and economic ownership of such Subsidiary, or
(6) issuances in connection with Acquisitions for the primary purpose of
minimizing tax liability to the Company, any of its Subsidiaries, the Acquired
Person or any shareholders of the Acquired Person.
Section 1017. Limitation on Dividends and Other Payment Restrictions
------------------------------------------------------
Affecting Subsidiaries.
- ----------------------
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create any consensual encumbrance or restriction on the
ability of any Subsidiary to (i) pay dividends or make any other distribution on
its Capital Stock, (ii) pay any Indebtedness owed to the Company or any other
Subsidiary, (iii) make any Investment in the Company or any other Subsidiary or
(iv) transfer any of its properties or assets to the Company or any other
Subsidiary, except for: (a) any encumbrance or restriction, with respect to a
Subsidiary that is not a Subsidiary of the Company on the date of the Indenture,
in existence at the time such Person becomes a Subsidiary of the Company and not
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary; (b) encumbrances or restrictions (I) by reason of applicable law, or
(II) under this Indenture; (c) customary non-assignment provisions of any
contract or lease of any Subsidiary entered into in the ordinary course of
business; (d) encumbrances or restrictions imposed pursuant to contracts entered
into in connection with Permitted Liens, but solely to the extent such
encumbrances or restrictions affect property or assets subject to such Permitted
Lien; (e) any encumbrance or restriction imposed pursuant to contracts for the
sale of assets with respect to the assets to be sold pursuant to such contract;
and (f) any encumbrance or restriction existing under any agreement that
extends, renews, refinances or replaces the agreements containing the
encumbrances or restrictions in the foregoing clauses (a) through (e), or in
this clause (f), provided that the terms and conditions of any such encumbrances
or restrictions are no more restrictive in any material respect than those under
or pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced.
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Section 1018. Limitations on Unrestricted Subsidiaries.
----------------------------------------
The Company will not make, and will not permit its Subsidiaries to
make, any Investment in Unrestricted Subsidiaries if, at the time thereof, the
aggregate amount of such Investments would exceed the amount of Restricted
Payments then permitted to be made pursuant to Section 1009. Any Investments in
Unrestricted Subsidiaries permitted to be made pursuant to this covenant will be
treated as a Restricted Payment in calculating the amount of Restricted Payments
made by the Company.
Section 1019. Provision of Financial Statements.
---------------------------------
After the earlier to occur of the consummation of the Exchange Offer
and the 150th calendar day following the date of original issue of the
Securities, whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to Sections 13(a) or 15(d) if the Company were so subject, such
documents to be filed with the Commission on or prior to the date (the "Required
Filing Date") by which the Company would have been required so to file such
documents if the Company were so subject. The Company will also in any event
(x) within 15 days of each Required Filing Date (i) transmit by mail to all
Holders, as their names and addresses appear in the Security Register, without
cost to such Holders and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to Sections 13(a) or 15(d) of the
Exchange Act if the Company were subject to either of such Sections and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder at the Company's cost. If any Guarantor's financial
statements would be required to be included in the financial statements filed or
delivered pursuant to this Indenture if the Company were subject to Section
13(a) or 15(d) of the Exchange Act, the Company shall include such Guarantor's
financial statements in any filing or delivery pursuant to the Indenture. In
addition, so long as any of the Securities remain outstanding, the Company will
make available to any prospective purchaser of Securities or beneficial owner of
Securities in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act, until such time as the Company has either
exchanged the Securities for securities identical in all material respects which
have been registered under the Securities Act or until such time as the Holders
thereof have disposed of such Securities pursuant to an effective registration
statement under the Securities Act.
Section 1020. Statement by Officers as to Default.
-----------------------------------
(a) The Company will deliver to the Trustee, on or before a date not
more than 120 days after the end of each fiscal year of the Company ending
after the date hereof, and 60 days after the end of each fiscal quarter ending
after the date hereof, a written statement signed by the principal executive
officer, principal financial officer or principal accounting officer of the
Company in his/her capacity as an officer of the Company, as to compliance
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herewith, including whether or not, after a review of the activities of the
Company during such year and of the Company's and each Guarantor's performance
under this Indenture, to the best knowledge, based on such review, of the
signers thereof, the Company and each Guarantor have fulfilled all of their
respective obligations and are in compliance with all conditions and covenants
under this Indenture throughout such year and, if there has been a Default
specifying each Default and the nature and status thereof and any actions being
taken by the Company with respect thereto.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder of
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default, the Company
shall deliver to the Trustee by registered or certified mail or facsimile
transmission followed by an originally executed copy of an Officers' Certificate
specifying such Default, Event of Default, notice or other action, the status
thereof and what actions the Company is taking or proposes to take with respect
thereto, within five Business Days after the occurrence of such Default or Event
of Default.
Section 1021. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 1006 through 1011, 1012(a), 1013 and
1015 through 1020, if, before or after the time for such compliance, the Holders
of not less than a majority in aggregate principal amount of the Securities at
the time Outstanding shall, by Act of such Holders, waive such compliance in
such instance with such covenant or provision, but no such waiver shall extend
to or affect such covenant or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee in respect of any such covenant or
condition shall remain in full force and effect.
Section 1022. Limitation on Business.
----------------------
The Company will not, and will not permit any of the Subsidiaries to,
engage in a business which is not substantially a Telecommunications Business.
Section 1023. Deposit of Funds with Escrow Agent.
----------------------------------
(a) On the Issue Date, the Company shall deposit with the Escrow Agent
funds that together with the proceeds from the investment thereof will be
sufficient to pay the first six scheduled interest payments on the Securities
(excluding any Additional Interest). All Collateral shall be held in the Escrow
Account until permitted to be disbursed pursuant to the Escrow Agreement and
then shall be disbursed strictly in accordance with the terms thereof.
(b) Pending release of the Escrow Funds as provided in the Escrow
Agreement, the Escrow Funds will be invested in U.S. Government Securities as
specifically directed in writing by the Company. Any interest or other profit
resulting from such investment will be deposited in the Escrow Account.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Rights of Redemption.
--------------------
(a) The Securities are subject to redemption at any time on or after
December 15, 2002, at the option of the Company, in whole or in part, subject to
the conditions, and at the Redemption Prices, specified in the form of Security,
together with accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant Regular Record Dates and
Special Record Dates to receive interest due on relevant Interest Payment Dates
and Special Payment Dates).
(b) In addition, at any time prior to December 15, 2000, the Company
may, at its option, use the net proceeds of one or more Public Equity Offering
or the sale of Common Stock (other than Disqualified Stock) of the Company to a
Strategic Investor in a single transaction or in a series of related
transactions, to redeem up to an aggregate of 35% of the aggregate principal
amount of Securities originally issued under this Indenture at a redemption
price equal to 112 3/4% of the of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Redemption Date; provided that at least
65% aggregate principal amount of Securities remains outstanding immediately
after the occurrence of such redemption. In order to effect the foregoing
redemption, the Company must mail a notice of redemption no later than 45 days
after the closing of the related Public Equity Offering and must consummate such
redemption within 60 days of the closing of the Public Equity Offering.
Section 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article Eleven.
Section 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Company Order and an Officers' Certificate.
In case of any redemption at the election of the Company, the Company shall, not
less than 45 and not more than 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice period shall be satisfactory to the Trustee),
notify the Trustee in writing of such Redemption Date and of the principal
amount of Securities to be redeemed.
Section 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed shall be selected not more than 30
days prior to the Redemption Date. The Trustee shall select the Securities or
portions thereof to be redeemed pro rata, by lot or by any other method the
Trustee shall deem fair and reasonable. The amounts to be redeemed
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shall be equal to $1,000 or any integral multiple thereof.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
Section 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at its address
appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the principal
amount of such Security to be redeemed and that after the Redemption Date upon
surrender of such Security, new Security or Securities in the aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(e) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security or portion thereof to be redeemed, and that
(unless the Company shall default in payment of the Redemption Price) interest
thereon shall cease to accrue on and after said date;
(g) the names and addresses of the Paying Agent and the offices or
agencies referred to in Section 1002 where such Securities are to be surrendered
for payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Securities; and
(i) the procedures that a Holder must follow to surrender the
Securities to be
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redeemed.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's written request,
by the Trustee in the name and at the expense of the Company. If the Company
elects to give notice of redemption, it shall provide the Trustee with a
certificate stating that such notice has been given in compliance with the
requirements of this Section 1105.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
Section 1106. Deposit of Redemption Price.
---------------------------
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company or any of its Affiliates is
acting as Paying Agent, segregate and hold in trust as provided in Section 1003)
an amount of money in same day funds sufficient to pay the Redemption Price of,
and (except if the Redemption Date shall be an Interest Payment Date or Special
Payment Date) accrued interest on, all the Securities or portions thereof which
are to be redeemed on that date. The Paying Agent shall promptly mail or
deliver to Holders of Securities so redeemed payment in an amount equal to the
Redemption Price of the Securities purchased from each such Holder. All money,
if any, earned on funds held in trust by the Trustee or any Paying Agent prior
to the Redemption Date shall be remitted to the Company. For purposes of this
Section 1106, the Company shall choose a Paying Agent which shall not be the
Company.
Section 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Holders will be required
to surrender the Securities to be redeemed to the Paying Agent at the address
specified in the notice of redemption at least one Business Day prior to the
Redemption Date. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price together with accrued interest to the Redemption Date;
provided, however, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Securities,
or one or more Predecessor Securities, registered as such on the relevant
Regular Record Dates and Special Record Dates according to the terms and the
provisions of Section 309.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Security.
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Section 1108. Securities Redeemed or Purchased in Part.
----------------------------------------
Any Security which is to be redeemed or purchased only in part shall
be surrendered to the Paying Agent at the office or agency maintained for such
purpose pursuant to Section 1002 (with, if the Company, the Security Registrar
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, the Security Registrar or the
Trustee, as the case may be, duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to,
and in exchange for, the unredeemed portion of the principal of the Security so
surrendered that is not redeemed or purchased.
ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 1201. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall be discharged and shall cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities as expressly provided for herein) as to all Outstanding Securities
hereunder, and the Trustee, upon Company Request and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(1) all the Securities theretofore authenticated and delivered
(other than (i) lost, stolen or destroyed Securities which have been
replaced or paid as provided in Section 308 or (ii) all Securities
whose payment has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(2) all such Securities not theretofore delivered to the Trustee
for cancellation (i) have become due and payable, (ii) will become due
and payable at their Stated Maturity within one year or (iii) are to
be called for redemption within one year under arrangements reasonably
satisfactory to the Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of the Company; and the
Company or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount in United
States dollars sufficient to pay and discharge the entire Indebtedness
on the Securities not theretofore delivered to the Trustee for
cancellation, including the principal of, premium, if any, and accrued
interest on, such Securities at such Maturity, Stated Maturity or
Redemption Date;
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(b) the Company or any Guarantor has paid or caused to be paid all
other sums payable hereunder by the Company and any Guarantor; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Independent Counsel, in form and substance reasonably
satisfactory to the Trustee, each stating that (i) all conditions precedent
herein relating to the satisfaction and discharge hereof have been complied with
and (ii) such satisfaction and discharge will not result in a breach or
violation of, or constitute a default under, this Indenture or any other
material agreement or instrument to which the Company, any Guarantor or any
Subsidiary is a party or by which the Company, any Guarantor or any Subsidiary
is bound.
Notwithstanding the satisfaction and discharge hereof, the obligations
of the Company to the Trustee under Section 606 and, if United States dollars
shall have been deposited with the Trustee pursuant to subclause (2) of
subsection (a) of this Section 1201, the obligations of the Trustee under
Section 1202 and the last paragraph of Section 1003 shall survive.
Section 1202. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
United States dollars deposited with the Trustee pursuant to Section 1201 shall
be held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal of,
premium, if any, and interest on, the Securities for whose payment such United
States dollars have been deposited with the Trustee.
ARTICLE THIRTEEN
COLLATERAL AND SECURITY
Section 1301. Escrow Agreement.
----------------
The due and punctual payment of the first six scheduled interest
payments on the Securities and Additional Interest, if any, when and as the same
shall be due and payable on an Interest Payment Date or by acceleration shall be
secured as provided in the Escrow Agreement which the Company and the Trustee
have entered into simultaneously with the execution of this Indenture. Upon the
acceleration of the Maturity of the Securities prior to the payment in full of
the first six scheduled interest payments, the Trustee shall foreclosure upon
the Collateral. Each Holder of Securities, by its acceptance thereof, consents
and agrees to the terms of the Escrow Agreement (including, without limitation,
the provisions providing for foreclosure and disbursement of Collateral) as the
same may be in effect or may be amended from time to time in accordance with its
terms and the terms hereof and authorizes and directs the Escrow Agent and the
Trustee to enter into the Escrow Agreement and to perform its obligations and
exercise its rights thereunder in accordance therewith. The Company shall
deliver to the Trustee copies of the
108
<PAGE>
Escrow Agreement, and shall do or cause to be done all such acts and things as
may be necessary or proper, or as may be required by the provisions of the
Escrow Agreement, to assure and confirm to the Trustee the security interest in
the Collateral contemplated by the Escrow Agreement or any part thereof, as from
time to time constituted, so as to render the same available for the security
and benefit of this Indenture with respect to, and of, the Securities, according
to the intent and purposes expressed in the Escrow Agreement. The Company shall
take any and all actions reasonably required to cause the Escrow Agreement to
create and maintain (to the extent possible under applicable law), as security
for the obligations of the Company hereunder, a first priority and exclusive
security interest in and on all the Collateral, in favor of the Trustee for the
benefit of the Holders of Securities, superior to and prior to the rights of all
third Persons and subject to no other Liens. The Trustee shall have no
responsibility for perfecting or maintaining the perfection of the Trustee's
security interest in the Collateral or for filing any instrument, document or
notice in any public office at any time or times.
Section 1302. Recording and Opinions.
----------------------
(a) The Company shall furnish to the Trustee simultaneously with the
execution and delivery of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the security
interest intended to be created by the Escrow Agreement and reciting the details
of such action, or (ii) stating that in the opinion of such counsel no such
action is necessary to make such security interest effective.
(b) The Company shall furnish to the Trustee on each anniversary of
the Issue Date (upon receipt of written notice from Escrow Agent) until the date
upon which the balance of Escrow Funds shall have been reduced to zero, an
Opinion of Counsel, dated as of such date, complying in all respects with
Section 314(b) of the Trust Indenture Act.
Section 1303. Release of Collateral.
---------------------
(a) Subject to subsections (b), (c) and (d) of this Section 1303, the
Collateral may be released from the security interest created by the Escrow
Agreement only in accordance with the provisions of the Escrow Agreement.
(b) Except to the extent that any security interest on proceeds of
Collateral is automatically released by operation of Section 9-306 of the
Uniform Commercial Code or other similar law, no Collateral shall be released
from the security interest created by the Escrow Agreement pursuant to the
provisions of the Escrow Agreement, other than to the Holders pursuant to the
terms thereof.
(c) At any time when an Event of Default shall have occurred and be
continuing and the Maturity of the Securities shall have been accelerated
(whether by declaration or otherwise), no Collateral shall be released pursuant
to the provisions of the Escrow Agreement, and no release of Collateral in
contravention of this Section 1303(c) shall be effective as against the Holders
of Securities, except for the disbursement of all Escrow Funds
109
<PAGE>
(as defined in the Escrow Agreement) and other Collateral to the Trustee
pursuant to Section 6(c) of the Escrow Agreement.
(d) To the extent applicable, the Company shall cause Section 314(d)
of the Trust Indenture Act, relating to the release of property or securities
from the security interest of the Escrow Agreement, to be complied with.
Section 1304. Authorization of Actions to Be Taken by the Trustee
---------------------------------------------------
Under the Escrow Agreement.
- --------------------------
Subject to the provisions of Section 601 and Section 603, the Trustee
may, without the consent of the Holders of Securities, on behalf of the Holders
of Securities, take all actions it deems necessary or appropriate in order to
(a) enforce any of the terms of the Escrow Agreement and (b) collect and receive
any and all amounts payable in respect of the obligations of the Company
hereunder. The Trustee shall have power to institute and maintain such suits
and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts that may be unlawful or in violation of the Escrow
Agreement or this Indenture, and such suits and proceedings as the Trustee may
deem expedient to preserve or protect its interests and the interests of the
Holders of Securities in the Collateral (including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interests of the Holders of Securities or of the Trustee).
Section 1305. Authorization of Receipt of Funds by the Trustee Under
------------------------------------------------------
the Escrow Agreement.
- --------------------
The Trustee is authorized to receive any funds for the benefit of the
Holders of Securities disbursed under the Escrow Agreement, and to make further
distributions of such funds to the Holders of Securities according to the
provisions of this Indenture.
Section 1306. Termination of Security Interest.
--------------------------------
Upon the earliest to occur of (i) the date upon which the balance of
Escrow Funds and other Collateral shall have been reduced to zero, (ii) the
payment of the first six scheduled interest payments on the Securities, (iii)
legal defeasance of all Outstanding Securities pursuant to Section 402 and (iv)
covenant defeasance of all Outstanding Securities pursuant to Section 403, the
Trustee shall, at the written request of the Company, release the security
interest in the Collateral pursuant to this Indenture and the Escrow Agreement
upon the Company's compliance with the provisions of the Trust Indenture Act
pertaining to release of collateral.
* * *
110
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, all as of the day and year first above written.
CONCENTRIC NETWORK CORPORATION
By: /s/ Henry R. Nothhaft
____________________________________
Name: Henry R. Nothhaft
Title: President and Chief Executive Officer
Attest:____________________
Name:______________________
Title:_____________________
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
By: /s/ Chase Manhattan Bank and Trust Company,
National Association
____________________________________________
Name:__________________________________________
Title:_________________________________________
111
<PAGE>
STATE OF ________________________)
) ss.:
COUNTY OF _____________________)
On the _____ day of _______, 1997, before me personally came ___________, to me
known, who, being by me duly sworn, did depose and say that he resides at
_________________________; that he is ___________________ of __________________,
a corporation described in and which executed the foregoing instrument; and that
he signed his name thereto pursuant to authority of the Board of Directors of
such corporation.
(NOTARIAL
SEAL)
_______________
<PAGE>
STATE OF ________________________ )
) ss.:
COUNTY OF _______________________ )
On the _____ day of ______, 1997, before me personally came
___________, to me known, who, being by me duly sworn, did depose and say that
he resides at _________________________; that he is ___________________ of
__________________, a corporation described in and which executed the foregoing
instrument; and that he signed his name thereto pursuant to authority of the
Board of Directors of such corporation.
(NOTARIAL
SEAL)
______________
<PAGE>
EXHIBIT A
REGULATION S CERTIFICATE
(For transfers pursuant to (S) 307(a)(i) of the Indenture)
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Re: 12 3/4% Senior Notes due 2007 of Concentric Network Corporation
-----------
(the "Securities")
----------------------
Reference is made to the Indenture, dated as of December 18, 1997 (the
"Indenture"), among Concentric Network Corporation (the "Company") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined.
This certificate relates to US$____________ principal amount of Securities,
which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
The Specified Securities are represented by a Global Security and are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Regulation S
Global Security. In connection with such transfer, the Owner hereby certifies
that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 904 or Rule 144 under the Securities Act and with all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
-1-
<PAGE>
(1) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Owner is not a distributor of the Specified
Securities, an affiliate of the Company or any such distributor
or a person acting on behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and
any person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or
through the facilities of the Eurobond market, as regulated
by the Association of International Bond Dealers, or another
designated offshore securities market described in Section
902(a) of Regulation S and neither the Owner nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the
United States by or on behalf of the Owner or any affiliate
thereof;
(E) if the Owner is a dealer in securities, as defined in
Section 2(12) of the Securities Act, or has received a selling
concession, fee or other remuneration in respect of the Specified
Securities, and the transfer is to occur during the restricted
period, then:
(i) neither the Owner nor any person acting on behalf
of the Owner knows that the Transferee of the Specified
Securities is a U.S. person; and
(ii) if the Owner or any person acting on the Owner's
behalf knows that the Tranferee is a dealer, as defined in
Section 2(12) of the Securities Act, or is a person
receiving a selling concession, fee or other remuneration in
respect of the Specified Securities, the
-2-
<PAGE>
Owner or a person acting on the Owner's behalf has sent to
the Transferee a confirmation or other notice stating that
the Specified Securities may be offered and sold during the
Restricted Period only; (x) in accordance with Regulation S;
(y) pursuant to registration of the Specified Securities
under the Securities Act; or (z) pursuant to an available
exemption from the registration requirements of the
Securities Act; and
(F) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected
------------------
pursuant to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule
144) has elapsed since the Specified Securities were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and is being effected in accordance with the
applicable amount, manner of sale and notice requirements of Rule
144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Securities were
last acquired from the Company or from an affiliate of the
Company, whichever is later, and the Owner is not, and during the
preceding three months has not been, an affiliate of the Company.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated: __________________
(Print the name of the Undersigned, as such term
is defined in the third paragraph of this
certificate.)
By:_______________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of
-3-
<PAGE>
the Undersigned must be stated.)
-4-
<PAGE>
EXHIBIT B
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to (S) 307(a)(ii) of the Indenture)
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Re: 12 3/4% Senior Notes due 2007 of Concentric Network
Corporation (the "Securities")
----------------------------------------------
Reference is made to the Indenture, dated as of December 18, 1997 (the
"Indenture"), among Concentric Network Corporation (the "Company") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Rule 144A or Rule 144 under the U.S.
Securities Act of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to US$_____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
ISIN No(s). If any. ____________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". The Specified Securities are represented by a Global Security and are
held through the Depositary or an Agent Member in the name of the Undersigned,
as or on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance
-1-
<PAGE>
with Rule 144A or Rule 144 under the Securities Act and all applicable
securities laws of the states of the United States and other jurisdictions.
Accordingly, the Owner hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
-------------------
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
------------------
Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the
Company or from an affiliate of the Company, whichever is later, and
is being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since the Specified Securities were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
-2-
<PAGE>
Dated: ____________________
(Print the name of the Undersigned, as such term is
defined in the third paragraph of this certificate.)
By:_____________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
-3-
<PAGE>
EXHIBIT C
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to (S) 307(b))
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Re: 12 3/4% Senior Notes due 2007 of Concentric Network
Corporation (the "Securities")
-----------------------------------------------
Reference is made to the Indenture, dated as of December 18, 1997 (the
"Indenture"), among Concentric Network Corporation (the "Company") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Rule 144 under the U.S. Securities Act
of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to US$_____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). __________________________
CERTIFICATE No(s). ____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Security, they
are held through the Depositary or an Agent Member in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Securities are not
represented by a Global Security, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities bearing no Private Placement Legend pursuant to Section 307(b) of the
Indenture. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a holding period of at least two years (computed
in accordance with paragraph (d) of Rule 144) has elapsed
-1-
<PAGE>
since the Specified Securities were last acquired from the Company or from an
affiliate of the Company, whichever is later, and the Owner is not, and during
the preceding three months has not been, an affiliate of the Company. The Owner
also acknowledge edges that any future transfers of the Specified Securities
must comply with all applicable securities laws of the states of the United
States and other jurisdictions.
-2-
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
Dated: _________________
(Print the name of the Undersigned, as such term is
defined in the third paragraph of this certificate.)
By:____________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
-3-
<PAGE>
APPENDIX I
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
_____________________________
__________________________________________________________________________
__________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
__________________________________________________________________________
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
__________________________________________________________________________
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES FOR SERIES A SECURITIES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Security occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
December 18, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[_] (a) this Security is being transferred in compliance with the exemption
from registration
<PAGE>
under the Securities Act of 1933, as amended, provided by Rule 144A
thereunder.
or
--
[_] (b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 307 of the Indenture
shall have been satisfied.
Date: _________________
_______________________________________
NOTICE: The signature to this assignment
must correspond with the name as written upon
the face of the within-mentioned instrument in every
particular, without alteration or any change
whatsoever.
Signature Guarantee: ________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
-2-
<PAGE>
Dated:________________________________________________________________
NOTICE: To be executed by an authorized signatory
-3-
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
- --------------------------------------------
Please insert social security or other identifying number of assignee
- ---------------------------------------------------------------------
_____________________________________________________________________________
_____________________________________________________________________________
Print or type name, address and zip code of assignee and irrevocably
appoint________________________________________________________________
[Agent], to transfer this Security on the books of the Company. The Agent may
substitute another to act for him.
Dated ____________________ Signed _________________________
(Sign exactly as name appears on the other side of this Security)
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17 Ad-15]
<PAGE>
EXHIBIT 4.3
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION AS SET FORTH BELOW.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A")) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE UNITED
STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS IN AN OFFSHORE TRANSACTION WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS
(A)(1), (A)(2), (A)(3) OR (A)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
<PAGE>
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT
TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE. AS USED HEREIN, THE TERMS "UNITED STATES,"
"OFFSHORE TRANSACTION," AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS
OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
CONCENTRIC NETWORK CORPORATION
__________________
12 3/4% SENIOR NOTE DUE 2007, SERIES A
CUSIP NO. 20589R AA59
No. 1 $150,000,000
Concentric Network Corporation, a Delaware corporation (herein called
the "Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co. or registered assigns, the principal sum of One Hundred Fifty Million
United States dollars on December 18, 2007, at the office or agency of the
Company referred to below, and to pay interest thereon from December 18, 1997,
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semiannually on June 15 and December 15, in each year,
commencing June 15, 1998 at the rate of 12 3/4% per annum, subject to
adjustments as described in the second following paragraph, in United States
dollars, until the principal hereof is paid or duly provided for. Interest
shall be computed on the basis of a 360-day year comprised of twelve 30-day
months.
The Holder of this Series A Security is entitled to the benefits of
the Registration Rights Agreement between the Company and the Initial
Purchasers, dated December 18, 1997, pursuant to which, subject to the terms and
conditions thereof, the Company is obligated to consummate the Exchange Offer
pursuant to which the Holder of this Security shall have the right to exchange
this Security for 12 3/4% Senior Notes due 2007, Series B (herein called the
"Series B Securities") in like principal amount as provided therein. The Series
A Securities and the Series B Securities are together referred to as the
"Securities." The Series A Securities rank pari passu in right of payment with
the Series B Securities.
In the event that (a) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the date specified in the Registration
Rights Agreement, (b) the Exchange Offer Registration Statement has not been
declared effective on or prior to the date specified in the Registration Rights
Agreement, (c) the Exchange Offer is not consummated or a Shelf Registration
Statement is not declared effective, in either case, on or prior to the date
specified in the Registration Rights Agreement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of the
Series A
<PAGE>
Securities during the periods specified in the Registration Rights Agreement,
without being succeeded immediately by a post effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective within a five Business Day period after filing such post effective
amendment (each such event referred to in clauses (a) through (d) above, a
"Registration Default"), then commencing on the day following the date on which
such Registration Default occurs, the interest rate borne by the Series A
Securities shall be increased by one-half of one percent per annum for the 90-
day period following such Registration Default, which rate will increase by one-
half of one percent per annum with respect to each subsequent 90-day period up
to a maximum of one and one half percent (1.50%) per annum until cured
("Additional Interest"). Following the cure of all Registration Defaults, the
accrual of Additional Interest will cease and the interest rate will revert to
the original rate.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the June 1 or December 1 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid, or duly provided for, and
interest on such defaulted interest at the interest rate borne by the Series A
Securities, to the extent lawful, shall forthwith cease to be payable to the
Holder on such Regular Record Date, and may either be paid to the Person in
whose name this Security (or any Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by this Indenture not inconsistent with the
requirements of such exchange, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of San Francisco maintained for that
purpose (which initially will be a corporate trust office of the Trustee located
at 101 California Street, Suite 2725, San Francisco, California 94111), or at
such other office or agency as may be maintained for such purpose, or, at the
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Security Register, and provided, that payment by wire transfer of immediately
available funds will be required with respect to principal of and interest on
all Gobal Securities and all other Securities the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as
<PAGE>
at the time of payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature of an authorized
signer, this Security shall not be entitled to any benefit under the Indenture,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
CONCENTRIC NETWORK CORPORATION
[Seal] By:
Title:
Attest:
____________________________
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12 3/4% Senior Notes due 2007, Series A referred to
in the within-mentioned Indenture.
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Trustee
By: _________________________________
Authorized Signer
Dated:
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant
to Section 1012 or Section 1014, as applicable, of the Indenture, check the
Box: [ ].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1012 or Section 1014 as applicable, of the
Indenture, state the amount (in original principal amount):
$ _______________.
Date: ___________________ Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: __________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
<PAGE>
Concentric Network Corporation
12 3/4% Senior Note due 2007, Series A
This Security is one of a duly authorized issue of Securities of the
Company designated as its 12 3/4% Senior Notes due 2007, Series A (herein called
the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to $150,000,000, issued under
and subject to the terms of an indenture (herein called the "Indenture") dated
as of December 18, 1997, between the Company and Chase Manhattan Bank and Trust
Company, National Association, as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Guarantors, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after
December 15, 2002, at the option of the Company, in whole or in part, on not
less than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an
integral multiple thereof, at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning December 18 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002............................. 106.375%
2003............................. 104.250%
2004............................. 102.125%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to December 15, 2000, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
or the sale of Common Stock (other than Disqualified Stock) of the Company to a
Strategic Investor in a single transaction or in a series of related
transactions, to redeem up to an aggregate of 35% of the aggregate principal
amount of Securities originally issued under the Indenture at a redemption price
equal to 112.750% of the aggregate
<PAGE>
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Redemption Date; provided that at least 65% aggregate principal amount of
Securities remains outstanding immediately after the occurrence of such
redemption. In order to effect the foregoing redemption, the Company must mail
a notice of redemption no later than 45 days after the closing of the related
Public Equity Offering and must consummate such redemption within 60 days of the
closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by lot
or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay any Pari Passu Indebtedness of the Company or any Subsidiary or invested
in properties or other assets that replace the properties and assets that were
the subject of the Asset Sale or which will be used in the Telecommunications
Business, exceeds a specified amount the Company will be required to apply such
proceeds to the repayment of the Securities and certain Indebtedness ranking
pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
<PAGE>
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the Guarantors and the rights of the Holders under the Indenture and the
Securities and the Guarantees at any time by the Company and the Trustee with
the consent of the Holders of at least a majority in aggregate principal amount
of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities (100% of the Holders in certain circumstances) at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company and the Guarantors with certain provisions of the
Indenture and the Securities and the Guarantees and certain past Defaults under
the Indenture and the Securities and the Guarantees and their consequences. Any
such consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Securities (in the event such Guarantor or
such other obligor is obligated to make payments in respect of the Securities),
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on, this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial holders
in exchange for their beneficial interests in the Rule 144A Global Securities or
the Regulation S Global Securities if (x) the Depositary notifies the Company
that it is unwilling or unable to continue as depository for such Global
Security and a successor depository is not appointed by the Company within 90
days or (y) there shall have occurred and be continuing an Event of Default and
the Security Registrar has received a request from the Depositary. Upon any
such issuance, the Trustee is required to
<PAGE>
register such certificated Series A Securities in the name of, and cause the
same to be delivered to, such Person or Persons (or the nominee of any thereof).
All such certificated Series A Securities would be required to include the
Private Placement Legend.
Series A Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series A Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d) of
the Exchange Act, upon the written request of a Holder of a Series A Security,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto) to such Holder or to a prospective purchaser of
such Series A Security who such Holder informs the Company is reasonably
believed to be a "Qualified Institutional Buyer" within the meaning of Rule 144A
under the Securities Act, as the case may be, in order to permit compliance by
such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any such agent
shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
<PAGE>
REGULATION S CERTIFICATE
(For transfers pursuant to (S) 307(a)(i) of the Indenture)
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Re: 12 3/4% Senior Notes due 2007 of Concentric Network
Corporation (the "Securities")
---------------------------------------------------
Reference is made to the Indenture, dated as of December 18, 1997 (the
"Indenture"), among Concentric Network Corporation (the "Company") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined.
This certificate relates to US$____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner." The Specified Securities are represented by a Global Security and are
held through the Depositary or an Agent Member in the name of the Undersigned,
as or on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Regulation S Global Security. In connection with such transfer, the Owner
hereby certifies that, unless such transfer is being effected pursuant to an
effective registration statement under the Securities Act, it is being effected
in accordance with Rule 904 or Rule 144 under the Securities Act and with all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
<PAGE>
(1) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Owner is not a distributor of the Specified
Securities, an affiliate of the Company or any such
distributor or a person acting on behalf of any of the
foregoing;
(B) the offer of the Specified Securities was not made
to a person in the United States;
(C) either:
(i) at the time the buy order was
originated, the Transferee was outside the United
States or the Owner and any person acting on its
behalf reasonably believed that the Transferee was
outside the United States, or
(ii) the transaction is being executed in,
on or through the facilities of the Eurobond
market, as regulated by the Association of
International Bond Dealers, or another designated
offshore securities market described in Section
902(a) of Regulation S and neither the Owner nor
any person acting on its behalf knows that the
transaction has been prearranged with a buyer in
the United States;
(D) no directed selling efforts have been made in the
United States by or on behalf of the Owner or any affiliate
thereof;
(E) if the Owner is a dealer in securities, as defined
in Section 2(12) of the Securities Act, or has received a
selling concession, fee or other remuneration in respect of
the Specified Securities, and the transfer is to occur
during the restricted period, then:
(i) neither the Owner nor any person acting
on behalf of the Owner knows that the Transferee
of the Specified Securities is a U.S. person; and
(ii) if the Owner or any person acting on
the Owner's behalf knows that the Transferee is a
dealer, as defined in Section 2(12) of the
Securities Act, or is a person receiving a selling
concession, fee or other remuneration in respect
of the Specified Securities, the Owner or a person
acting on the Owner's behalf has sent to the
Transferee a confirmation or other notice stating
that the Specified Securities may be offered and
sold during the Restricted Period only: (x) in
accordance with Regulation S; (y) pursuant to
registration of the Specified Securities under the
Securities Act; or (z) pursuant to an available
exemption from the registration requirements of
the Securities Act; and
<PAGE>
(F) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected
------------------
pursuant to Rule 144:
<PAGE>
(A) the transfer is occurring after a holding period of
at least one year (computed in accordance with paragraph (d)
of Rule 144) has elapsed since the Specified Securities were
last acquired from the Company or from an affiliate of the
Company, whichever is later, and is being effected in
accordance with the applicable amount, manner of sale and
notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of
at least two years has elapsed since the Specified
Securities were last acquired from the Company or from an
affiliate of the Company, whichever is later, and the Owner
is not, and during the preceding three months has not been,
an affiliate of the Company.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers.
Dated:
_______________
(Print the name of the Undersigned, as
such term is defined in the third
paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of
the person signing on behalf of the
Undersigned must be stated.)
<PAGE>
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to (S) 307(a)(ii) of the Indenture)
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Re: 12 3/4% Senior Notes due 2007 of Concentric Network
Corporation (the "Securities")
---------------------------------------------------
Reference is made to the Indenture, dated as of December 18, 1997 (the
"Indenture"), among Concentric Network Corporation (the "Company") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Rule 144A or Rule 144 under the U.S.
Securities Act of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to US$_____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
ISIN No(s). If any. ____________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". The Specified Securities are represented by a Global Security and are
held through the Depositary or an Agent Member in the name of the Undersigned,
as or on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
-------------------
accordance with Rule 144A:
<PAGE>
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
------------------
Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the
Company or from an affiliate of the Company, whichever is later, and
is being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since the Specified Securities were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
<PAGE>
Dated:
______________
(Print the name of the Undersigned, as
such term is defined in the third
paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of
the person signing on behalf of the
Undersigned must be stated.)
<PAGE>
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to (S) 307(b))
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Re: 12 3/4% Senior Notes due 2007 of Concentric Network
Corporation (the "Securities")
---------------------------------------------------
Reference is made to the Indenture, dated as of December 18, 1997 (the
"Indenture"), among Concentric Network Corporation (the "Company") and Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or in Rule 144 under the U.S. Securities Act
of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to US$_____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Security, they
are held through the Depositary or an Agent Member in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Securities are not
represented by a Global Security, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities bearing no Private Placement Legend pursuant to Section 307(b) of the
Indenture. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a holding period of at least two years (computed
in accordance with paragraph (d) of Rule 144) has elapsed since the Specified
Securities were last acquired from the Company or from an affiliate of the
Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
<PAGE>
Dated:
______________
(Print the name of the Undersigned, as such term
is defined in the third paragraph of this
certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of the
person signing on behalf of the Undersigned
must be stated.)
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -----------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
- --------------------------------------------------------------------------------
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES FOR SERIES A SECURITIES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Security occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
December 18, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
<PAGE>
[Check One]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
--
[ ] (b) this Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the
Indenture.
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 307 of the Indenture
shall have been satisfied.
Date: _______________________
_______________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee: _____________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding
<PAGE>
the Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:__________________ _________________________________________________
NOTICE: To be executed by an authorized signatory
<PAGE>
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
- --------------------------------------------
Please insert social security or other identifying number of assignee
- ---------------------------------------------------------------------
Print or type name, address and zip code of assignee and irrevocably
appoint________________________________________________________________
[Agent], to transfer this Security on the books of the Company. The Agent may
substitute another to act for him.
Dated ____________________ Signed
(Sign exactly as name appears on the other side of this Security)
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17 Ad-15]
<PAGE>
EXHIBIT 4.4
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING
OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF
A DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO
A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND
ANY SUCH
1
<PAGE>
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
2
<PAGE>
CONCENTRIC NETWORK CORPORATION
__________________
12 3/4% SENIOR NOTE DUE 2007, SERIES B
CUSIP NO. ______________
No. __________ $_______________________
Concentric Network Corporation, a Delaware corporation (herein called
the "Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_____________ or registered assigns, the principal sum of _______________ United
States dollars on December 15, 2007, at the office or agency of the Company
referred to below, and to pay interest thereon from December 18, 1997, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on June 15 and December 15 in each year, commencing
June 15, 1998 at the rate of 12 3/4% per annum, in United States dollars, until
the principal hereof is paid or duly provided for; provided that to the extent
interest has not been paid or duly provided for with respect to the Series A
Security exchanged for this Series B Security, interest on this Series B
Security shall accrue from the most recent Interest Payment Date to which
interest on the Series A Security which was exchanged for this Series B Security
has been paid or duly provided for. Interest shall be computed on the basis of
a 360-day year comprised of twelve 30-day months.
This Series B Security was issued pursuant to the Exchange Offer
pursuant to which the 12 3/4% Senior Notes due 2007, Series A (herein called the
"Series A Securities") in like principal amount were exchanged for the Series B
Securities. The Series B Securities rank pari passu in right of payment with
the Series A Securities.
In addition, for any period in which the Series A Security exchanged
for this Series B Security was outstanding, in the event that (a) the Exchange
Offer Registration Statement is not filed with the Commission on or prior to the
date specified in the Registration Rights Agreement, (b) the Exchange Offer
Registration Statement has not been declared effective on or prior to the date
specified in the Registration Rights Agreement, (c) the Exchange Offer is not
consummated or a Shelf Registration Statement is not declared effective, in
either case, on or prior to the date specified in the Registration Rights
Agreement the date of original issue of the Series A Security, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of the Series A Securities during the periods specified above, without
being succeeded immediately by a post effective amendment to such Registration
Statement that cures such failure and that is itself declared effective within a
five Business Day period after filing such post effective amendment (each such
event referred to in clauses (a) through (d) above, a "Registration Default"),
then commencing on the day following the date on which such Registration Default
occurs, the interest rate borne by the Series A Securities shall be increased by
one-half of one percent per annum for the 90-day period following such
Registration Default, which rate will increase by one-half of one percent per
annum with respect to each subsequent
3
<PAGE>
90-day period up to a maximum of one and one half percent (1.50%) per annum
until cured ("Additional Interest"). Following the cure of all Registration
Defaults, the accrual of Additional Interest will cease and the interest rate
will revert to the original rate; provided that, to the extent interest at such
increased interest rate has been paid or duly provided for with respect to the
Series A Security, interest at such increased interest rate, if any, on this
Series B Security shall accrue from the most recent Interest Payment Date to
which such interest on the Series A Security has been paid or duly provided for;
provided, however, that, if after any such reduction in interest rate, a
different event specified in clause (a), (b), (c) or (d) above occurs, the
interest rate shall again be increased pursuant to the foregoing provisions.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the June 1 or December 1 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid, or duly provided for, and
interest on such defaulted interest at the interest rate borne by the Series B
Securities, to the extent lawful, shall forthwith cease to be payable to the
Holder on such Regular Record Date, and may either be paid to the Person in
whose name this Security (or any Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in this
Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of San Francisco maintained for such
purpose (which initially will be a corporate trust office of the Trustee located
at 101 California Street, Suite 2725, San Francisco, California 94111), or at
such other office or agency as may be maintained for such purpose, or at such
other office or agency as may be maintained for such purpose, or, at the option
of the Company, payment of interest may be made by check mailed to the address
of the Person entitled thereto as such address shall appear on the Security
Register, and provided, that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest on all Gobal
Securities and all other Securities the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent. Such payment
shall be in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature of an authorized
signer, this Security shall not be entitled to
4
<PAGE>
any benefit under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
CONCENTRIC NETWORK CORPORATION
[Seal] By:__________________________________
Title:_______________________________
Attest:
____________________________
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12 3/4% Senior Notes due 2007, Series B referred to in
the within-mentioned Indenture.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee
By: ________________________________
Authorized Signer
Dated:
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 1012 or Section 1014, as applicable, of the Indenture, check the Box:
[_].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1012 or Section 1014 as applicable, of the
Indenture, state the amount (in original principal amount):
$ _______________.
Date: ___________________ Your Signature: _____________________
5
<PAGE>
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: __________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
6
<PAGE>
Concentric Network Corporation
12 3/4% Senior Note due 2007, Series B
This Security is one of a duly authorized issue of Securities of the
Company designated as its 12 3/4% Senior Notes due 2007, Series B (herein called
the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to $150,000,000, issued under
and subject to the terms of an indenture (herein called the "Indenture") dated
as of December 18, 1997, between the Company and Chase Manhattan Bank and Trust
Company, National Association, as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Guarantors, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
7
<PAGE>
The Securities are subject to redemption at any time on or after
December 15, 2002, at the option of the Company, in whole or in part, on not
less than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an
integral multiple thereof, at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning December 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002............................ 106.375%
2003............................ 104.250%
2004............................ 102.125%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to December 15, 2000, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
or the sale of Common Stock (other than Disqualified Stock) of the Company to a
Strategic Investor in a single transaction or in a series of related
transactions, to redeem up to an aggregate of 35% of the aggregate principal
amount of Securities originally issued under the Indenture at a redemption price
equal to 112 3/4% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Redemption Date; provided that at least
65% aggregate principal amount of Securities remains outstanding immediately
after the occurrence of such redemption. In order to effect the foregoing
redemption, the Company must mail a notice of redemption no later than 45 days
after the closing of the related Public Equity Offering and must consummate such
redemption within 60 days of the closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by lot
or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to Change of Control Offer and in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay any Pari Passu Indebtedness of the Company or any Subsidiary or invested
in properties or other assets that replace the properties and assets that were
the subject of the Asset Sale or which will be used in the Telecommunications
Business, exceeds a specified amount, the Company will be required to apply such
proceeds to the repayment of the Securities and certain Indebtedness ranking
pari
8
<PAGE>
passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which required the consent of all of the Holders) as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the Guarantors and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Company and the Trustee
with the consent of the Holders of at least a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities (100% of the Holders in certain circumstances) at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company and the Guarantors with certain provisions of the
Indenture and the Securities and the Guarantees and certain past Defaults under
the Indenture and the Securities and the Guarantees and their consequences. Any
such consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Securities (in the event such Guarantor or
such other obligor is obligated to make payments in respect of the Securities),
which is absolute and unconditional, to pay the principal of, and premium, if
any, and interest on, this Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
9
<PAGE>
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial holders
in exchange for their beneficial interests in the Rule 144A Global Securities or
the Regulation S Global Securities if (x) the Depositary notifies the Company
that it is unwilling or unable to continue as depository for such Global
Security and a successor depository is not appointed by the Company within 90
days or (y) there shall have occurred and be continuing an Event of Default and
the Security Registrar has received a request from the Depositary. Upon any such
issuance, the Trustee is required to register such certificated Series B
Securities in the name of, and cause the same to be delivered to, such Person or
Persons (or the nominee of any thereof).
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any such agent
shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
10
<PAGE>
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
- --------------------------------------------
Please insert social security or other identifying number of assignee
- ---------------------------------------------------------------------
_____________________________________________________________________________
_____________________________________________________________________________
Print or type name, address and zip code of assignee and irrevocably
appoint________________________________________________________________
[Agent], to transfer this Security on the books of the Company. The Agent may
substitute another to act for him.
Dated ____________________ Signed _________________________
(Sign exactly as name appears on the other side of this Security)
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17 Ad-15]
11
<PAGE>
EXHIBIT 4.5
[Form of Warrant Certificate]
[Face]
EXERCISABLE ON OR AFTER THE SEPARATION DATE.
No. ______ ______ Warrants
Warrant Certificate
CONCENTRIC NETWORK CORPORATION
This Warrant Certificate certifies that ________________, or its
registered assigns, is the registered holder of Warrants to purchase Common
Stock, par value $.001 (the "Common Stock"), of Concentric Network Corporation,
a Delaware corporation (the "Company"). This Warrant Certificate is issued
pursuant to the Warrant Agreement, dated as of December 18, 1997 (the "Warrant
Agreement") by and between the Company and Chase Manhattan Bank and Trust
Company, National Association, as Warrant Agent (the "Warrant Agent"). All
capitalized terms not otherwise defined herein shall have the meanings given to
those terms in the Warrant Agreement. Each Warrant entitles the registered
holder, upon exercise at any time commencing at 9:00 a.m., New York City time,
on the Separation Date (as defined in the Warrant Agreement) until 5:00 p.m.,
New York City time on the Expiration Date, to receive from the Company 6.34072
fully paid and nonassessable shares of Common Stock (the "Warrant Shares") at
the initial exercise price (the "Exercise Price") of $10.8625 per share payable
in lawful money of the United States of America upon surrender of this Warrant
Certificate and payment of the Exercise Price at the office or agency of the
Warrant Agent, but only subject to the conditions set forth herein and in the
Warrant Agreement referred to on the reverse hereof. The Exercise Price and
number of Warrant Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement.
No Warrant may be exercised before the Separation Date. No Warrant may
be exercised after 5:00 p.m., New York City time on December 15, 2007, the
Expiration Date, and to the extent not exercised by such time such Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.
This Warrant Certificate shall be governed by and construed in
accordance with the internal laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, Concentric Network Corporation has caused this Warrant
Certificate to be signed by its President and by its Secretary, each by a
signature or a facsimile thereof, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
Dated:__________________
CONCENTRIC NETWORK CORPORATION
By:______________________________
Name:
Title: President
By:______________________________
Name:
Title: Secretary
Countersigned:
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION,
as Warrant Agent
By:_____________________
Authorized Signature
<PAGE>
[Form of Warrant Certificate]
[Reverse]
[Unless and until it is exchanged in whole or in part for
Warrants in definitive form, this Warrant may not be transferred except as a
whole by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or any such nominee to a successor depositary or a nominee of such
successor depositary. The Depository Trust Company ("DTC"), (55 Water Street,
New York, New York) shall act as the depositary until a successor shall be
appointed by the Company and the Warrant Agent. Unless this certificate is
presented by an authorized representative of DTC to the issuer or its agent
for registration of transfer, exchange or payment, and any certificate issued
is registered in the name of Cede & Co. or such other name as requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or
such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.]/1/
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a)
TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A U.S.
PERSON (AS DEFINED IN RULE 902 UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES
ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT)
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE AND WARRANT
AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE UNITS, NOTES AND WARRANTS (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE OR WARRANT AGENT) OR
(e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (IN THE CASE OF (b),
_______________________
/1/ This paragraph is to be included only if the Warrant is in global
form.
A-3
<PAGE>
(c), (d) OR (e), UPON AN OPINION OF COUNSEL IF THE ISSUER OR TRUSTEE,
REGISTRAR OR TRANSFER AGENT FOR THE SECURITIES SO REQUESTS), (2) TO
THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY
ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
The Warrants evidenced by this Warrant Certificate are part
of a duly authorized issue of Warrants expiring December 15, 2007
entitling the holder on exercise to receive shares of Common Stock,
par value $.001, of the Company (the "Common Stock"), and are issued
or to be issued pursuant to a Warrant Agreement dated as of December
18, 1997 (the "Warrant Agreement"), duly executed and delivered by the
Company to Chase Manhattan Bank and Trust Company, National
Association, as warrant agent (the "Warrant Agent"), which Warrant
Agreement is hereby incorporated by reference herein and made a part
of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities
thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants. A copy of the Warrant Agreement
may be obtained by the holder hereof upon written request to the
Company. Capitalized terms used herein without definition shall have
the meanings ascribed to them in the Warrant Agreement.
Warrants may be exercised at any time from 9:00 a.m., New
York City time, on or after the Separation Date and until 5:00 p.m.,
New York City time on the Expiration Date. A Warrant may be exercised
upon surrender to the Company at the Principal Office of the Warrant
Agent of the certificate or certificates evidencing the Warrant to be
exercised with the form of election to purchase on the reverse thereof
properly completed and signed, which signature shall be guaranteed by
a bank or trust company having an office or correspondent in the
United States or a broker or dealer which is a member of a registered
securities exchange or the National Association of Securities Dealers,
Inc., and upon payment to the Warrant Agent for the account of the
Company of the Exercise Price as adjusted as herein provided, for each
of the Warrant Shares in respect of which such Warrant is then
exercised. Payment of the aggregate Exercise Price shall be made in
cash or by certified or official bank check, payable to the order of
the Company. In the alternative, each Holder may exercise its right to
receive Warrant Shares (i) on a net basis, such that without the
exchange of any funds, the Holder receives that number of Warrant
Shares otherwise issuable upon exercise of its Warrants less that
number of Warrant Shares having a fair market value equal to the
aggregate Exercise Price that would otherwise have been paid by the
Holder for the Warrant Shares being issued, (ii) by tendering Notes
having an aggregate principal amount, plus accrued but unpaid
interest, if any, thereon, to the date of exercise equal to the
aggregate Exercise Price that would otherwise have been paid by the
Holder for the Warrant Shares being issued, or (iii) by a combination
of the procedures in clauses (i) and (ii). For purposes of the
foregoing sentence, "fair market value" of the Warrant Shares shall be
as determined by the Board of Directors of the Company in good faith.
The exercise of Warrants by Holders of beneficial interest in Global
Warrants shall be effected in accordance with this Agreement and the
procedures of the Depositary therefor. In the event that upon any
exercise of
A-4
<PAGE>
Warrants evidenced hereby the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall
be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price set forth on the face hereof and/or
the number of shares of Common Stock issuable upon the exercise of
each Warrant shall, subject to certain conditions, be adjusted. No
fractions of a share of Common Stock will be issued upon the exercise
of any Warrant, but the Company will pay the cash value thereof
determined as provided in the Warrant Agreement.
The Warrant Agreement provides that the Company shall be
bound by certain registration obligations with respect to the Common
Stock issuable upon exercise of the Warrants as set forth in the
Warrant Registration Rights Agreement (as defined in the Warrant
Agreement).
Warrant Certificates, when surrendered at the Principal
Office of the Warrant Agent by the registered holder thereof in person
or by legal representative or attorney duly authorized in writing, may
be exchanged, in the manner and subject to the limitations provided in
the Warrant Agreement, but without payment of any service charge, for
another Warrant Certificate or Warrant Certificate's of like tenor
evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this
Warrant Certificate at the office of the Warrant Agent a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in
the aggregate a like number of Warrants shall be issued to the
transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided in the Warrant Agreement, without charge except
for any tax or other governmental charge imposed in connection
therewith.
The Company and the Warrant Agent may deem and treat the
registered holder(s) thereof as the absolute owner(s) of this Warrant
Certificate (notwithstanding any notation of ownership or other
writing hereon made by anyone), for the purpose of any exercise
hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary. Neither the Warrants nor this
Warrant Certificate entitles any holder hereof to any rights of a
stockholder of the Company.
A-5
<PAGE>
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to receive
__________________ shares of Common Stock and herewith makes payment
therefor. The undersigned requests that a certificate for such shares
be registered in the name of ______________________________, whose
address is ___________________________ and that such shares be
delivered to_________________________________, whose address is
______________________________. If said number of shares is less than
all of the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the
remaining balance of such shares be registered in the name of
______________________________________________, whose address is
_________________________, and that such Warrant Certificate be
delivered to______________________________, whose address is_________.
Signature
Date:
Signature Guaranteed
A-6
<PAGE>
EXHIBIT 5.1
January 28, 1998
Concentric Network Corporation
10590 North Tantau Avenue
Cupertino, California 95014
RE: REGISTRATION STATEMENT ON FORM S-4 FOR CONCENTRIC NETWORK CORPORATION
Ladies and Gentlemen:
We have acted as corporate counsel to Concentric Network Corporation, a
Delaware corporation (the "Company"), in connection with the filing by the
Company with the Securities and Exchange Commission of a registration statement
(the "Registration Statement") on Form S-4 under the Securities Act of 1933, as
amended (the "Securities Act"). The Registration Statement relates to the
proposed issuance of up to $150,000,000 aggregate principal amount of Company's
new 12 3/4% Senior Notes due 2007 (the "Exchange Notes") in exchange for up
to an aggregate principal amount of $150,000,000 of the Company's outstanding
12 3/4% Senior Notes due 2007 (the "Existing Notes").
As counsel to the Company, we have examined and relied upon originals or
copies, certified or otherwise identified to our satisfaction, of such
documents, certificates, corporate records and other instruments as we have
deemed necessary or advisable for the purpose of this opinion. In our
examination, we have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures thereon, the legal capacity of
natural persons executing such documents and the conformity to original
documents of all documents submitted to us as certified or photostatic copies.
Based upon the foregoing, and subject to the assumptions and limitations
set forth herein, we are of the opinion that, when the Exchange Notes are duly
executed under the Company's corporate seal, attested, issued and delivered by
duly authorized officers of the Company and authenticated by the Trustee, all in
accordance with such Company action and the terms of the Indenture, against
surrender and cancellation of a like principal amount of Existing Notes, the
Exchange Notes will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except to the
extent that enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance and other laws
relating to or affecting creditors' rights generally and (ii) general principles
of equity, whether such enforcement is considered in a proceeding in equity or
at law.
<PAGE>
Concentric Network Corporation
January 28, 1998
Page 2
To the extent relevant to the opinions set forth above, we have assumed
that the Trustee is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization; that the Trustee is duly qualified
to engage in the activities contemplated by the Indenture and is qualified and
eligible under the terms of the Indenture to act as trustee thereunder; that the
Indenture was duly authorized, executed and delivered by the Trustee that the
Indenture is a valid and binding obligation of the Trustee; that the Trustee is
in compliance, generally with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
We express no opinion as to the enforceability of provisions of the
Indenture or the Notes which provide that the assertion or employment of any
right or remedy shall not prevent the concurrent assertion or employment of any
other right or remedy, or that every right and remedy shall be cumulative and in
addition to every other right and remedy, or that any delay or omission or
exercise any right or remedy, or that any delay or omission to exercise any
right or remedy shall not impair any other right or remedy or constitute a
waiver thereof.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Registration Statement and any amendments thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati, P.C.
<PAGE>
Exhibit 10.43
REGISTRATION RIGHTS AGREEMENT
$150,000,000
12 3/4% Senior Notes due 2007
Dated as of December 18, 1997
by and among
CONCENTRIC NETWORK CORPORATION,
UBS SECURITIES LLC,
BEAR, STEARNS & CO. INC.
and
WHEAT, FIRST SECURITIES, INC.
<PAGE>
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of December 18, 1997 by and among CONCENTRIC NETWORK
CORPORATION, a Delaware corporation (the "Company"), and UBS SECURITIES LLC,
BEAR, STEARNS & CO. INC. and WHEAT, FIRST SECURITIES, INC. (each an "Initial
Purchaser" and together, the "Initial Purchasers"), each of whom have agreed to
purchase the Company's 12 3/4% Senior Notes due 2007 (the "Notes") pursuant to
the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
December 15, 1997 (the "Purchase Agreement"), by and among the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 8 of the Purchase
Agreement.
The parties hereby agree as follows:
Section 1. Definitions.
-----------
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"Act": The Securities Act of 1933, as amended.
"Broker-Dealer": Any broker or dealer registered under the Exchange
Act.
"Broker-Dealer Transfer Restricted Securities": Exchange Notes that
are acquired by a Broker-Dealer in the Exchange Offer in exchange for Notes that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Notes acquired directly from
the Company or any of its affiliates).
"Business Day": Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
"Commission": The Securities and Exchange Commission.
"Consummated": An Exchange Offer shall be deemed Consummated for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Notes tendered by Holders
thereof pursuant to the Exchange Offer.
1.
<PAGE>
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Exchange Notes": The Company's 12 3/4% Senior Notes due 2007 to be
issued pursuant to the Indenture.
"Exchange Offer": The registration by the Company under the Act of
the Exchange Notes pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Transfer Restricted Securities for Exchange Notes in an aggregate principal
amount equal to the aggregate principal amount of the Transfer Restricted
Securities tendered in such exchange offer by such Holders.
"Exchange Offer Registration Statement": The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
"Exempt Resales": The transactions in which the Initial Purchasers
propose to sell the Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, or pursuant to offers and sales that
occur outside the United States to persons other than U.S. persons within the
meaning of Regulation S under the Act.
"Holders": As defined in Section 2 hereof.
"Indenture": The Indenture, dated the Issue Date, between the Company
and Chase Manhattan Bank and Trust Co., N.A. as trustee (the Trustee), pursuant
to which the Senior Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
"Interest Payment Date": As defined in the Indenture and the Senior
Notes.
"Issue Date": The date hereof.
"NASD": National Association of Securities Dealers, Inc.
"Offering Memorandum": The final offering memorandum, dated December
15, 1997, relating to the Company and the Notes.
"Person": An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
"Preliminary Offering Memorandum": The preliminary offering
memorandum, dated November 24, 1997, relating to the Company and the Notes.
2.
<PAGE>
"Private Exchange": As defined in Section 3(e) hereof.
"Private Exchange Notes": As defined in Section 3(e) hereof.
"Prospectus": The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
"Registration Default": As defined in Section 5 hereof.
"Registration Statement": Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
"Restricted Broker-Dealer": Any Broker-Dealer which holds Broker-
Dealer Transfer Restricted Securities.
"Senior Notes": The Notes, the Exchange Notes and the Private
Exchange Notes.
"Shelf Registration Statement": As defined in Section 4 hereof.
"TIA": The Trust Indenture Act of 1939 as in effect on the date of
the Indenture.
"Transfer Restricted Securities": Each Note until the earliest to
occur of (i) the date on which such Note is exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Note is effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Note is distributed to the public pursuant to Rule 144 under the
Act.
"Underwritten Registration or Underwritten Offering": A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
Section 2. Holders.
-------
3.
<PAGE>
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
4.
<PAGE>
Section 3. Registered Exchange Offer.
-------------------------
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Issue Date, but in no event later than 45 days
after the Issue Date, the Exchange Offer Registration Statement, (ii) use its
best efforts to cause such Exchange Offer Registration Statement to become
effective at the earliest possible time, but in no event later than 105 days
after the Issue Date, (iii) in connection with the foregoing, (A) file all pre-
effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Exchange Offer Registration Statement to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the registration and
qualification of the Exchange Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Exchange Notes to be offered in
exchange for the Notes that are Transfer Restricted Securities and to permit
sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-
Dealers as contemplated by Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration Statement
to be effective continuously, and shall keep the Exchange Offer open, for a
period of not less than the minimum period required under applicable federal and
state securities laws to Consummate the Exchange Offer; provided, however, that
in no event shall such period be less than 20 Business Days. The Company shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Senior Notes shall be included in
the Exchange Offer Registration Statement. The Company shall use its best
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Notes that are Transfer
Restricted Securities and that were acquired for the account of such Broker-
Dealer as a result of market-making activities or other trading activities, may
exchange such Notes (other than Transfer Restricted Securities acquired directly
from the Company) pursuant to the Exchange Offer; however, such Broker-Dealer
may be deemed to be an "underwriter" within the meaning of the Act and must,
therefore, deliver a prospectus meeting the requirements of the Act in
connection with its initial sale of each Exchange Note received by such Broker-
Dealer in the Exchange Offer, which prospectus delivery requirement may be
satisfied by the delivery by such Broker-Dealer of the Prospectus contained in
the Exchange Offer Registration Statement. Such "Plan of Distribution" section
shall also contain all other information with respect to such sales of Broker-
Dealer Transfer Restricted Securities by Restricted Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Notes held by any such Broker-Dealer except to the extent required by
the Commission.
5.
<PAGE>
(d) The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period expiring on the earlier of (i) the date that all Holders of
Transfer Restricted Securities have sold such securities and (ii) 180 days from
the date on which the Exchange Offer Registration Statement is declared
effective.
(e) If, upon consummation of the Exchange Offer, any Initial
Purchaser holds Notes acquired by it as part of its initial distribution, the
Company, simultaneously with the delivery of the Exchange Notes pursuant to the
Exchange Offer, shall issue and deliver to such Initial Purchaser upon the
written request of such Initial Purchaser, in exchange (the "Private Exchange")
for the Notes held by such Initial Purchaser, a like principal amount of debt
securities of the Company issued under the Indenture and identical in all
material respects (including the existence of restrictions on transfer under the
Securities Act and the securities laws of the several states of the United
States but excluding provisions relating to the matters described in Section 5
hereof) to the Notes (the "Private Exchange Notes").
Section 4. Shelf Registration.
------------------
(a) Shelf Registration. If (i) the Company is not required to file
------------------
the Exchange Offer Registration Statement with respect to the Senior Notes or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy (after the procedures set forth
in Section 6(a)(i) below have been complied with) or (ii) any Holder of Transfer
Restricted Securities notifies the Company within 20 Business Days following the
Consummation of the Exchange Offer that (A) such Holder is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Senior
Notes acquired directly from the Company or an affiliate of the Company, then
the Company shall:
(x) cause to be filed on or prior to (1) in the case of a
Registration Statement filed pursuant to clause (i) above, 45 days after
the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement and in any event, within 150 days
after the Issue Date and (2) in the case of a Registration Statement filed
pursuant to clause (ii) above, 45 days after the date on which the Company
receives the notice specified in clause (ii) above, a shelf registration
statement pursuant to Rule 415 under the Act, (which may be an amendment to
the Exchange Offer Registration Statement (in either event, the "Shelf
Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant
to Section 4(b) hereof, and
6.
<PAGE>
(y) use its best efforts to cause such Shelf Registration
Statement to become effective on or prior to (1) in the case of a
Registration Statement filed pursuant to clause (i) above, 105 days after
the date on which the Company becomes obligated to file such Shelf
Registration Statement (and in any event, within 255 days after the Issue
Date), and (2) in the case of a Registration Statement filed pursuant to
clause (ii) above, 105 days after the date on which the Company receives
the notice specified in clause (ii) above. If, after the Company has filed
an Exchange Offer Registration Statement which satisfies the requirements
of Section 3(a) above, the Company is required to file and make effective a
Shelf Registration Statement solely because the Exchange Offer is not
permitted under applicable federal law, then the filing of the Exchange
Offer Registration Statement shall be deemed to satisfy the requirements of
clause (x) above. Such an event shall have no effect on the requirements
of this clause (y), or on the Effectiveness Target Date as defined in
Section 5 below.
The Company shall use its best efforts to keep the Shelf Registration Statement
referred to in this Section 4(a) continuously effective, supplemented and
amended as required by the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period expiring on the earlier of (i) the date that all Holders
of Transfer Restricted Securities have sold such securities and (ii) 365 days
from the date on which the Shelf Registration Statement is declared effective.
(b) Provision by Holders of Certain Information in Connection with
--------------------------------------------------------------
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
- --------------------------------
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 Business Days after receipt of a request
therefor, such information specified in item 507 of Regulation S-K under the Act
for use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to Additional Interest pursuant to Section 5 hereof
unless and until such Holder shall have provided all such information required
to be provided by such Holder for inclusion therein. Each Holder as to which any
Shelf Registration Statement is being effected agrees to furnish promptly to the
Company, for so long as the Registration Statement is effective, all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
Section 5. Additional Interest.
-------------------
If (i) the Company fails to file any of the Registration Statements
required by this Agreement on or before the date specified for such filing in
this Agreement, (ii) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Target Effectiveness Date"), (iii) the Company fails to
Consummate the Exchange Offer within 30 Business Days of the Target
Effectiveness Date with respect to the Exchange Offer Registration Statement or
(iv) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or usable
in
7.
<PAGE>
connection with resales of Transfer Restricted Securities during the periods
specified in this Agreement without being succeeded immediately by a post
effective amendment to such Registration Statement that cures such failure and
that is itself declared effective within a five Business Day period after filing
such post effective amendment (each such event referred to in clauses (i)
through (iv) above, a "Registration Default"), then commencing on the day
following the date on which such Registration Default occurs, the interest rate
borne by the Senior Notes shall be increased by one-half of one percent per
annum for the 90-day period following such Registration Default, which rate will
increase by one-half of one percent per annum with respect to each subsequent
90-day period up to a maximum of one and one half percent (1.50%) per annum
until cured ("Additional Interest"). Following the cure of all Registration
Defaults, the accrual of Additional Interest will cease and the interest rate
will revert to the original rate.
All accrued Additional Interest shall be paid to Cede & Co., as
nominee of the Depository Trust Company (the "Global Security Holder") by wire
transfer of immediately available funds or by federal funds check and to Holders
of Definitive Securities by mailing checks to their registered addresses by the
Company on each Interest Payment Date. All obligations of the Company set forth
in the preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such obligations with respect to
such security shall have been satisfied in full.
Section 6. Registration Procedures.
-----------------------
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use its best efforts to effect such exchange and to
permit the sale of Broker-Dealer Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been published a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, such that in the reasonable opinion of counsel to the
Company there is a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission allowing
the Company to Consummate an Exchange Offer for such Notes. The Company
hereby agrees to pursue the issuance of such a decision to the Commission
staff level. In connection with the foregoing, the Company hereby agrees to
take such other actions as are requested by the Commission or otherwise
required in connection with the issuance of such decision, including
without limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared by
counsel to the Company setting forth the legal bases, if any, upon which
such counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursuing a resolution by the Commission staff of such
submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon
8.
<PAGE>
the request of the Company, prior to the Consummation of the Exchange
Offer, a written representation to the Company (which may be contained in
the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes to be issued in the Exchange Offer and
(C) it is acquiring the Exchange Notes in its ordinary course of business.
Each Holder hereby acknowledges and agrees that any Broker-Dealer and any
such Holder using the Exchange Offer to participate in a distribution of
the securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
---------------------------
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
----------------------------------
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
if the resales are of Exchange Notes obtained by such Holder in exchange
for Notes acquired by such Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
-------------
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
-------------------- ----------------------------
(available June 5, 1991) and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation that the
Company has not entered into any arrangement or understanding with any
Person to distribute the Exchange Notes to be received in the Exchange
Offer and that, to the best of the Company's information and belief, each
Holder participating in the Exchange Offer is acquiring the Exchange Notes
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Exchange Notes
received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
9.
<PAGE>
(c) General Provisions. In connection with any Registration Statement
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and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus, to the extent
that the same are required to be available to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Securities during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Registration Statement, (1) in the case of clause (A), correcting any such
misstatement or omission, and (2) in the case of either clause (A) or (B),
use its best efforts to cause such amendment to be declared effective and
such Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary
to keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration
Statement have been sold; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the Act, and to comply fully with Rules 424 and 430A, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise the underwriters, if any, and selling Holders
promptly and, if requested by such Persons, confirm such advice in writing,
(A) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any Registration Statement
or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, (D) of the existence of
any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes
in the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any
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<PAGE>
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws, the
Company shall use its best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(iv) make available to each selling Holder named in any
Registration Statement or Prospectus and each of the underwriters in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), substantially in the form
proposed to be filed, which documents will be subject to the review and
comment of such Holders and underwriters in connection with such sale, if
any, for a period of at least five Business Days, and the Company will not
file any such Registration Statement or Prospectus or any amendment or
supplement to any such Registration Statement or Prospectus (including all
such documents incorporated by reference) to which the selling Holders of
the Transfer Restricted Securities covered by such Registration Statement
or the underwriters in connection with such sale, if any, shall reasonably
object within five Business Days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act;
(v) promptly upon the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, make
available copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition pursuant
to such Registration Statement and any attorney or accountant retained by
such selling Holders or any of such underwriters, all financial and other
records, pertinent corporate documents and properties of the Company as
reasonably requested by such Holders and cause the Company's officers,
directors and employees to supply all information reasonably requested by
any such Holder, underwriter, attorney or accountant in connection with
such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness; provided
that any person to whom information is provided under this clause (vi)
agrees in writing to maintain the confidentiality of such information to
the extent such information is not in the public domain;
11.
<PAGE>
(vii) if requested by any selling Holders or the underwriters in
connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriters, the purchase price being paid therefor and any
other terms of the offering of the Transfer Restricted Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies, if
so requested by the Holders of a majority in aggregate principal amount of
Senior Notes covered thereby or the underwriters, if any;
(ix) furnish to each selling Holder and each of the
underwriters in connection with such sale, if any, without charge, at least
one copy of the Registration Statement, as first filed with the Commission,
and of each amendment thereto, and make available all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(x) deliver to each selling Holder and each of the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company hereby consents
to the use of the Prospectus and any amendment or supplement thereto by
each of the selling Holders and each of the underwriters, if any, in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(xi) enter into such agreements (including, unless not required
pursuant to Section 10 hereof, an underwriting agreement) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any Registration Statement
contemplated by this Agreement as may be reasonably requested by any Holder
of Transfer Restricted Securities or underwriter in connection with any
sale or resale pursuant to any Registration Statement contemplated by this
Agreement, and in such connection, whether or not an underwriting agreement
is entered into and whether or not the registration is an Underwritten
Registration, the Company shall:
(A) furnish to each selling Holder and each
underwriter, if any, upon the effectiveness of the Shelf
Registration Statement and to each Restricted Broker-
Dealer upon consummation of the Exchange Offer:
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(1) a certificate, dated the date of effectiveness of the Shelf
Registration Statement or the date of Consummation of the Exchange
Offer, as the case may be, signed by (x) the President or any Vice
President and (y) a principal financial or accounting officer of the
Company, confirming with respect to the Prospectus or any purchase or
underwriting agreement and the Transfer Restricted Securities, as of
the date thereof, the matters set forth in paragraphs (i), (ii) and
(iii) of Section 8(e) of the Purchase Agreement;
(2) an opinion, dated the date of effectiveness of the Shelf
Registration Statement or the date of Consummation of the Exchange
Offer, as the case may be, of counsel for the Company, covering (i)
due authorization and enforceability of the Notes and the Exchange
Notes, (ii) a statement to the effect that such counsel has
participated in conferences with officers and other representatives of
the Company and representatives of the independent public accountants
for the Company and have considered the matters required to be stated
therein and the statements contained therein, although such counsel
has not independently verified the accuracy, completeness or fairness
of such statements; and that such counsel advises that, on the basis
of the foregoing (relying as to materiality to a large extent upon
facts provided to such counsel by officers and other representatives
of the Company and without independent check or verification), no
facts came to such counsel's attention that caused such counsel to
believe that the applicable Registration Statement, at the time such
Registration Statement or any post-effective amendment thereto became
effective, and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the opinion
dated the date of Consummation of the Exchange Offer, as of the date
of Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading and (iii) such other matters of the type
customarily covered in opinions of counsel for an issuer in connection
with similar securities offerings, as may reasonably be requested by
such parties. Without limiting the foregoing, such counsel may state
further that such counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or fairness of the
financial statements, notes and schedules and other financial,
statistical and accounting data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) if the registration is a registration in which securities of the
Company are sold to an underwriter for reoffering to the public,
obtain a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement, addressed to the
Board of Directors of the Company or any underwriter from the
Company's independent accountants, in the customary form and covering
matters of the type
13.
<PAGE>
customarily covered in comfort letters to boards of directors in
underwritten offerings;
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, in connection with any
sale or resale pursuant to any Shelf Registration Statement
the indemnification provisions and procedures of Section 8
hereof with respect to all parties to be indemnified
pursuant to said Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company pursuant to this
clause (xi), if any.
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any time
the representations and warranties of the Company contemplated in (A)(1) above
cease to be true and correct, the Company shall so advise the underwriters, if
any, and selling Holders promptly and if requested by such Persons, shall
confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriters, if any,
and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities or
Blue Sky laws of such Jurisdictions as the selling Holders or underwriters,
if any, may request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of Notes covered by
any Shelf Registration Statement contemplated by this Agreement, Exchange
Notes having an aggregate principal amount equal to the aggregate principal
amount of Notes surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such Exchange Notes to be registered
in the name of such Holder or in the name of the purchasers of such
Exchange Notes; in return, the Notes held by such Holder shall be
surrendered to the Company for cancellation;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold and not
bearing any
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<PAGE>
restrictive legends; and to register such Transfer Restricted Securities in
such denominations and such names as the Holders or the underwriters, if
any, may request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Transfer Restricted Securities,
subject to the proviso contained in clause (xii) above;
(xvi) if any fact or event contemplated by Section 6(c)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with the Depository
Trust Company;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or authorities
as may be necessary to enable the Holders selling Transfer Restricted
Securities to consummate the disposition of such Transfer Restricted
Securities;
(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xx) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Senior Notes to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance with
the terms of the TIA; and execute and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents
15.
<PAGE>
required to be filed with the Commission to enable such Indenture
to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by
the Holders of a majority in aggregate principal amount of Notes or the
managing underwriters, if any; and
(xxii) provide promptly to each Holder upon written request each
document filed with the Commission pursuant to the requirements of Section
13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Security that, upon receipt of any notice from the Company
of the existence of any fact of the kind described in Section 6(c)(iii)(D)
hereof, such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus. If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the time period regarding the effectiveness of such Registration Statement set
forth in Section 3 or 4 hereof, as applicable, shall be extended by the number
of days during the period from and including the date of the giving of such
notice pursuant to Section 6(c)(iii)(D) hereof to and including the date when
each selling Holder covered by such Registration Statement shall have received
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof or shall have received the Advice.
Section 7. Registration Expenses.
---------------------
All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made with the NASD
(including, if applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel, as may be required by the rules and regulations of
the NASD)); (ii) all fees and expenses of compliance with federal securities and
state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Senior Notes and printing of Prospectuses),
messenger and delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company and one legal counsel for the Holders of Transfer
Restricted Securities to be selected by a majority of such holders; (v) all
application and filing fees in connection with listing the Senior Notes on a
national exchange or automated quotation system if required hereunder; and (vi)
all fees and disbursements of independent certified public accountants
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of the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
Section 8. Indemnification.
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(a) The Company agrees to indemnify and hold harmless (i) each
Holder, (ii) each person, if any, who controls a Holder within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person to the fullest extent lawful, from and
against any and all losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
investigation or litigation, commenced or threatened, or any claim whatsoever,
and any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company
will not be liable in any such case to the extent, but only to the extent, that
(i) any such loss, liability, claim, damage or expense arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder expressly
for use therein and (ii) the foregoing indemnity with respect to any untrue
statement contained in or omitted from a Registration Statement or the
Prospectus shall not inure to older (or any person controlling such Holder),
from whom the person asserting any such loss, liability, claim, damage or
expense purchased any of the Senior Notes which are the subject thereof if it is
finally judicially determined that such loss, liability, claim, damage or
expense resulted solely from the fact that the Holder sold Senior Notes 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 Registration Statement or the
Prospectus, as amended or supplemented, and (x) the Company shall have
previously and timely furnished sufficient copies of the Registration Statement
or Prospectus, as so amended or supplemented, to such Holder in accordance with
this Agreement and (y) the Registration Statement or Prospectus, as so amended
or supplemented, would have corrected such untrue statement or omission of a
material fact. This indemnity agreement will be in addition to any liability
which the Company may otherwise have, including, under this Agreement.
(b) Each Holder, severally and not jointly, agrees to indemnify and
hold harmless the Company and each person, if any, who controls the Company
within the meaning of Section 15
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of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever (including but not limited
to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any investigation or litigation,
commenced or threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Holder expressly for use therein. This indemnity
will be in addition to any liability which a Holder may otherwise have,
including under this Agreement. In no event, however, shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the
proceeds received by such Holder upon its sale of the Senior Notes giving rise
to such indemnification obligation.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such action
within a reasonable time after notice of commencement of the action, or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or of which events such fees and
expenses of counsel shall be borne by the indemnifying parties; provided,
however, that the indemnifying party under subsection (a) or (b) above, shall
only be liable for the legal expenses of one counsel (in addition to any local
counsel) for all indemnified parties in each jurisdiction in which any claim or
action is brought. Anything in this subsection to the contrary notwithstanding,
an
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<PAGE>
indemnifying party shall not be liable for any settlement of any claim or action
effected without its prior written consent, provided, however, that such consent
was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in which
the indemnification provided for in this Section 8 is for any reason held to be
unavailable from the Company or is insufficient to hold harmless a party
indemnified thereunder, the Company and each Holder shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company, any contribution received by the Company from persons,
other than the Holders, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act) to which the Company and any Holder may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Company from the offering of Senior Notes and any such Holder
from its sale of Senior Notes or, if such allocation is not permitted by
applicable law or indemnification is not available as a result of the
indemnifying party not having received notice as provided in this Section 8, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the Holders in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and any
Holder shall be deemed to be in the same proportion as (x) the total proceeds
from the offering of the Senior Notes (net of discounts but before deducting
expenses) received by the Company and (y) the total proceeds received by such
Holder upon its sale of Senior Notes which give rise to the indemnification
obligation, respectively. The relative fault of the Company and of the Holders
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Holders and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each Holder agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of this Section
8, (i) no Holder shall be required to contribute, in the aggregate, any amount
in excess of the amount by which the total received by such Holder with respect
to the sale of its Senior Notes exceeds the sum of (A) the amount paid by such
Holder for such Senior Notes plus (B) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, (A) each person,
if any, who controls a Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and (B) the respective officers, directors,
partners, employees, representatives and agents of a Holder or any controlling
person shall have the same rights to contribution as such Holder, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as the Company, subject in and (ii) of this Section 8(d). Any party
entitled to
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contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 8,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its prior
written consent; provided, however, that such written consent was not
unreasonably withheld.
Section 9. Rule 144A.
---------
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available, upon
request of any Holder of Transfer Restricted Securities, to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
Section 10. Underwritten Registrations.
--------------------------
In the event a Shelf Registration Statement is required to be filed by
the Company, the Holders of Transfer Restricted Securities included or required
to be included in such Shelf Registration Statement may elect to sell their
Transfer Restricted Securities pursuant to an Underwritten Registration;
provided, however, that in no event shall such Underwritten Registration be
commenced if a period of less than 180 days has elapsed since the consummation
of the most recent Underwritten Registration hereunder. No Holder may
participate in any Underwritten Registration hereunder unless such Holder (a)
agrees to sell such Holder's Transfer Restricted Securities on the basis
provided in customary underwriting arrangements entered into in connection
therewith and (b) completes and executes all reasonable questionnaires, powers
of attorney, indemnities, underwriting agreements, lock-up letters and other
documents required under the terms of such underwriting arrangements.
Section 11. Selection of Underwriters.
-------------------------
In an Underwritten Offering, the investment banker or investment
bankers and manager or managers that will administer the offering will be
selected by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities included in such offering; provided, that such
investment bankers and managers must be reasonably satisfactory to the Company.
Such investment bankers and managers are referred to herein as the
"underwriters."
Section 12. Miscellaneous.
-------------
(a) Remedies. Each Holder, in addition to being entitled to exercise
--------
all rights provided herein, in the Indenture, the Purchase Agreement or granted
by law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this
20.
<PAGE>
Agreement. The Company agrees that monetary damages (including the liquidated
damages contemplated hereby) would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
--------------------------
date of this Agreement enter into any agreement with respect to its securities
that conflicts with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof, except where a waiver with respect
thereto has been obtained prior to the date of effectiveness of any registration
statement required under this Agreement.
(c) Adjustments Affecting the Senior Notes. The Company will not take
--------------------------------------
any action, or permit any change to occur, with respect to the Senior Notes that
would materially adversely affect the ability of the Holders to Consummate any
Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities, and the consent of the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities shall be
binding on every Holder of Transfer Restricted Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being tendered
pursuant to the Exchange Offer and that does not affect directly or indirectly
the rights of other Holders whose securities are not being tendered pursuant to
such Exchange Offer may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities that are subject to such
Exchange Offer.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
Concentric Network Corporation
10590 N. Tantau Avenue
Cupertino, California 95104
Telecopier No.: (408) 342-2810
Attention: Michael Anthofer
With a copy to:
21.
<PAGE>
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Telecopier No.: (650) 493-6811
Attention: David J. Segre
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt acknowledged, if telecopied; and on the next
business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) 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
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other
----------------
Operative Documents (as defined in the Purchase Agreement) 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. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted
22.
<PAGE>
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
23.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CONCENTRIC NETWORK CORPORATION
By: /s/ Henry R. Nothhaft
__________________________________________
Name: Henry R. Nothhaft
Title: President and Chief Executive Officer
The foregoing Registration Rights
Agreement is hereby confirmed and
accepted as of date first above written.
UBS SECURITIES LLC
BEAR, STEARNS & CO. INC.
WHEAT, FIRST SECURITIES, INC.
By: UBS Securities LLC
By: /s/ UBS Securities LLC
________________________
Name:
Title:
By: /s/ UBS Securities LLC
________________________
Name:
Title:
<PAGE>
Exhibit 10.44
$150,000,000
CONCENTRIC NETWORK CORPORATION
150,000 UNITS CONSISTING OF 12 3/4% SENIOR NOTES DUE 2007
AND WARRANTS TO PURCHASE 951,108 SHARES OF COMMON STOCK
PURCHASE AGREEMENT
December 15, 1997
UBS Securities LLC
Bear, Stearns & Co. Inc.
Wheat, First Securities, Inc.
as Initial Purchasers
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171-0026
Ladies and Gentlemen:
Concentric Network Corporation, a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to UBS Securities LLC ("UBS"), Bear, Stearns & Co. Inc. and
Wheat, First Securities, Inc. (collectively, the "Initial Purchasers") 150,000
units (collectively, the "Units"), each consisting of $1,000 principal amount
of 12 3/4% Senior Notes due 2007 (the "Initial Notes") of the Company and
150,000 warrants (each a "Warrant"), each Warrant initially entitling the holder
thereof to purchase 951,108 shares of common stock, par value $0.001 per share
(the "Common Stock" and such shares of Common Stock underlying the Warrants are
herein referred to as the "Warrant Shares"), of the Company. The Initial Notes
are to be issued pursuant to an Indenture dated as of December ,
1.
<PAGE>
1997 (the "Indenture") between the Company and Chase Manhattan Bank and Trust
Co., N.A., as indenture trustee (the "Trustee") and the Warrants are to be
issued pursuant to a Warrant Agreement dated as of December 15, 1997 (the
"Warrant Agreement") between the Company and Chase manhattan Bank and Trust Co.,
N.A., as warrant agent (the "Warrant Agent"). The Initial Notes and Warrants
will not trade separately until the earliest to occur of (i) December 15, 1998;
(ii) a Change of Control; (iii) the occurrence of an Event of Default; (iv) the
date on which a registration with respect to the Initial Notes or an Exchange
Offer for the Notes is declared effective, or (v) such earlier date as
determined by UBS (such earliest date, the "Separation Date"). The Units, the
Initial Notes and the Warrants are more fully described in the Offering
Memorandum referred to below. The Initial Notes and the 12 3/4% Senior Notes due
2007 (the "Exchange Notes") issuable in exchange therefor are collectively
referred to herein as the "Notes." The Units, the Notes and the Warrants are
collectively referred to herein as the "Securities." The offering of the
Securities by the Company is referred to herein as the "Offering." Capitalized
terms used but not otherwise defined herein shall have the meanings given to
such terms in the Indenture and the Registration Rights Agreement (as defined
below), as the case may be.
It is understood that (a) the Initial Purchasers will offer and resell
some or all of the Notes in the United States to "qualified institutional
buyers" in reliance on Rule 144A under the United States Securities Act of
1933, as amended (the "Securities Act"), and (b) UBS Limited ("Limited,"
together with the Initial Purchasers, the "Purchasers"), an affiliate of UBS,
may resell a portion of the Notes outside the United States to certain persons
in reliance on Regulation S under the Securities Act. Such persons specified in
clauses (a) and (b) being referred to as the "Eligible Purchasers."
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act, the
Units, the Notes, the Warrants and the Warrant Shares (and all securities issued
in exchange therefor or in substitution thereof) shall bear the following
legend:
"THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION
IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW.
"BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A")) OR (B) IT IS AN
2.
<PAGE>
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION, (2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY
PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS
SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG
AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE
UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) OUTSIDE THE UNITED STATES PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS IN AN OFFSHORE TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, (E) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (A)(2),
(A)(3) OR (A)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I)
PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. AS
USED HEREIN, THE TERMS "UNITED STATES," "OFFSHORE TRANSACTION," AND "U.S.
PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT.
Holders (including subsequent transferees) of the Initial Notes will
have the registration rights set forth in the registration rights agreement (the
"Registration Rights
3.
<PAGE>
Agreement"), to be dated the Delivery Date (the form of which is attached as
Exhibit A hereto) and holders (including subsequent transferees) of the Warrants
will have the registration rights set forth in the warrant registration rights
agreement (the "Warrant Registration Rights Agreement"), to be dated the
Delivery Date (the form of which is attached as Exhibit A hereto), for so long
as such Notes, Warrants or any Warrant Shares constitute "Transfer Restricted
Securities" (as defined in each such agreement, respectively). Pursuant to the
Registration Rights Agreement, the Company will agree to file with the
Securities and Exchange Commission (the "Commission"), under the circumstances
set forth therein, (i) a registration statement under the Securities Act (the
"Exchange Offer Registration Statement") relating to the Exchange Notes to be
offered in exchange for the Initial Notes (the "Exchange Offer") and (ii) under
certain conditions, a shelf registration statement pursuant to Rule 415 under
the Securities Act (the "Shelf Registration Statement") relating to the resale
by certain holders of the Initial Notes, and to use its best efforts to cause
such registration statements to be declared effective and to consummate the
Exchange Offer.
Pursuant to the Indenture, on the Delivery Date, the Company will
purchase and pledge to the Trustee, for the benefit of the holders of the Notes,
U.S. Government Securities (the "Pledged Securities") in such amount as will
be sufficient to provide for payment in full of the first six scheduled interest
payments due on the Notes. The Pledged Securities will be pledged by the
Company to the Trustee, for the benefit of the holders of Notes, pursuant to the
Escrow Agreement (the "Escrow Agreement"), to be dated the Delivery Date, and
will be held by the Trustee in an account (the "Escrow Account") established
with the Trustee pursuant to the Escrow Agreement.
This Agreement, the Securities, the Warrant Shares, the Indenture, the
Warrant Agreement, the Registration Rights Agreement, the Warrant Registration
Rights Agreement and the Escrow Agreement are sometimes referred to herein
collectively as the "Operative Documents."
1. Representations and Warranties. The Company represents, warrants and
------------------------------
agrees that:
(a) The Company has prepared a preliminary confidential offering
memorandum dated November 24, 1997, and a confidential offering memorandum dated
the date hereof relating to the Securities. Copies of such preliminary
confidential offering memorandum and such confidential offering memorandum have
been delivered by the Company to the Purchasers. As used in this Agreement,
"Offering Memorandum" means such preliminary confidential offering memorandum
and such confidential offering memorandum as amended or supplemented. The
preliminary confidential offering memorandum, as of its date, and the Offering
Memorandum does not, as of the date hereof, and will not, as of the date of any
amendment or supplement thereto or as of the Delivery Date (as defined in
Paragraph 4), contain any untrue statement of a material fact or omit to state
any material fact necessary in order to
4.
<PAGE>
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that the Company makes no representation or
warranty as to information contained in the Offering Memorandum in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Purchaser expressly for inclusion therein.
(b) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Offering Memorandum. The Company is
duly qualified to do business as a foreign corporation in good standing in each
jurisdiction where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company (a "Material Adverse
Effect"). The Company has no subsidiaries (as defined in the rules and
regulations of the Securities Act (the "Rules and Regulations")). The Company
does not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity, with the
exception of a less than 20% interest in Unified Gamers Online, LLC. Complete
and correct copies of the certificates of incorporation and of the bylaws of the
Company and all amendments thereto have been delivered to the Initial
Purchasers, and no changes will be made subsequent to the date hereof and prior
to the Delivery Date.
(c) The execution, delivery and performance by the Company of this
Agreement, the Operative Documents and the issuance of the Securities and the
consummation of the transactions contemplated herein and therein have been duly
authorized by all necessary corporate action and will not conflict with or
constitute a breach of, or a default or the loss of any material benefit under,
or the termination of, or result in the creation or imposition of any security
interest, mortgage, pledge, lien, charge or other encumbrance (each a "Lien")
upon any property or assets of the Company pursuant to any contract, indenture,
mortgage, loan agreement, note, lease, license or other instrument (each a
"Contract") to which the Company is a party or by which the Company may be
bound or to which any of the property or assets of the Company is subject, nor
will such action result in any violation of the provisions of the charter or by-
laws of the Company, or, subject to compliance by the Purchasers with Paragraph
11, any applicable law, administrative regulation or administrative or court
order or decree applicable to the Company. No consent, approval, authorization
or order of, or notice to or filing with, any United States Federal or state
governmental agency or body or any court of the United States or of any state
thereof is required in connection with the transactions contemplated by this
Agreement.
(d) This Agreement has been duly and validly executed and delivered by the
Company and constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that the enforceability
5.
<PAGE>
thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(e) The Company has duly authorized the Indenture and, when the Company
duly executed and delivered the Indenture (assuming the due authorization,
execution and delivery thereof by the Trustee), the Indenture will be the
legally valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as the enforceability thereof may be limited
(i) by the effect of bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights and remedies of creditors and (ii) by the
effect of general principles of equity, whether enforcement is considered in a
proceeding in equity or at law, and the discretion of the court before which any
proceeding therefor may be brought. The description of the Indenture in the
Offering Memorandum is accurate in all material respects. The Indenture is in a
form which would meet, in all material respects, the requirements for
qualification under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
(f) The Company has duly authorized the Registration Rights Agreement and,
when the Company has duly executed and delivered the Registration Rights
Agreement (assuming the due authorization, execution and delivery thereof by the
Initial Purchasers), the Registration Rights Agreement will be the legally valid
and binding obligation of the Company, enforceable against it in accordance with
its terms, except as the enforceability thereof may be limited (i) by the effect
of bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors, (ii) by the effect of general principles of
equity, whether enforcement is considered in a proceeding in equity or at law,
and the discretion of the court before which any proceeding therefor may be
brought and (iii) to the extent that rights to indemnification and contribution
thereunder may be limited by federal or state securities laws or public policy
relating thereto. The description of the Registration Rights Agreement in the
Offering Memorandum is accurate in all material respects.
(g) The Company has duly authorized the Warrant Agreement and, when the
Company has duly executed and delivered the Warrant Agreement (assuming the due
authorization, execution and delivery thereof by the Warrant Agent), the Warrant
Agreement will be the legally valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited (i) by the effect of bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and remedies
of creditors and (ii) by the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be
6.
<PAGE>
brought. The description of the Warrant Agreement in the Offering Memorandum is
accurate in all material respects.
(h) The Company has duly authorized the Warrants and, when issued and
countersigned in accordance with the terms of the Warrant Agreement and
delivered against payment therefor in accordance with the terms hereof and
thereof, the Warrants will be entitled to the benefits of the Warrant Agreement
and will be the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the enforceability
thereof may be limited (i) by the effect of bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting the rights and remedies of creditors and (ii) by
the effect of general principles of equity, whether enforcement is considered in
a proceeding in equity or at law, and the discretion of the court before which
any proceeding therefor may be brought. The description of the Warrants in the
Offering Memorandum is accurate in all material respects.
(i) The Warrants are exercisable into Warrant Shares in accordance with
the terms of the Warrant Agreement. The Company has duly authorized and reserved
for issuance the Warrant Shares and, when issued and paid for upon exercise of
the Warrants in accordance with the terms thereof, the Warrant Shares will be
validly issued, fully paid and nonassessable, free of any preemptive or similar
rights.
(j) The Company has duly authorized the Warrant Registration Rights
Agreement and, when the Company has duly executed and delivered the Warrant
Registration Rights Agreement (assuming the due authorization, execution and
delivery thereof by the Initial Purchasers), the Warrant Registration Rights
Agreement will be the legally valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited (i) by the effect of bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and remedies
of creditors, (ii) by the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought and
(iii) to the extent that rights to indemnification and contribution thereunder
may be limited by federal or state securities laws or public policy relating
thereto. The description of the Warrant Registration Rights Agreement in the
Offering Memorandum is accurate in all material respects.
(k) The Company has duly authorized the Escrow Agreement and, when the
Company has duly executed and delivered the Escrow Agreement (assuming the due
authorization, execution and delivery thereof by the Trustee), the Escrow
Agreement will be the legally valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited (i) by the effect of bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and remedies
of creditors and (ii) by the
7.
<PAGE>
effect of general principles of equity, whether enforcement Is considered in a
proceeding in equity or at law, and the discretion of the court before which any
proceeding therefor may be brought. The description of the Escrow Agreement in
the Offering Memorandum is accurate in all material respects. Upon the Company's
purchase of the Pledged Securities, the Company will be the sole beneficial
owner of the Pledged Securities and no lien will exist upon the Pledged
Securities and the Escrow Account (and no right or option to acquire the same
will exist in favor any other person or entity), except for the pledge and
security interest in favor of the Trustee, for the benefit of the holders of the
Senior Notes, to be created or provided in the Escrow Agreement, which pledge
and security interest constitutes a first priority perfected pledge and security
interest in and to all of the Collateral and the Escrow Account.
(l) The Company has duly and validly authorized the Units. The Initial
Notes have been duly authorized for issuance and sale as contemplated by this
Agreement and by the Offering Memorandum and, on the Delivery Date, will have
been duly executed by the Company and, when issued, authenticated and delivered
in the manner provided for in this Agreement and the Indenture against payment
of the consideration therefor specified in the Offering Memorandum, the Initial
Notes, which will be substantially in the form heretofore delivered to you, will
constitute legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, and will be entitled to the
benefits provided by the Indenture, except to the extent that the enforceability
thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law); and the Initial Notes will constitute senior
debt obligations of the Company. The description of the Initial Notes in the
Offering Memorandum is accurate in all material respects.
(m) Except as set forth in the Offering Memorandum, all outstanding shares
of capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of any
preemptive right, resale right, right of first refusal or similar right. The
authorized and outstanding capital stock of the Company conforms in all material
respects to the description thereof contained in the Offering Memorandum (and
such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company).
(n) The Company has duly authorized the issuance of the Exchange Notes
and, when issued and authenticated in accordance with the terms of the Indenture
and delivered to and paid for in accordance with the terms of the Exchange Offer
and the Indenture, the Exchange Notes will be entitled to the benefits of the
Indenture and will be legally valid and binding obligations of the Company,
enforceable against it in accordance with their terms, except to the extent that
the enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at
8.
<PAGE>
law); and the Exchange Notes will constitute senior debt obligations of the
Company. The description of the Exchange Notes in the Offering Memorandum is
accurate in all material respects.
(o) The execution, delivery and performance by the Company of this
Agreement, the other Operative Documents, the issuance and sale of the
Securities and the consummation of the transactions described in the Offering
Memorandum will not violate, conflict with or constitute a breach of any of the
terms or provisions of, or a default under (or an event that with notice or the
lapse of time, or both, would constitute a default) or result in the imposition
of a lien or encumbrance on any assets or properties of the Company or an
acceleration of indebtedness of the Company to, (A) the charter or bylaws of the
Company, (B) any bond, debenture, note, indenture, mortgage, deed of trust or
other agreement or instrument to which the Company is a party or by which it or
its assets or properties is bound, (C) any statute, rule or regulation that is
applicable to the Company or any of its assets or properties, or (D) any
judgment, order or decree of any court or governmental agency or authority that
has jurisdiction over the Company or its assets or properties, except in the
case of clauses (B), (C) and (D) insofar as any such violation, conflict,
breach, default, lien, encumbrance or acceleration that would not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect.
(p) Other than as described in the Offering Memorandum, no consent,
waiver, approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, any domestic or foreign court or
governmental agency, body or administrative agency or other person is required
for the execution, delivery and performance by each of the Company of this
Agreement, the other Operative Documents, the issuance and sale of the
Securities and the consummation of the transactions described in the Offering
Memorandum except (i) such as have been obtained and made (or, in the case of
the Registration Rights Agreement and the Warrant Registration Rights Agreement,
will be obtained and made) and (ii) such as to which the failure to be obtained
or made could not reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect.
(q) Except as otherwise set forth in the Offering Memorandum, there is (A)
no action, suit or proceeding before or by any court, arbitrator or governmental
agency, bodily or official, domestic or foreign, pending or, to the knowledge of
the Company, threatened to which the Company is or, will be, a party or to which
the business, assets or property of the Company will be, subject, (B) no
statute, rule, regulation or order that has been enacted, adopted of issued by
any governmental agency or governmental body, (C) no injunction, restraining
order or order of any nature that has been issued by a federal or state court or
foreign court of competent jurisdiction to which the Company, is or will be,
subject or to which the business, assets or property of the Company that would,
in the case of clauses (A), (B) and (C), reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect. There is
no legal or administrative proceedings, statutes, contracts or documents
concerning the Company of
9.
<PAGE>
a character that would be required to be described in a registration statement
on Form S-1 under the Securities Act that is not described in the Offering
Documents.
(r) To the Company's knowledge, Ernst & Young LLP (the "Accountants"),
who have examined the financial statements, together with the related schedules
and notes, of the Company included in the Offering Memorandum, are independent
public accountants within the meaning of the Securities Act and the Rules and
Regulations. The financial statements of the Company, together with the related
notes, included in the Offering Memorandum, fairly present the financial
position and the results of operations of the Company at the respective dates
and for the respective periods to which they apply. All financial statements,
together with the related notes, included in the Offering Memorandum have been
prepared in accordance with generally accepted accounting principles as in
effect in the United States consistently applied throughout the periods involved
except as may be otherwise stated in the Offering Memorandum. The selected and
summary financial and statistical data included in the Offering Memorandum
present fairly, in all material respects, the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein. There are no other financial statements or schedules of a character
that would be required to be included in a registration statement on Form S-1
under the Securities Act that are not included in the Offering Memorandum.
(s) Subsequent to the respective dates as of which information is given in
the Offering Memorandum, there has not been (i) any material adverse change, or
any development which, in the Company's reasonable judgment, is likely to cause
a material adverse change, in the business, properties or assets described or
referred to in the Offering Memorandum, or the results of operations, condition
(financial or otherwise), business or operations of the Company, (ii) any
transaction which is material to the Company, except transactions in the
ordinary course of business, (iii) any obligation, direct or contingent,
incurred by the Company, which is material to the Company, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company which is material to the
Company, or (v) any dividend or distribution of any kind declared, paid or made
on the capital stock of the Company. The Company does not have any material
contingent obligation which is not disclosed in the Offering Memorandum and
which is of a character that would be required to be included in a registration
statement on Form S-1 under the Securities Act.
(t) Except as set forth in the Offering Memorandum, (i) the Company has
good and marketable title to all material properties and assets described in the
Offering Memorandum as owned by it, free and clear of any Lien, (ii) the
agreements to which the Company is a party described in the Offering Memorandum
are valid agreements, enforceable against the Company in accordance with their
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles, and,
to the Company's knowledge, the other contracting party or parties thereto are
not in material breach or default under any of such
10.
<PAGE>
agreements and (iii) the Company has valid and enforceable leases for the
properties described in the Offering Memorandum as leased by it, and such leases
conform in all material respects to the description thereof, if any, set forth
in the Offering Memorandum.
(u) Except as set forth in the Offering Memorandum, the Company now holds
and at the Delivery Date will hold, all licenses, certificates, approvals and
permits from all state, United States, foreign and other regulatory authorities
that are material to the conduct of the business of the Company (as such
business is currently conducted), except for such licenses, certificates,
approvals and permits the failure of which to hold would not have a Material
Adverse Effect), all of which are valid and in full force and effect (and there
is no proceeding pending or, to the knowledge of the Company, threatened which
may cause any such license, certificate, approval or permit to be withdrawn,
cancelled, suspended or not renewed). The Company is not in violation of its
certificate of incorporation, as amended, or bylaws, as amended, or, except for
defaults or violations which would not have a Material Adverse Effect, in
default in the performance or observance of any obligation, agreement, covenant
or condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which it is a party or by which it
or any of its properties are bound, or in violation of any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency or
body.
(v) The Company has filed on a timely basis all necessary federal, state
and foreign income, franchise and other tax returns and has paid all taxes shown
thereon as due, and the Company has no knowledge of any tax deficiency which has
been or might be asserted against the Company which might have a Material
Adverse Effect. All material tax liabilities are adequately provided for within
the financial statements of the Company.
(w) The Company maintains insurance of the types and in the amounts
adequate for its business as presently conducted and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering clinical trial liability, product liability
and real and personal property owned or leased against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
(x) The Company is not involved in any labor dispute or disturbance and,
to the knowledge of the Company, no such dispute or disturbance is threatened.
(y) Except as described in the Offering Memorandum, the Company owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, tradenames, copyrights, manufacturing processes, formulae, trade
secrets, know-how, franchises, and other material intangible property and assets
(collectively, "Intellectual Property") necessary to the conduct of its
businesses as conducted and as proposed to be conducted as described in the
Offering
11.
<PAGE>
Memorandum. The Company has no knowledge that it lacks or will be unable to
obtain any rights or licenses to use any of the Intellectual Property necessary
to conduct the business now conducted or proposed to be conducted by it as
described in the Offering Memorandum, except as described in the Offering
Memorandum. The Offering Memorandum fairly and accurately describes the
Company's rights with respect to the Intellectual Property. Except as described
in the Offering Memorandum, the Company has not received any written notice of
infringement or of conflict with rights or claims of others with respect to any
Intellectual Property which could result in any material adverse effect on the
Company. The Company is not aware of any patents of others which are infringed
upon by potential products or processes referred to in the Offering Memorandum
in such a manner as to materially and adversely affect the Company, except as
described in the Offering Memorandum.
(z) The Company is not an "investment company," or a "promoter" or
"principal underwriter" for a registered investment company, as such terms are
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(aa) The Company has not incurred any liability for a fee, commission, or
other compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement other than the
discount contemplated hereby.
(bb) The Company is (i) in compliance with any and all applicable United
States, state and local environmental laws, rules, regulations, treaties,
statutes and codes promulgated by any and all governmental authorities relating
to the protection of human health and safety, the environment or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business as currently conducted,
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permit licenses or other approvals would not,
individually or in the aggregate, have a Material Adverse Effect. No action,
proceeding, revocation proceeding, writ, injunction or claim is pending or
threatened relating to the Environmental Laws or to the Company's activities
involving Hazardous Materials. "Hazardous Materials" means any material or
substance (iv) that is prohibited or regulated by any environmental law, rule,
regulation, order, treaty, statute or code promulgated by any governmental
authority, or any amendment or modification thereto, or (v) that has been
designated or regulated by any governmental authority as radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the environment.
(cc) To the Company's knowledge, the Company has not engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's properties or former properties, except where
such use, manufacture, transportation or storage is in compliance with
Environmental Laws, or to the extent such activity could be reasonably expected
not to have a material adverse effect on the Company. To the Company's
knowledge,
12.
<PAGE>
no Hazardous Materials have been treated or disposed of on any of the Company's
properties or on properties formerly owned or leased by the Company during the
time of such ownership or lease, except in compliance with Environmental Laws,
or those that could reasonably be expected not to have a material adverse effect
on the Company.
(dd) The Company has not at any time during the last five years (i) made
any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any foreign, United States or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States.
(ee) Neither the Company nor, to its knowledge, any of its officers,
directors or affiliates has taken, and at the Delivery Date, neither the Company
nor, to its knowledge, any of its officers, directors or affiliates will have
taken, directly or indirectly, any action which has constituted, or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of sale or resale of the Securities.
(ff) The Company has not distributed and will not distribute prior to the
later of (i) the Delivery Date and (ii) completion of the distribution of the
Securities, any offering material in connection with the offering and sale of
the Securities other than any Offering Memorandum and other materials, if any,
permitted by the Securities Act.
(gg) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(hh) There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Offering Memorandum.
(ii) The Company nor any of its affiliates or any person acting on its
behalf (other than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage in any directed selling efforts
within the meaning of Regulation S with respect to the Units.
13.
<PAGE>
(jj) The Units offered and sold in reliance on Regulation S have been and
will be offered and sold only in offshore transactions.
(kk) The sale of the Units pursuant to Regulation S is not part of a plan
or scheme to evade the registration provisions of the Securities Act.
(ll) The Company and its affiliates and all persons acting on its behalf
(other than the Initial Purchasers, as to whom the Company makes no
representation) have complied with and will comply with the offering
restrictions requirements of Regulation S in connection with the offering the
Units outside the United States and, in connection therewith, the Offering
Memorandum will contain the disclosure required by Rule 902(h) under the
Securities Act.
(mm) The Company is a "reporting issuer," as defined in Rule 902 under
the Securities Act.
(nn) Except as otherwise set forth in this Agreement, the Registration
Rights Agreement, the Warrant Registration Rights Agreement or the Offering
Memorandum, there are no holders of securities of the Company which by reason of
the execution of this Agreement or any other Operative Document and the
consummation of the transactions contemplated hereby or thereby, have the right
to request or demand that the Company register any of its securities under the
Securities Act.
(oo) When the Securities are issued and delivered pursuant to this
Agreement, none of the Securities will be of the same class (within the meaning
of Rule 144A under the Securities Act) as securities of the Company that are
listed on a national securities exchange registered under Section 6 of the
Exchange Act of 1934, as amended (the "Exchange Act") or that are quoted in a
United States automated inter-dealer quotation system.
(pp) No registration under the Securities Act of the Units, the Notes or
the Warrants is required for the sale of the Units to the Initial Purchasers as
contemplated hereby or for the Exempt Resales assuming (i) that the purchasers
who buy the Units in the Exempt Resales are either QIBs or Regulation S
Purchasers and (ii) the accuracy of the Initial Purchasers' representations
regarding the absence of general solicitation in connection with the sale of the
Units to the Initial Purchasers and the Exempt Resales contained herein. No form
of general solicitation or general advertising (within the meaning of Regulation
D under the Securities Act) was used by the Company, any of its affiliates or
any of their representatives in connection with the offer and sale of the Units
or in connection with Exempt Resales, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
No securities of the same class as the Securities have been issued and sold by
the Company within the six-month period immediately prior to the date hereof.
14.
<PAGE>
2. Purchase and Offering of the Units. On the basis of the
----------------------------------
representations and warranties contained in, and, upon the terms and subject to
conditions of, this Agreement, the Company agrees to issue and sell to the
Initial Purchasers the Units, and each Initial Purchaser agrees to purchase and
pay for the number of Units set forth opposite their respective name in Schedule
I hereto at a price equal to the issue price of ___% of the principal amount of
the Notes (the "Issue Price") plus accrued interest, if any, on the Notes from
December , 1997 to the Delivery Date. The sale of the Units to the Initial
Purchasers will be made without registration of the Units under the Securities
Act, in reliance on the exemption therefrom provided by Section 4(2) of the
Securities Act.
3. Commissions and Fees. The Company agrees to pay to the Purchasers a
--------------------
commission of ___% of the principal amount of the Notes in consideration of the
agreement by the Purchasers to purchase the Units. The Purchasers shall be
entitled to deduct such commissions from the purchase price of the Units.
4. Delivery Payment. Payment of the purchase price for the Units shall
----------------
be made by the Initial Purchasers to the Company or its order by wire transfer
of U.S. dollars in same-day funds by 11:00 A.M., New York City time, on
December , 1997 or at such later date and time as may be determined by
agreement between the Company and the Initial Purchasers. This date and time
are sometimes referred to as the "Delivery Date." Such payment shall be made
against delivery of one or more Units in definitive form, registered in the name
of Cede & Co., as nominee of The Depository Trust Company ("DTC"), having an
aggregate amount corresponding to the aggregate amount of the Units sold
(collectively, the "Global Unit"), each Global Unit consisting of $1,000
aggregate principal amount of Notes in definitive form, registered in the name
of Cede & Co., as nominee of DTC (the "Global Note"), and ____ Warrant in
definitive form to purchase ____ shares of Common Stock, registered in the name
of Cede & Co., as nominee of DTC (the "Global Warrant"). The Global Unit
shall be made available to the Initial Purchasers for inspection at least two
business days prior to the Delivery Date.
5. Covenants. The Company agrees as follows:
---------
(a) The Company shall furnish promptly to each of the Purchasers a copy of
the Offering Memorandum and each amendment and supplement thereto and shall
deliver promptly to the Purchasers such number of copies of the Offering
Memorandum and each amendment and supplement thereto as the Initial Purchasers
may reasonably request.
(b) If at any time prior to the completion, as determined by the Initial
Purchasers, of the distribution of the Securities, any event occurs as a result
of which the Offering Memorandum would contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading, the Company will promptly so notify the Initial Purchasers
and will prepare and furnish to the Purchasers, subject to Paragraph 5(c),
copies of
15.
<PAGE>
such amendments or supplements to the Offering Memorandum as may be necessary so
that the statements in the Offering Memorandum as so amended or supplemented
will not contain any such untrue statement or omit to state any such material
fact or be misleading and so that the Offering Memorandum, as so amended or
supplemented, will comply with applicable law.
(c) Within a reasonable amount of time prior to any proposed publication
of any amendment or supplement to the Offering Memorandum, the Company shall
furnish a copy thereof to the Initial Purchasers and shall not publish or use
any such amendment or supplement to which the Initial Purchasers or its counsel
shall reasonably object.
(d) The Company shall comply with the terms of the Indenture and the
Offering Memorandum and shall promptly notify the Initial Purchasers if the
Company discovers that any of its representations contained in this Agreement is
not, at any time prior to the completion of the distribution of the Securities,
true and correct, or if the Company has at any such time breached any of its
obligations hereunder.
(e) If, at any time prior to two years after the Delivery Date, the
Company is neither subject to Section 13 or 15(d) of the Exchange Act nor exempt
from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, the Company
shall furnish, as soon as available, to the Purchasers, and, upon request of a
holder of Securities, to such holder and any prospective purchaser designated by
such holder, copies of the information required to be delivered to holders and
prospective purchasers of any Securities which constitute "restricted
securities" under Rule 144 under the Securities Act in order to permit
compliance with Rule 144A under the Securities Act.
(f) Neither the Company nor any of its affiliates will take, directly or
indirectly, any action designed to or which constitutes or which might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Securities at any time prior to the Initial Purchasers
notifying the Company of the completion of the distribution of the Securities.
(g) The Company will endeavor to qualify the Units for offer and sale
under the securities or Blue Sky laws of such jurisdictions as the Initial
Purchasers shall reasonably request and to continue such qualification in effect
so long as reasonably required for resale by the Initial Purchasers of the
Units; provided that the Company shall not be required to file a general consent
to service of process in any jurisdiction.
(h) So long as the Securities are outstanding, the Company will promptly
furnish to the Purchasers copies of all reports or other communications
(financial or other) furnished by the Company or the Trustee to holders of
Securities, and copies of any reports and financial statements furnished to or
filed with the Securities and Exchange Commission (the "Commission") or any
national securities exchange by the Company.
16.
<PAGE>
(i) The Company will take all action that is appropriate or necessary to
assure that its offerings of other securities will not be integrated for
purposes of the registration requirements of the Securities Act with the
offerings contemplated hereby.
(j) If requested by the Initial Purchasers, the Company shall use its best
efforts to permit the Securities to be designated PORTAL securities in
accordance with the rules and regulations adopted by the National Association of
Securities Dealers, Inc. (the "NASD") relating to the trading in the PORTAL
Market; unless so requested by the Initial Purchasers, the Company will not take
any action to permit the Securities to be designated PORTAL securities without
the Initial Purchasers' consent, which shall not be unreasonably withheld.
(k) The Company shall, if requested by the Initial Purchasers, use its
reasonable efforts to assist the Initial Purchasers in arranging to cause the
Securities to be eligible for settlement through the facilities of The
Depository Trust Company ("DTC").
(l) To the extent permitted by applicable law, not to claim voluntarily,
and to resist actively any attempts to claim, the benefit of any usury laws
against the holders of any Securities.
(m) To apply the net proceeds from the sale of the Units to be sold
hereunder in the manner described in the Offering Memorandum under the caption
"Use of Proceeds."
(n) To do and perform all things required or necessary to be done and
performed under this Agreement by the Company prior to or after the Delivery
Date and to satisfy all conditions precedent to the delivery of the Units.
(o) Not to distribute prior to the Delivery Date any offering material in
connection with the offering and sale of the Securities other than the Offering
Memorandum and other materials, if any, permitted by the Securities Act.
(p) To cause the Exchange Offer to be made in the appropriate form to
permit registered Exchange Notes to be offered in exchange for the Initial Notes
and to comply with all applicable federal and state securities laws in
connection with the Exchange Offer.
(q) To comply with all of its agreements set forth in the Registration
Rights Agreement, the Warrant Registration Rights Agreement and the Escrow
Agreement and all agreements set forth in the representation letters of the
Company to DTC relating to the approval of the Securities by DTC for "book-
entry" transfer.
(r) To comply with the agreements in each Operative Document.
(s) To take such steps as shall be necessary to ensure the Company shall
not become an "investment company" or a company "controlled" by an "investment
company" within the
17.
<PAGE>
meaning of the Investment Company Act, or (ii) a "holding company" or a
"subsidiary company" or an "affiliate" of a holding company within the meaning
of the Public Utility Holding Company Act of 1935, as amended (the "Holding
Company Act").
(t) To reserve and continue to reserve as long as any warrants are
outstanding, a sufficient number of shares of Common Stock for issuance upon
exercise of the Warrants.
6. Costs and Expenses. The Company agrees (whether or not the
------------------
transactions contemplated hereby are consummated) to pay all costs and expenses
(including any taxes) incident to the authorization, issuance, sale and delivery
of the Securities or relating to the preparation of this Agreement, the
Operative Documents and the Offering Memorandum, including, without limitation:
(i) all costs, expenses and taxes in connection with the preparation, printing,
issue, exchange and delivery of the Securities, including any stamp or similar
issue tax and any related interest or penalties incident to the authorization
and issue of the Securities, and the sale and delivery of the Securities to the
Initial Purchasers; (ii) all costs and expenses incident to the preparation,
printing and distribution of the Offering Memorandum, any amendments or
supplements thereto, the Operative Documents, this Agreement and other documents
relating to the offering; (iii) all fees and expenses of counsel for the Company
and other advisors engaged by the Company; (iv) all fees and expenses of the
Trustee and any registrar and paying and transfer agents; (v) all fees of DTC;
(vi) the cost of any institutional or retail marketing meetings; (vii) expenses
in connection with the qualification of the Securities for sale in State
jurisdictions as contemplated by Paragraph 5(q), including but not limited to
all filing fees paid by counsel for the Initial Purchasers; (viii) all listing
fees and expenses in connection with any listing of the Securities on any
securities exchange or Nasdaq; and (ix) all travel expenses and expenses of
advertising the offering. The Initial Purchasers will pay for all fees and
expenses of counsel for the Initial Purchasers and other advisors engaged by the
Initial Purchasers incurred in connection with the offering of the Securities;
provided that in the event this Agreement is terminated pursuant to Paragraph
10, the Company will pay all such fees and expenses.
7. Indemnification.
---------------
(a) The Company shall indemnify and hold harmless each Purchaser and its
affiliates and each person, if any, who controls any Purchaser or its affiliates
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and each director, officer, employee or agent of any Purchaser or
its affiliates (each a "Purchaser Indemnified Party"), from and against any
loss, claim, damage or liability, joint or several, and any action in respect
thereof, to which any Purchaser Indemnified Party may become subject, insofar as
such loss, claim, damage, liability or action (i) arises out of, or is based
upon, or relates to any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum, or which arises out of, or
is based upon, the omission or alleged omission to state in the Offering
Memorandum a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading or (ii)
arises out of, or is based upon,
18.
<PAGE>
or relates to any breach of a representation, warranty or agreement of the
Company set forth herein, and shall promptly reimburse each Purchaser
Indemnified Party for any legal and other expenses reasonably incurred, as such
legal and other expenses are incurred, by such Purchaser Indemnified Party in
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action; provided that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, or relates to any untrue statement or
alleged untrue statement or omission or alleged omission made in the Offering
Memorandum in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Purchaser expressly for inclusion therein.
The foregoing indemnity agreement is in addition to any liability which the
Company may otherwise have to any Purchaser Indemnified Party.
(b) Each Initial Purchaser severally shall indemnify and hold harmless the
Company and its affiliates, any person who controls the Company or its
affiliates within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, and each director, officer, employee and agent of the
Company or its affiliates (each a "Company Indemnified Party"), from and
against any loss, claim, damage or liability, joint or several, and any action
in respect thereof, to which any Company Indemnified Party may become subject,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, or relates to any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum, or which arises out of, or
is based upon, or relates to the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, but in each case
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any Purchaser
expressly for inclusion therein, and shall promptly reimburse such Company
Indemnified Party for any legal and other expenses reasonably incurred by such
Company Indemnified Party in investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action. The foregoing
indemnity agreement is in addition to any liability which the Initial Purchasers
may otherwise have to any such Company Indemnified Party.
(c) Promptly after receipt by an indemnified party under this Paragraph 7
of notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Paragraph 7, notify the indemnifying party in writing of the
claim or the commencement of the action; provided, however, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have under this Paragraph 7 except to the extent it has been materially
prejudiced by such failure and provided, further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Paragraph 7. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate
19.
<PAGE>
therein, and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Paragraph 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
any indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) such indemnified party shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party and in the
reasonable judgment of such counsel it is advisable for such indemnified party
to employ separate counsel or (iii) the indemnifying party has failed to assume
the defense of such action and employ counsel reasonably satisfactory to the
indemnified party, 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 action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (plus separate local counsel, if
retained by the indemnified party) at any time for all such indemnified parties,
which firm shall be designated in writing by the Initial Purchasers, if the
indemnified parties under this Paragraph 7 are Purchaser Indemnified Parties, or
by the Company, if the indemnified parties under this Paragraph are Company
Indemnified Parties.
(d) No indemnifying party shall be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld),
but if settled with such consent or if there be a final judgment for the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless each indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement is for money damages only and includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(e) If the indemnification provided for in this Paragraph 7 shall for any
reason be unavailable to or insufficient to hold harmless any indemnified party
under Paragraph 7(a) or 7(b) hereof in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified
20.
<PAGE>
party, contribute to the aggregate amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company on the one hand and the Purchasers on the other
from the offering of the Notes or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Purchasers on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Initial Purchasers on the other with respect to such
offering shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Notes (obtained by subtracting accrued interest, if
any, but before deducting expenses) received by the Company bear to the total
commissions received by the Initial Purchasers with respect to such offering.
The relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to a
material fact relates to information supplied by the Company on the one hand or
the Purchasers on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Paragraph 7(e) shall be deemed to include, for
purposes of this Paragraph 7(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Paragraph 7, each affiliate of a
Purchaser and each person, if any, who controls any of the Purchasers within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
shall have the same rights to contribution as each of the Purchasers, and each
director, officer, employee or agent of the Company, each affiliate of the
Company and each person, if any, who controls the Company or any affiliate of
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act shall have the same rights to contribution as the Company.
(f) The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Paragraph 7 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in Paragraph 7(e). The remedies provided for in this
Paragraph 7 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in equity.
(g) The Initial Purchasers confirms that the statements with respect to
the offering of the securities set forth on the cover page of, and under the
caption "Plan of Distribution" in, the Offering Memorandum are correct, and the
Company and the Initial Purchasers agree that such statements comprise all the
written information furnished to the Company by or on behalf of any Purchaser
expressly for inclusion therein.
21.
<PAGE>
(h) The Company agrees to indemnify each Purchaser Indemnified Party, and
the Initial Purchasers agrees to indemnify each Company Indemnified Party, as a
result of any judgment being rendered in connection with the Indenture, the
Notes or this Agreement or the Offering Memorandum for which indemnification or
contribution is provided pursuant to this Paragraph 7 and such judgment or order
being paid in a currency (the "Judgment Currency") other than United States
dollars, as a result of any variation as between (i) the rate of exchange at
which United States dollars are converted into the Judgment Currency for the
purpose of such judgment or order and (ii) the spot rate of exchange in New York
City at which the indemnified party on the date of payment of such judgment or
order is able to purchase United States dollars with the amount of the Judgment
Currency actually received by the indemnified party. The foregoing indemnity
shall constitute a separate and independent obligation of the Company and the
Initial Purchasers and shall continue in full force and effect notwithstanding
any such judgment or order as aforesaid. The term "spot rate of exchange"
shall include any premiums and costs of exchange payable in connection with the
purchase of, or conversion into, United States dollars.
8. Conditions to Obligation of the Initial Purchasers. The obligation of
--------------------------------------------------
the Initial Purchasers to purchase the Units is subject to the accuracy, when
made and on the Delivery Date, of the representations and warranties of the
Company contained herein, to the performance by the Company of its obligations
hereunder to be performed at or prior to the Delivery Date and to each of the
following additional conditions:
(a) The Initial Purchasers shall not have disclosed to the Company on or
prior to the Delivery Date that the Offering Memorandum contains an untrue
statement of a fact which, in its reasonable opinion, is material or omits to
state a fact which, in its reasonable opinion, is material and is necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; the Company shall not have prepared and
distributed any amendment or supplement to the Offering Memorandum either
without prior review by, or over the reasonable objection of, the Initial
Purchasers; and no change shall have occurred in Rule 144A or Regulation S under
the Securities Act which in the reasonable judgment of the Initial Purchasers
makes it impracticable or inadvisable to proceed with the purchase, sale and
delivery of the Units on the terms and in the manner contemplated in the
Offering Memorandum.
(b) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Indenture, the
Securities, the Registration Rights Agreement, the Warrant Registration Rights
Agreement, the Escrow Agreement, the Warrant Agreement, the Offering Memorandum
and all other legal matters relating to this Agreement and the transactions
contemplated hereby and thereby shall be reasonably satisfactory in all respects
to the Initial Purchasers and their counsel, and the Company shall have
furnished to the Initial Purchasers all documents and information that it may
reasonably request to enable it to pass upon such matters.
22.
<PAGE>
(c) The Company shall have delivered to the Initial Purchasers a certified
copy of the resolutions of the Board of Directors of the Company (or any
authorized committee thereof, together with the resolutions of the Board of
Directors establishing such committee) approving the creation and issue of the
Securities by the Company on the terms and conditions of the Indenture, the
Warrant Agreement and this Agreement and approving the terms hereof and
authorizing the execution and delivery of this Agreement, the Indenture, the
Securities and all other documents relevant to the issue of the Securities by
the Company.
(d) The Company shall have furnished to the Initial Purchasers the opinion
or opinions of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
United States counsel to the Company, addressed to the Initial Purchasers and
dated the Delivery Date, substituting in the form in Exhibit B attached hereto.
(e) The Company shall have furnished to the Initial Purchasers on the
Delivery Date a certificate, dated the Delivery Date, of the President and the
Chief Financial Officer of the Company stating that:
(i) The representations and warranties of the Company in Paragraph
1 are true and correct as of the Delivery Date; and the Company has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Delivery Date;
(ii) Such persons have carefully examined the Offering Memorandum
and, in their opinion (A) the Offering Memorandum does not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they were made, not misleading and (B) since the
date of the Offering Memorandum, there has occurred no event required to be
set forth or described in an amendment or supplement to the Offering
Memorandum which has not been so set forth; and
(iii) Subsequent to the respective dates as of which information is
given in the Offering Memorandum, and except as contemplated in the
Offering Memorandum, there has not been any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the assets, operations, condition (financial or otherwise),
earnings, business affairs or prospects of the Company.
(f) The Company shall have furnished to the Purchasers on the Delivery
Date a comfort letter (the "comfort letter") of Ernst & Young LLP, addressed to
the Purchasers and dated the Delivery Date, (i) confirming that they are
independent public accountants within the meaning of, and are in compliance with
the applicable requirements relating to the qualification of accountants under,
Rule 101 of the Rules of Conduct of the American Institute of Certified Public
Accountants and (ii) stating, as of the date of the comfort letter (or, with
respect to matters
23.
<PAGE>
involving changes or developments since the respective dates as of which
specified financial information is given in the Offering Memorandum, as of a
date not more than five days prior to the date of the comfort letter), the
findings of such firm with respect to the financial information included in the
Offering Memorandum and such other matters as the Purchasers may reasonably
request.
(g) The Initial Purchasers shall have received the opinion of Brobeck,
Phleger & Harrison LLP, its U.S. counsel, in form and substance satisfactory to
the Initial Purchasers.
(h) The Units shall have been accepted for settlement through the
facilities of DTC.
All opinions, letters, evidences and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to Brobeck, Phleger & Harrison LLP, U.S. counsel to the Purchasers.
9. Stabilization. The Initial Purchasers and, if applicable, Limited may,
-------------
at their discretion, to the extent permitted by applicable law, make purchases
and sales of the Securities for their own accounts in the open market or
otherwise for long or short account, on such terms as they deem advisable in
connection with the distribution of the Securities, with a view to stabilizing
or maintaining the market price of the Securities at a level other than that
which might otherwise prevail on the open market. Such transactions, if
commenced, may be discontinued at any time. In such circumstances, as between
the Company, on the one hand, and the Initial Purchasers or Limited, on the
other hand, both the Initial Purchasers and Limited shall act as principal, and
any loss resulting from stabilization shall be borne, and any profit arising
therefrom and any sum received by it shall be beneficially retained, by the
Initial Purchasers or Limited, as the case may be, for their own account.
10. Termination. The Initial Purchasers, in their absolute discretion,
-----------
may terminate this Agreement by notice given to and received by the Company at
any time before payment is made to the Company on the Delivery Date (i) if there
has been, since the respective dates as of which information is given in the
Offering Memorandum, any Material Adverse Change, which is, in the reasonable
judgment of the Initial Purchasers, so material and adverse as to make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Units on the terms and in the manner contemplated by the Offering Memorandum
or (ii) if trading in any securities of the Company has been suspended by the
Commission or a national securities exchange or the NASD, or if trading
generally has been suspended or materially limited on or by the American Stock
Exchange, the New York Stock Exchange or the NASD or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices for securities have
been required, by either of said exchanges or by order of the Commission or of
the NASD or any other governmental authority, or (iii) if a banking moratorium
has been declared by either Federal, New York or California authorities in the
United States or authorities in London. In
24.
<PAGE>
addition, notwithstanding anything contained in this Agreement the Initial
Purchasers may by notice to the Company terminate this Agreement at any time
before the time on the Delivery Date when payment would otherwise be due under
this Agreement to the Company in respect of the Units if, in the opinion of the
Initial Purchasers, there shall have been such a change in national or
international financial, political or economic conditions or currency exchange
rates or exchange controls or any calamity or crisis as would in their view be
likely to prejudice the success of the offering and distribution of the Units as
contemplated by the Offering Memorandum or dealings in the Units in the
secondary market. Upon any termination notice being given under this Paragraph
10, the parties to this Agreement shall (except for the respective liabilities
of the Company and the Initial Purchasers in relation to expenses and
indemnification and contribution as provided in Paragraph 6 and Paragraph 7,
respectively, and except for any liability arising before or in relation to such
termination) be released and discharged from their respective obligations under
this Agreement.
11. Representations, Warranties and Agreements of the Purchasers. The
------------------------------------------------------------
Initial Purchasers, on behalf of themselves and Limited, represent, warrant and
agree that:
(a) The Initial Purchasers are QIBs with such knowledge and experience in
financial and business matters as are necessary in order to evaluate the merits
and risks of an investment in the Units.
(b) The Initial Purchasers (i) are not acquiring the Units with a view to
any distribution thereof or with any present intention of offering or selling
any of the Units in a transaction that would violate the Securities Act or the
securities laws of any state of the United States or any other applicable
jurisdiction and (ii) will be reoffering and reselling the Units only to (A)
QIBs in reliance on an exemption from the registration requirements of the
Securities Act provided by Rule 144A and (B) in offshore transactions in
reliance upon Regulation S under the Securities Act.
(c) No form of general solicitation or general advertising has been or
will be used by the Initial Purchasers or any of their representatives in
connection with the offer and sale of any of the Units, including, but not
limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(d) The Initial Purchasers will solicit offers to buy the Units only from,
and will offer to sell the Units only to, Eligible Purchasers. The Initial
Purchasers further agree that they will offer to sell the Units only to and will
solicit offers to buy the Units only from (i) Eligible Purchasers that the
Initial Purchase reasonably believed are QIBs and (ii) Regulation S Purchasers,
in each case, that agree that (A) the Units, the Notes and the Warrants
purchased by them may be resold, pledged or otherwise transferred within the
time period referred to under
25.
<PAGE>
Rule 144(k) (taking into account the provisions of Rule 144(d) under the
Securities Act, if applicable) under the Securities Act, as in effect on the
date of the transfer of such Units, Notes or Warrants, only (I) to the Company,
(II) to a person whom the seller reasonably believes is a QIB purchasing for its
own account or for the account of a QIB in a transaction meeting the
requirements of Rule 144A under the Securities Act, (III) in an offshore
transaction (as defined in Rule 902 under the Securities Act) meeting the
requirements of Rule 904 of the Securities Act, (IV) in a transaction meeting
the requirements of Rule 144 under the Securities Act, (V) to an institutional
"accredited investor," as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act (each, an "Accredited Institution") that,
prior to such transfer, furnishes the Trustee a signed letter containing certain
representations and agreements relating to the registration of transfer of such
Unit, Note or Warrant (the form of which is substantially the same as Exhibit C
---------
to the Indenture) and an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act, (VI) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel acceptable to the Company) or (VII) pursuant to
an effective registration statement and, in each case, in accordance with the
applicable securities laws of any state of the United States or any other
applicable jurisdiction and (B) they will deliver to each person to whom such
Units, Notes or Warrants or an interest therein is transferred a notice
substantially to the effect of the foregoing.
(e) None of the Initial Purchasers nor any of their affiliates or any
person acting on their behalf has engaged or will engage in any directed selling
efforts within the meaning of Regulation S with respect to the Units.
(f) The Units offered and sold by the Initial Purchasers pursuant hereto
in reliance on Regulation S have been and will be offered and sold only in
offshore transactions.
(g) The sale of the Units offered and sold by the Initial Purchasers
pursuant hereto in reliance on Regulation S is not part of a plan or scheme to
evade the registration provisions of the Securities Act.
(h) The Initial Purchasers further represent and agree that (1) they have
not offered or sold and will not offer or sell any Units, Notes, or Warrants to
persons in the United Kingdom prior to the expiration of the period of six
months from the issue date of the Units, the Notes, or the Warrants, except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of Business
or otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Security Regulations 1995, (ii) they have complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by them in relation to the Units, the Notes and the Warrants
in, from or otherwise involving the United Kingdom and (iii) they have only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection
26.
<PAGE>
with the issuance of the Units, the Notes and the Warrants to a person who is of
a kind described in Article 11(3) of the Financial Services Act of 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the
document may otherwise lawfully be issued or passed on.
(i) The Initial Purchasers agree that they will not offer, sell or deliver
any of the Units in any jurisdiction outside the United States except under
circumstances that will result in compliance with the applicable laws thereof,
and that it will take at its own expense whatever action is required to permit
its purchase and resale of the Units in such jurisdictions. The Initial
Purchasers understand that no action has been taken to permit a public offering
in any jurisdiction outside the United States where action would be required for
such purpose.
(j) The Initial Purchasers agree that they have not offered or sold and
will not offer or sell the Units in the United States or to, or for the benefit
or account of, a U.S. Person (other than a distributor), in each case, as
defined in Rule 902 under the Act (i) as part of its distribution at any time
and (ii) otherwise until 40 days after the later of the commencement of the
offering of the Units pursuant hereto and the Delivery Date, other than in
accordance with Regulation S of the Securities Act or another exemption from the
registration requirements of the Securities Act. The Initial Purchasers agree
that, during such 40-day restricted period, it will not cause any advertisement
with respect to the Notes (including any "tombstone" advertisement) to be
published in any newspaper or periodical or posted in any public place and will
not issue any circular relating to the Units, except such advertisements as are
permitted by and include the statements required by Regulation S.
(k) The Initial Purchasers agree that, at or prior to confirmation of a
sale of Units by them to any distributor, dealer or person receiving a selling
concession, fee or other remuneration during the 40-day restricted period
referred to in Rule 903(c)(2) under the Securities Act, they will send to such
distributor, dealer or person receiving a selling concession, fee or other
remuneration a confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been registered
under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered and sold within
the United States or to, or for the account or benefit of,
U.S. persons (i) as part of your distribution at any time or
(ii) otherwise until 40 days after the later of the
commencement of the Offering and the Delivery Date, except
in either case in accordance with Regulation S under the
Securities Act (or Rule 144A in transactions that are exempt
from the registration requirements of the Securities Act),
and in connection with any subsequent sale by you of the
Securities covered hereby in reliance on Regulation S during
the period referred to above to any distributor, dealer or
person receiving a selling concession, fee or other
remuneration, you must deliver a
27.
<PAGE>
notice to substantially the foregoing effect. Terms used
above have the meanings assigned to them in Regulation S."
The Injury Purchasers understand that the Company and, for purposes of the
opinions to be delivered to the Initial Purchasers pursuant to Section 8 hereof,
counsel to the Company and counsel to the Initial Purchasers will rely upon the
accuracy and truth of the foregoing representations and the Initial Purchasers
hereby consent to such reliance.
12. Survival of Representations, Warranties and Agreements. The
------------------------------------------------------
representations, warranties and agreements and other statements of any person
set forth in or made pursuant to this Agreement shall survive the delivery of
and payment for the Units and shall remain in full force and effect as made on
the Delivery Date regardless of any investigation made by or on behalf of any
person referred to in Paragraph 7. The provisions of Paragraphs 6 and 7 shall
survive the termination or cancellation of this Agreement.
13. Notices. Any notice or notification in any form to be given hereunder
-------
shall be in writing and shall be delivered in person or sent by telephone or
facsimile transmission (but in the case of a notification by telephone, with
subsequent confirmation by letter or facsimile transmission). Any notice or
notification to the Company shall be addressed to the Company at:
Concentric Network Corporation
10590 N. Tantau Avenue
Cupertino, CA 95014
Attention: Henry R. Nothhaft, President and Chief Executive Officer
Telecopy No:
Any notice or notification to the Initial Purchasers or to the Purchasers shall
be addressed to it or them at:
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171-0026
Attention: Nicholas DeFotos, Managing Director
Telecopy No:
Any notice or notification shall take effect at the time of receipt.
14. Benefit. This Agreement shall be binding upon the Purchasers, the
-------
Company and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(a) the representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of each
Purchaser Indemnified Party and (b) the indemnity agreement of the Initial
28.
<PAGE>
Purchasers contained in Paragraph 7 hereof shall be deemed to be for the benefit
of each Company Indemnified Party. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Paragraph 14, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein. This Agreement
shall not be assigned by either party hereto without the prior written consent
of the other party hereto.
15. Miscellaneous. This Agreement shall be governed by and construed in
-------------
accordance with the internal (and not the conflict) laws of the State of New
York. This Agreement may be executed in one or more counterparts, and if
executed in more than one counterpart, the executed counterparts shall together
constitute a single instrument. The descriptive headings in this Agreement are
for convenience of reference only and shall not define or limit the provisions
hereof. Time shall be of the essence of this Agreement.
[The remainder of the page has been intentionally left blank.]
29.
<PAGE>
If the foregoing is in accordance with the Initial Purchasers'
understanding of our agreement, kindly sign and return to us one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the Initial Purchasers in accordance with its terms.
This Agreement may be signed in counterparts which together shall
constitute one and the same instrument.
Very truly yours,
CONCENTRIC CORPORATION
By: /s/ Henry S. Nothhaft
________________________________________
Henry R. Nothhaft
President and Chief Executive Officer
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
UBS SECURITIES LLC
BEAR, STEARNS & CO. INC.
WHEAT, FIRST SECURITIES, INC.
as Initial Purchasers
By UBS Securities LLC, on behalf of
the Initial Purchasers
By: /s/ UBS Securities LLC
_________________________________
Authorized Signatory
30.
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Initial Purchasers Number of Units
- ------------------ ---------------
<S> <C>
UBS Securities LLC.......................... 86,250
Bear, Stearns & Co. Inc. ................... 56,250
Wheat, First Securities, Inc. .............. 7,500
____________
TOTAL.............................. 150,000
============
</TABLE>
31.
<PAGE>
Exhibit 10.45
WARRANT AGREEMENT
Dated as of December 18, 1997
by and among
CONCENTRIC NETWORK CORPORATION
and
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
<PAGE>
WARRANT AGREEMENT dated as of December 18, 1997 (the "Agreement")
between CONCENTRIC NETWORK CORPORATION, a Delaware corporation (the "Company"),
and CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION., as warrant
agent (the "Warrant Agent").
WHEREAS, the Company proposes to issue 150,000 Common Stock purchase
warrants, as hereinafter described (the "Warrants"), to purchase up to an
aggregate of 951,108 shares of Common Stock (as defined below), in connection
with the offering of an aggregate of $150,000,000.00 principal amount of the
Company's 12 3/4% Senior Notes due 2007 (the "Notes"). Each Warrant entitles the
holder thereof to purchase 6.34072 shares of Common Stock. The Notes and
Warrants will be sold in Units (the "Units"), each Unit consisting of $1,000
principal amount of Notes and one Warrant.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates (as defined below) and other matters as
provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and for the purpose of defining the respective
rights and obligations of the Company, the Warrant Agent and the Holders (as
defined below), the parties hereto agree as follows:
Section 1. Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the following respective meanings:
"Affiliate" of any person means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person. For purposes of this definition, "control" when used with respect
to any person means the power to direct the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
"Common Equity Securities" means Common Stock and securities
convertible into, or exercisable or exchangeable for, Common Stock or rights or
options to acquire Common Stock or such other securities, excluding the
Warrants.
"Common Stock" means the common stock, par value $.001 per share, of
the Company, and any other capital stock of the Company into which such common
stock may be converted or reclassified or that may be issued in respect of, in
exchange for, or in substitution for, such common stock by reason of any stock
splits, stock dividends, distributions, mergers, consolidations or other like
events.
"Company" means Concentric Network Corporation, a Delaware
corporation, and its successors and assigns.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the purchase price per share of Common Stock to
be paid upon the exercise of each Warrant in accordance with the terms hereof,
which price shall initially be $10.8625 per share, subject to adjustment from
time to time pursuant to Section 13 hereof.
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"Expiration Date" means December 15, 2007.
"Holder" means a person who owns Registrable Securities.
"Indenture" means the indenture, dated the date hereof, between the
Company and Chase Manhattan Bank and Trust Company, National Association, as
trustee.
"Initial Purchasers" means UBS Securities LLC and Bear, Stearns & Co.
Inc.
"person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Principal Office of Warrant Agent" means the Warrant Agent's office
located at 55 Water Street, Room 234, North Building, New York, New York 10001,
or such other office of the Warrant Agent as the Warrant Agent shall designate
from time to time in writing as its Principal Office for the purposes of this
Agreement.
"Registrable Securities" means any of (i) the Warrant Shares and (ii)
any other securities issued or issuable with respect to any Warrant Shares by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise, unless, in each case, such Warrant Shares and securities, if any,
have been offered and sold to the Holder pursuant to an effective Registration
Statement under the Securities Act declared effective prior to the
exercisability of the Warrants or such Warrant Shares and securities, if any,
may be sold to the public pursuant to Rule 144 without any restriction on the
amount of securities which may be sold by such Holder or the satisfaction of any
condition. As to any particular Registrable Securities held by a Holder, such
securities shall cease to be Registrable Securities when (i) a Registration
Statement with respect to the exercise or offering of such securities by the
Holder thereof shall have been declared effective under the Securities Act and
such securities shall have been exercised and/or disposed of by such Holder
pursuant to such Registration Statement, (ii) such securities may at the time of
determination be sold to the public pursuant to Rule 144 without any restriction
on the amount of securities which may be sold by such Holder (or any similar
provision then in force, but not Rule 144A) promulgated under the Securities Act
without the lapse of any further time or the satisfaction of any condition,
(iii) such securities shall have been otherwise transferred by such Holder and
new certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company or its transfer agent and
subsequent disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force or
(iv) such securities shall have ceased to be outstanding.
"Registration Rights Agreement" means the registration rights
agreement, dated as of the date hereof by and among the Company and the Initial
Purchasers relating to the Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" means the earliest to occur of (i) June 15, 1998,
(ii) a Change in Control (as defined in the Indenture), (iii) the occurrence of
an Event of Default (as defined in the Indenture), (iv) the date on which a
registration statement with respect to the Notes or an Exchange Offer (as
defined in the Registration Rights Agreement) for the Notes is declared
effective, or (v) such earlier date as may be determined by UBS Securities LLC.
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"Trustee" means the trustee under the Indenture.
"Warrant Agent" means Chase Manhattan Bank and Trust Company, National
Association or the successor or successors of such Warrant Agent appointed in
accordance with the terms hereof.
"Warrant Registration Rights Agreement" means the registration rights
agreement, dated as of December 18, 1997, by and among the Company and the
Initial Purchasers relating to the Warrants and the Warrant Shares.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon the exercise of the Warrants.
Section 2. Appointment of Warrant Agent. The Company hereby appoints
----------------------------
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
Section 3. Issuance of Warrants: Warrant Certificates. The Warrants
------------------------------------------
will be issued in the form of one or more global certificates (the "Global
Warrants"), substantially in the form of Exhibit A (including footnotes 1 and 2
thereto). The Global Warrants shall be deposited on the Issue Date with, or on
behalf of, The Depositary Trust Company (the "Depositary") and registered in the
name of Cede & Co., as the Depositary's nominee. Each Global Warrant shall
represent such of the outstanding Warrants as shall be specified therein and
each shall provide that it shall represent the aggregate amount of outstanding
Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Warrants represented thereby may from time to time be reduced or
increased, as appropriate. Upon request, a Holder may receive from the
Depositary and the Warrant Agent Warrants in definitive form (the "Definitive
Warrants"), substantially in the form of Exhibit A (not including footnotes 1
and 2 thereto) as set forth in Section 7 below. Any certificates (the "Warrant
Certificates") evidencing the Global Warrants or the Definitive Warrants to be
delivered pursuant to this Agreement shall be substantially in the form set
forth in Exhibit A attached hereto.
Section 4. Execution of Warrant Certificates. Warrant Certificates
---------------------------------
shall be signed on behalf of the Company by its Chairman of the Board or its
President or a Vice President and by its Secretary or an Assistant Secretary
under its corporate seal. Each such signature upon the Warrant Certificates may
be in the form of a facsimile signature of the present or any future Chairman of
the Board, President, Vice President, Secretary or Assistant Secretary and may
be imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Vice President, Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant
Certificates shall be countersigned and delivered or disposed of, such person
shall have ceased to hold such office. The seal of the Company may be in the
form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
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<PAGE>
Warrant Certificates shall be dated the date of countersignature.
Section 5. Separation of Warrants. The Notes and Warrants shall not
----------------------
be separately transferable prior to the Separation Date.
Section 6. Registration and Countersignature. The Warrant Agent, on
---------------------------------
behalf of the Company, shall number and register the Warrant Certificates in a
register as they are issued by the Company.
Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. The
Warrant Agent shall, upon written instructions of the Chairman of the Board, the
President, a Vice President, the Treasurer or the Controller of the Company,
initially countersign, issue and deliver Warrants entitling the Holders thereof
to purchase not more than the number of Warrant Shares referred to above in the
first recital hereof and shall countersign and deliver Warrants as otherwise
provided in this Agreement.
The Company and the Warrant Agent may deem and treat the Holder(s) of
the Warrant Certificates as the absolute owner(s) thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone), for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary. Prior to a Separation Date, the registered holder of the
Unit shall be deemed the registered Holder of such Warrants for all purposes
hereunder.
Section 7. Registration of Transfers and Exchanges.
---------------------------------------
(a) Transfer and Exchange of Global Warrants. The transfer and
----------------------------------------
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Warrant Agreement and the
procedures of the Depositary therefor.
(b) Exchange of a Beneficial Interest in a Global Warrant for a
-----------------------------------------------------------
Definitive Warrant.
- ------------------
(i) Any person having a beneficial interest in a Global Warrant may upon
request exchange such beneficial interest for a Definitive Warrant.
Upon receipt by the Warrant Agent of written instructions or such
other form of instructions as is customary for the Depositary from the
Depositary or its nominee on behalf of any person having a beneficial
interest in a Global Warrant and, in the case of a Registrable
Security, the following additional information and documents (all of
which may be submitted by facsimile), as applicable:
(A) if such beneficial interest is being delivered to the person
designated by the Depositary as being the beneficial owner, a
certification from such beneficial owner to that effect (in
substantially the form of Exhibit B hereto);
(B) if such beneficial interest is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act or (2) pursuant to an exemption from registration
in accordance with Rule 144 under the Securities Act (and based
on an opinion of counsel if the Company or the Warrant Agent so
requests) or (3) pursuant to an effective registration statement
under the Securities Act, a certification to that effect (in
substantially the form of Exhibit B hereto);
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<PAGE>
(C) if such beneficial interest is being transferred to any
institutional "accredited investor," within the meaning of Rule
501(a)(1), (2), (3) and (7) under the Securities Act pursuant to
a private placement exemption from the registration requirements
of the Securities Act (and based on an opinion of counsel if the
Company or the Warrant Agent so requests), a certification to
that effect (in substantially the form of Exhibit B hereto) and a
certification from the applicable transferee (in substantially
the form of Exhibit C hereto);
(D) if such beneficial interest is being transferred pursuant to an
exemption from registration in accordance with Rule 904 under the
Securities Act (and based on an opinion of counsel if the Company
or the Warrant Agent so requests), a certification to that effect
(in substantially the form of Exhibit B); or
(E) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company
or the Warrant Agent so requests), a certification to that effect
(in substantially the form of Exhibit B hereto);
then, in accordance with the standing instructions and procedures
existing between the Depositary and Warrant Agent, the Warrant Agent
shall cause the number of Warrants and Warrant Shares represented by
the Global Warrant to be reduced by the number of Warrants and Warrant
Shares to be represented by the Definitive Warrants to be issued in
exchange for the interest in the Global Warrant and, following such
reduction, the Company shall execute and the Warrant Agent shall
countersign and deliver to the transferee, as the case may be, a
Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial interest in a
Global Warrant pursuant to this Section 7(b) shall be registered in
such names as the Depositary, pursuant to instructions from its direct
or indirect participants or otherwise, shall instruct the Warrant
Agent. The Warrant Agent shall deliver such Definitive Warrants to the
persons in whose names such Warrants are so registered.
(c) Transfer and Exchange of Definitive Warrants. When Definitive
--------------------------------------------
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of Definitive
Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the following requirements are met:
(x) the Definitive Warrants presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a
written instruction of transfer in form satisfactory to the Warrant
Agent, duly executed by the Holder thereof or by his attorney, duly
authorized in writing; and
5
<PAGE>
(y) in the case of Registrable Securities, such request shall be
accompanied by the following additional information and documents (all
of which may be submitted by facsimile), as applicable:
(A) if such Registrable Security is being delivered to the Warrant
Agent by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect
(in substantially the form of Exhibit B hereto);
(B) if such Registrable Security is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act or (2) pursuant to an exemption from registration
in accordance with Rule 144 under the Securities Act (and based
on an opinion of counsel if the Company or the Warrant Agent so
requests) or (3) pursuant to an effective registration statement
under the Securities Act, a certification to that effect (in
substantially the form of Exhibit B hereto);
(C) if such Registrable Security is being transferred to an
institutional "accredited investor," within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a
private placement exemption from the registration requirements of
the Securities Act (and based on an opinion of counsel if the
Company or the Warrant Agent so requests), a certification to
that effect (in substantially the form of Exhibit B hereto) and a
certification from the applicable transferee (in substantially
the form of Exhibit C hereto);
(D) if such Registrable Security is being transferred pursuant to an
exemption from registration in accordance with Rule 904 under the
Securities Act (and based on an opinion of counsel if the Company
or the Warrant Agent so requests), a certification to that effect
(in substantially the form of Exhibit B hereto); or
(E) if such Registrable Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company
or the Warrant Agent so requests), a certification to that effect
(in substantially the form of Exhibit B hereto).
(d) Restrictions on Exchange or Transfer of a Definitive Warrant for
----------------------------------------------------------------
a Beneficial Interest in a Global Warrant. A Definitive Warrant may not be
- ------------ ----------------------------
exchanged for a beneficial interest in a Global Warrant except upon satisfaction
of the requirements set forth below. Upon receipt by the Warrant Agent of a
Definitive Warrant, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Warrant Agent, together with:
(i) if such Definitive Warrant is a Registrable Security, certification
from the Holder thereof (in substantially the form of Exhibit B hereto)
to the effect that such Definitive Warrant is being transferred by such
Holder either (A) to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance with Rule 144A under
the Securities Act (and based on an opinion of counsel if the Company
or the Warrant Agent so requests), (B) outside the United States, to a
foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act (and based on an opinion of counsel if the
Company or the Warrant
6
<PAGE>
Agent so requests) or (C) to an institutional "accredited investor"
within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the
registration requirements of the Securities Act who has provided a
certification to that effect (and based on an opinion of counsel if
the Company or the Warrant Agent so requests) who wishes to take
delivery thereof in the form of a beneficial interest in a Global
Warrant; and
(ii) whether or not such Definitive Warrant is a Registrable Security,
written instructions directing the Warrant Agent to make, or to direct
the Depositary to make, an endorsement on the Global Warrant to
reflect an increase in the number of Warrants and Warrant Shares
represented by the Global Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants and Warrant Shares represented by the Global Warrant to be increased
accordingly. If no Global Warrants are then outstanding, the Company shall issue
and the Warrant Agent shall countersign a new Global Warrant representing the
appropriate number of Warrants and Warrant Shares.
(e) Restrictions on Transfer and Exchange of Global Warrants.
--------------------------------------------------------
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in subsection (f) of this Section 7), a Global Warrant may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Countersigning of Definitive Warrants in Absence of Depositary.
--------------------------------------------------------------
If at any time:
(i) the Depositary for the Global Warrants notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Warrants and a successor Depositary for the Global Warrants is
not appointed by the Company within 90 days after delivery of such
notice; or
(ii) The Company, in its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrants
under this Warrant Agreement,
then the Company shall execute, and the Warrant Agent, upon receipt of written
instructions signed by two officers of the Company, shall countersign and
deliver Definitive Warrants, in an aggregate number equal to the number of
Warrants represented by Global Warrants, in exchange for such Global Warrants.
(g) Legends.
-------
(i) Except for any Registrable Security sold or transferred (including any
Registrable Security represented by a Global Warrant) as discussed in
clause (ii) below, each Warrant Certificate evidencing the Global
Warrants and the Definitive Warrants (and all Warrants issued in
exchange therefor or substitution thereof) and each certificate
representing the Warrant Shares shall bear a legend in substantially
the following form:
7
<PAGE>
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED
HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER
OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES
FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A , (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
PERSON THAT IS NOT A U.S. PERSON (AS DEFINED IN
RULE 902 UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
UNDER THE SECURITIES ACT, (d), TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER
THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE AND WARRANT AGENT A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE WARRANTS (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT
AGENT) OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (IN THE CASE OF (b), (c), (d) or
(e), UPON AN OPINION OF COUNSEL IF THE ISSUER OR
WARRANT AGENT, REGISTRAR OR TRANSFER AGENT FOR THE
SECURITIES SO REQUESTS), (2) TO THE ISSUER OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM
IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Registrable Security (including any
Registrable Security represented by a Global Warrant) pursuant to an
effective registration statement under the Securities Act, pursuant to
Rule 144 under the Securities Act or pursuant to an opinion of
8
<PAGE>
counsel reasonably satisfactory to the Company and addressed to the
Warrant Agent that no legend is required:
(A) in the case of any Registrable Security that is a Definitive
Warrant, the Warrant Agent shall permit the Holder thereof to
exchange such Registrable Security for a Definitive Warrant that
does not bear the legend set forth in clause (i) above and
rescind any restriction on the transfer of such Registrable
Security; and
(B) in the case of any Registrable Security represented by a Global
Warrant, such Registrable Security shall not be required to bear
the legend set forth in clause (i) above but shall continue to be
subject to the provisions of Section 7(c) hereof; provided,
however, that with respect to any request for an exchange of a
Registrable Security that is represented by a Global Warrant for
a Definitive Warrant that does not bear the legend set forth in
clause (i) above, which request is made in reliance upon Rule 144
(and based upon an opinion of counsel if the Company or the
Warrant Agent so requests), the Holder thereof shall certify in
writing to the Warrant Agent that such request is being made
pursuant to Rule 144 (such certification to be substantially in
the form of Exhibit B hereto).
(h) Cancellation of Global Warrant. At such time as all beneficial
------------------------------
interests in Global Warrants have either been exchanged for Definitive Warrants,
redeemed, repurchased or cancelled, all Global Warrants shall be returned to or
retained and cancelled by the Warrant Agent.
(i) Obligations with respect to Transfers and Exchanges of Warrants.
---------------------------------------------------------------
(i) To permit registrations of transfers and exchanges, the Company shall
execute and the Warrant Agent is hereby authorized to countersign, in
accordance with the provisions of Section 6 and this Section 7,
Definitive Warrants and Global Warrants as required pursuant to the
provisions of this Section 7.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration of transfer or exchange of Definitive Warrants or Global
Warrants shall be the valid obligations of the Company, entitled to
the same benefits under this Warrant Agreement, as the Definitive
Warrants or Global Warrants surrendered upon such registration of
transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the
person in whose name any Warrant is registered as the absolute owner
of such Warrant and neither the Warrant Agent, nor the Company shall
be affected by notice to the contrary.
(iv) No service charge shall be made to a Holder for any registration,
transfer or exchange.
Section 8. Terms of Warrants: Exercise of Warrants. Subject to the
---------------------------------------
terms of this Agreement, each Warrant Holder shall have the right, which may be
exercised commencing at 9:00 a.m., New York City time, on the Separation Date
and ending at 5:00 p.m., New York City time, on the Expiration Date, to receive
from the Company the number of fully paid and nonassessable Warrant Shares which
the Holder may at the time be entitled to receive on exercise of such Warrants
and payment of the Exercise Price then in effect for such Warrant Shares;
provided, however, that no Warrant Holder shall be entitled to exercise such
Holder's
9
<PAGE>
Warrants at any time, unless, at the time of exercise, (i) a registration
statement under the Securities Act relating to the Warrant Shares has been filed
with, and declared effective by, the Commission, and no stop order suspending
the effectiveness of such registration statement has been issued by the
Commission or (ii) the issuance of the Warrant Shares is permitted pursuant to
an exemption from the registration requirements of the Securities Act. Subject
to the provisions of the following paragraph of this Section 8, each Warrant not
exercised prior to 5:00 p.m., New York City time, on the Expiration Date shall
become void and all rights thereunder and all rights in respect thereof under
this Agreement shall cease as of such time. No adjustments as to dividends will
be made upon exercise of the Warrants.
The Company shall give notice not less than 90, and not more than 120,
days prior to the Expiration Date to the Holders of all then outstanding
Warrants to the effect that the Warrants will terminate and become void as of
5:00 p.m., New York City time, on the Expiration Date. If the Company fails to
give such notice, the Warrants will not expire until 90 days after the Company
gives such notice, provided, however, in no event will Holders be entitled to
any damages or other remedy for the Company's failure to give such notice other
than any such extension.
A Warrant may be exercised upon surrender to the Company at the
Principal Office of the Warrant Agent of the certificate or certificates
evidencing the Warrant to be exercised with the form of election to purchase on
the reverse thereof properly completed and signed, which signature shall be
guaranteed by a bank or trust company having an office or correspondent in the
United States or a broker or dealer which is a member of a registered securities
exchange or the National Association of Securities Dealers, Inc., and upon
payment to the Warrant Agent for the account of the Company of the Exercise
Price as adjusted as herein provided, for each of the Warrant Shares in respect
of which such Warrant is then exercised. Payment of the aggregate Exercise Price
shall be made in cash or by certified or official bank check, payable to the
order of the Company. In the alternative, each Holder may exercise its right to
receive Warrant Shares (i) on a net basis, such that without the exchange of any
funds, the Holder receives that number of Warrant Shares otherwise issuable upon
exercise of its Warrants less that number of Warrant Shares having a fair market
value equal to the aggregate Exercise Price that would otherwise have been paid
by the Holder for the Warrant Shares being issued, (ii) by tendering Notes
having an aggregate principal amount, plus accrued but unpaid interest, if any,
thereon, to the date of exercise equal to the aggregate Exercise Price that
would otherwise have been paid by the Holder for the Warrant Shares being
issued, or (iii) by a combination of the procedures in clauses (i) and (ii). For
purposes of the foregoing sentence, "fair market value" of the Warrant Shares
shall be as determined by the Board of Directors of the Company in good faith.
The Company shall notify the Warrant Agent in writing of any such determination
of fair market value. The exercise of Warrants by Holders of beneficial interest
in Global Warrants shall be effected in accordance with this Agreement and the
procedures of the Depositary therefor.
Subject to the provisions of Section 9 hereof, upon surrender of
Warrants and payment of the Exercise Price as provided above, the Warrant Agent
shall thereupon promptly notify the Company, and the Company shall promptly
transfer to the Holder of such Warrant Certificate a certificate or certificates
for the appropriate number of Warrant Shares or other securities or property
(including any money) to which the Holder is entitled, registered or otherwise
placed in, or payable to the order of, such name or names as may be directed in
writing by the Holder, and shall deliver such certificate or certificates
representing the Warrant Shares and any other securities or property (including
any money) to the person or persons entitled to receive the same, together with
an amount in cash in lieu of any fraction of a share as provided in Section 15.
Any such certificate or certificates representing the Warrant Shares shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a Holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
10
<PAGE>
The Warrants shall be exercisable commencing on the Separation Date,
at the election of the Holders thereof, either in full or from time to time in
part and, in the event that a certificate evidencing Warrants is exercised in
respect of fewer than all of the Warrant Shares issuable on such exercise at any
time prior to the date of expiration of the Warrants, a new certificate
evidencing the remaining Warrant or Warrants will be issued, and the Warrant
Agent is hereby irrevocably authorized to countersign and to deliver the
required new Warrant Certificate or Certificates pursuant to the provisions of
this Section and of Section 4 hereof, and the Company, whenever required by the
Warrant Agent, will supply the Warrant Agent with Warrant Certificates duly
executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall
then be disposed of by the Warrant Agent in a manner satisfactory to the
Company. The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of the Warrant Shares through the exercise of
such Warrants.
The Warrant Agent shall keep copies of this Agreement and any notices
given or received hereunder by or from the Company available for inspection by
the Holders during normal business hours at its Principal Office. The Company
shall supply the Warrant Agent from time to time with such numbers of copies of
this Agreement as the Warrant Agent may request.
Section 9. Payment of Taxes. The Company will pay all documentary
----------------
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants or to any separation of the Warrants from the Notes;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue of
any Warrant Certificates or any certificates for Warrant Shares in a name other
than that of the Holder of a Warrant Certificate surrendered upon the exercise
of a Warrant, and the Company shall not be required to issue or deliver such
Warrant Certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
Section 10. Mutilated or Missing Warrant Certificates. In case any of
-----------------------------------------
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue and the Warrant Agent may countersign, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
reasonably satisfactory to them. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company or the Warrant Agent may prescribe.
Section 11. Reservation of Warrant Shares. The Company will at all
-----------------------------
times reserve and keep available, free from any preemptive rights imposed by the
Company, out of the aggregate of its authorized but unissued Common Stock or its
authorized and issued Common Stock held in its treasury, for the purpose of
enabling it to satisfy any obligation to issue Warrant Shares upon exercise of
Warrants, the maximum number of shares of Common Stock which may then be
deliverable upon the exercise of all outstanding Warrants.
The transfer agent for the Common Stock (the "Transfer Agent") and
every subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any of the rights of
11
<PAGE>
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition from
time to time from such Transfer Agent the stock certificates required to honor
outstanding Warrants upon exercise thereof in accordance with the terms of this
Agreement. The Company will supply such Transfer Agent with duly executed
certificates for such purposes and will provide or otherwise make available any
cash which may be payable as provided in Section 15. The Company will furnish
such Transfer Agent a copy of all notices of adjustments and certificates
related thereto, transmitted to each Holder of the Warrants pursuant to Section
16 hereof. Prior to the initial public offering of the Common Stock of the
Company, the Company may act as Transfer Agent for the Common Stock. The Warrant
Agent hereby agrees that it will not issue any stock certificates delivered
hereunder other than upon the exercise of Warrants in accordance with the terms
of this Agreement and, promptly after the issuance of any such stock
certificates, to notify the Transfer Agent of such issuance.
Before taking any action which would cause an adjustment pursuant to
Section 13 hereof that would reduce the Exercise Price below the then par value
(if any) of the Warrant Shares, the Company will take any corporate action which
may, in the opinion of its counsel (which may be counsel employed by the
Company), be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants in accordance with the terms of this Agreement (including
the payment of the Exercise Price) will, upon issue, be duly and validly issued,
fully paid, nonassessable, and free of preemptive rights imposed by the Company.
Section 12. Obtaining Stock Exchange Listings. The Company will from
---------------------------------
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets (including, without limitation,
the Nasdaq National Market) within the United States of America, if any, on
which other shares of Common Stock are then listed. Upon the listing of such
Warrant Shares, the Company shall notify the Warrant Agent in writing. The
Company will obtain and keep all required permits and records in connection with
such listing.
Section 13. Adjustment of Exercise Price and Number of Warrant Shares
---------------------------------------------------------
Issuable. The number and kind of shares purchasable upon the exercise of
- --------
Warrants and the Exercise Price shall be subject to adjustment from time to time
(as set forth in the notices required by Section 16 hereof) as follows:
(a) Stock Splits, Combinations, etc. In case the Company shall
-------------------------------
hereafter (a) pay a dividend or make a distribution on its Common Stock in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (B) subdivide its outstanding shares of Common Stock, (C)
combine its outstanding shares of Common Stock into a smaller number of shares,
or (D) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, the Exercise Price in effect and the number of
Warrant Shares issuable upon exercise of each Warrant immediately prior to such
action shall be adjusted so that the Holder of any Warrant thereafter exercised
shall be entitled to receive the number of shares of capital stock of the
Company which such Holder would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. Any adjustment made
pursuant to this paragraph shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result
12
<PAGE>
of an adjustment made pursuant to this paragraph, the Holder of any Warrant
thereafter exercised shall become entitled to receive shares of two or more
classes of capital stock of the Company, the Board of Directors of the Company
(whose determination shall be conclusive) shall determine the allocation of the
adjusted Exercise Price between or among shares of such classes of capital
stock.
(b) Reclassification, Combinations, Mergers, etc. In case of any
--------------------------------------------
reclassification or change of outstanding shares of Common Stock issuable upon
exercise of the Warrants (other than as set forth in paragraph (a) above and
other than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants) or in case of any sale or conveyance to another
corporation of all or substantially all of the assets of the Company, then, as a
condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company or such a successor or purchasing corporation, as the
case may be, shall forthwith make lawful and adequate provision whereby the
Holder of each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a Holder of the number of shares of
Common Stock issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and enter
into a supplemental warrant agreement so providing. Such provisions shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 13. If the issuer of
securities deliverable upon exercise of Warrants under the supplemental warrant
agreement is an affiliate of the formed, surviving or transferee corporation,
that issuer shall join in the supplemental warrant agreement. The above
provisions of this paragraph (b) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(c) Issuance of Options or Convertible Securities. In the event the
---------------------------------------------
Company shall, at any time or from time to time after the date hereof, issue,
sell, distribute or otherwise grant in any manner (including by assumption) to
all holders of the Common Stock any rights to subscribe for or to purchase, or
any warrants or options for the purchase of, Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (any such rights,
warrants or options being herein called "Options" and any such convertible or
exchangeable stock or securities being herein called "Convertible Securities")
or any Convertible Securities (other than upon exercise of any Option), whether
or not such Options or the rights to convert or exchange such Convertible
Securities are immediately exercisable, and the price per share at which Common
Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the
aggregate amount, if any, received or receivable by the Company as consideration
for the issuance, sale, distribution or granting of such Options or any such
Convertible Security, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Options or upon conversion or exchange of all such Convertible Securities, plus,
in the case of Options to acquire Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the conversion or
exchange of all such Convertible Securities, by (ii) the total maximum number of
shares of Common Stock issuable upon the exercise of all such Options or upon
the conversion or exchange of all such Convertible Securities or upon the
conversion or exchange of all Convertible Securities issuable upon the exercise
of all such Options) shall be less than the current market price per share of
Common Stock on the record date for the issuance, sale, distribution or granting
of such Options or Convertible Securities (any such event being herein called a
"Distribution"), then, effective upon such Distribution, (I) the Exercise Price
shall be reduced to the price (calculated to the nearest 1/1,000 of one cent)
determined by
13
<PAGE>
multiplying the Exercise Price in effect immediately prior to such Distribution
by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding (exclusive of any treasury shares)
immediately prior to such Distribution multiplied by the current market price
per share of Common Stock on the date of such Distribution plus (ii) the
consideration, if any, received by the Company upon such Distribution, and the
denominator of which shall be the product of (A) the total number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately after
such Distribution multiplied by (B) the current market price per share of Common
Stock on the record date for such Distribution and (II) the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall be increased to
a number determined by multiplying the number of shares of Common Stock so
purchasable immediately prior to the record date for such Distribution by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (I) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately after
such adjustment. For purposes of the foregoing, the total maximum number of
shares of Common Stock issuable upon exercise of all such Options or upon
conversion or exchange of all such Convertible Securities or upon the conversion
or exchange of the total maximum amount of the Convertible Securities issuable
upon the exercise of all such Options shall be deemed to have been issued as of
the date of such Distribution and thereafter shall be deemed to be outstanding
and the Company shall be deemed to have received as consideration therefor such
price per share, determined as provided above. Except as provided in paragraphs
(j) and (k) below, no additional adjustment of the Exercise Price shall be made
upon the actual exercise of such Options or upon conversion or exchange of the
Convertible Securities or upon the conversion or exchange of the Convertible
Securities issuable upon the exercise of such Options.
(d) Dividends and Distributions. In the event the Company shall, at
---------------------------
any time or from time to time after the date hereof, distribute to all the
holders of Common Stock any dividend or other distribution of cash, evidences of
its indebtedness, other securities or other properties or assets (in each case
other than (i) dividends payable in Common Stock, Options or Convertible
Securities and (ii) any cash dividend that, when added to all other cash
dividends paid in the one year prior to the declaration date of such dividend
(excluding any such other dividend included in a previous adjustment of the
Exercise Price pursuant to this paragraph (d) and excluding any cash dividends
or other cash distributions from current or retained earnings), does not exceed
5% of the current market price per share of Common Stock on such declaration
date), or any options, warrants or other rights to subscribe for or purchase any
of the foregoing, then (A) the Exercise Price shall be decreased to a price
determined by multiplying the Exercise Price then in effect by a fraction, the
numerator of which shall be the current market price per share of Common Stock
on the record date for such distribution less the sum of (X) the cash portion,
if any, of such distribution per share of Common Stock outstanding (exclusive of
any treasury shares) on the record date for such distribution plus (Y) the then
fair market value (as determined in good faith by the Board of Directors of the
Company) per share of Common Stock outstanding (exclusive of any treasury
shares) on the record date for such distribution of that portion, if any, of
such distribution consisting of evidences of indebtedness, other securities,
properties, assets, options, warrants or subscription or purchase rights, and
the denominator of which shall be such current market price per share of Common
Stock and (B) the number of shares of Common Stock purchasable upon the exercise
of each Warrant shall be increased to a number determined by multiplying the
number of shares of Common Stock so purchasable immediately prior to the record
date for such distribution by a fraction, the numerator of which shall be the
Exercise Price in effect immediately prior to the adjustment required by clause
(A) of this sentence and the denominator of which shall be the Exercise Price in
effect immediately after such adjustment. The adjustments required by this
paragraph (d) shall be made whenever any such distribution occurs retroactive to
the record date for the determination of stockholders entitled to receive such
distribution.
14
<PAGE>
(e) Current Market Price. For the purpose of any computation of
--------------------
current market price under this Section 13 and Section 15, the current market
price per share of Common Stock at any date shall be (x) for purposes of Section
15, the closing price on the business day immediately prior to the exercise of
the applicable Warrant pursuant to Section 8 and (y) in all other cases, the
average of the daily closing prices for the shorter of (i) the 20 consecutive
trading days ending on the last full trading day on the exchange or market
specified in the second succeeding sentence prior to the Time of Determination
(as defined below) and (ii) the period commencing on the date next succeeding
the first public announcement of the issuance, sale, distribution or granting in
question through such last full trading day prior to the Time of Determination.
The term "Time of Determination" as used herein shall be the time and date of
the earlier to occur of (A) the date as of which the current market price is to
be computed and (B) the last full trading day on such exchange or market before
the commencement of "ex-dividend" trading in the Common Stock relating to the
event giving rise to the adjustment required by paragraph (a), (b), (c) or (d).
The closing price for any day shall be the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
closing bid and asked prices regular way for such day, in each case (1) on the
principal national securities exchange on which the shares of Common Stock are
listed or to which such shares are admitted to trading or (2) if the Common
Stock is not listed or admitted to trading on a national securities exchange, in
the over-the-counter market as reported by Nasdaq National Market or any
comparable system or (3) if the Common Stock is not listed on Nasdaq National
Market or a comparable system, as furnished by two members of the NASD selected
from time to time in good faith by the Board of Directors of the Company for
that purpose. In the absence of all of the foregoing, or if for any other reason
the current market price per share cannot be determined pursuant to the
foregoing provisions of this paragraph (e), the current market price per share
shall be the fair market value thereof as determined in good faith by the Board
of Directors of the Company.
(f) Certain Distributions. If the Company shall pay a dividend or
---------------------
make any other distribution payable in Options or Convertible Securities, then,
for purposes of paragraph (c) above, such Options or Convertible Securities
shall be deemed to have been issued or sold without consideration.
(g) Consideration Received. If any shares of Common Stock, Options
----------------------
or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company in respect thereof shall be deemed to be the then fair
market value of such consideration (as determined in good faith by the Board of
Directors of the Company). If any Options shall be issued in connection with the
issuance and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration; provided, however, that if such Options have an exercise
price equal to or greater than the current market price of the Common Stock on
the date of issuance of such Options, then such Options shall be deemed to have
been issued for consideration equal to such exercise price.
(h) Deferral of Certain Adjustments. No adjustment to the Exercise
-------------------------------
Price (including the related adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant) shall be required hereunder
unless such adjustment, together with other adjustments carried forward as
provided below, would result in an increase or decrease of at least one percent
of the Exercise Price; provided that any adjustments which by reason of this
paragraph (h) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. No adjustment need be made for a
change in the par value of the Common Stock. All calculations under this Section
shall be made to the nearest 1/1,000 of one cent or to the nearest 1/1000 of a
share, as the case may be.
15
<PAGE>
(i) Changes in Options and Convertible Securities. If the exercise
---------------------------------------------
price provided for in any Options referred to in paragraph (c) above, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in paragraph (c) or (e) above, or the rate at
which any Convertible Securities referred to in paragraph (c) or (e) above are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Section 13), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock so
purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be, but only with respect to
such Options and Convertible Securities as then remain outstanding.
(j) Expiration of Options and Convertible Securities. If, at any
------------------------------------------------
time after any adjustment to the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall have been made pursuant to paragraph
(c), (e) or (j) above or this paragraph (k), any Options or Convertible
Securities shall have expired unexercised, the number of such shares so
purchasable shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had they 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 deemed to have been issued in connection with such
Options or Convertible Securities were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such Options or Convertible
Securities and (ii) 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, distribution or granting of all such Options or Convertible
Securities, whether or not exercised; provided that no such readjustment shall
have the effect of decreasing the number of such shares so purchasable by an
amount (calculated by adjusting such decrease to account for all other
adjustments made pursuant to this Section 13 following the date of the original
adjustment referred to above) in excess of the amount of the adjustment
initially made in respect of the issuance, sale, distribution or granting of
such Options or Convertible Securities.
(k) Other Adjustments. In the event that at any time, as a result of
-----------------
an adjustment made pursuant to this Section 13, the Holders shall become
entitled to receive any securities of the Company other than shares of Common
Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Exercise Price applicable to such exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the shares of
Common Stock contained in this Section 13.
Section 14. Statement on Warrants. Irrespective of any adjustment in
---------------------
the number or kind of shares issuable upon the exercise of the Warrants or the
Exercise Price, Warrants theretofore or thereafter issued may continue to
express the same number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
Section 15. Fractional Interest. The Company shall not be required
-------------------
to issue fractional shares of Common Stock on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full shares of Common Stock which shall be issuable
upon such exercise shall be computed on the basis of the aggregate number of
shares of Common Stock acquirable on exercise of the Warrants so presented. If
any fraction of a share of Common Stock would, except
16
<PAGE>
for the provisions of this Section, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall direct the Transfer Agent to
pay an amount in cash calculated by it equal to (i) the then current market
price per share multiplied by such fraction computed to the nearest whole cent,
less (ii) an amount equal to the Exercise Price multiplied by such fraction
computed to the nearest whole cent. The Holders, by their acceptance of the
Warrant Certificates, expressly waive any and all rights to receive any fraction
of a share of Common Stock or a stock certificate representing a fraction of a
share of Common Stock.
Section 16. Notices to Warrant Holders and the Warrant Agent. Upon
------------------------------------------------
any adjustment of the Exercise Price pursuant to Section 13, the Company shall
promptly thereafter (i) cause to be filed with the Warrant Agent a certificate
executed by the Chief Financial Officer of the Company setting forth the
Exercise Price after such adjustment and setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based and
setting forth the number of Warrant Shares (or portion thereof) issuable after
such adjustment in the Exercise Price, upon exercise of a Warrant and payment of
the adjusted Exercise Price, which certificate shall be conclusive evidence of
the correctness of the matters set forth therein, and (ii) cause to be given to
each of the registered Holders of the Warrant Certificates at his address
appearing on the Warrant register written notice of such adjustments by first-
class mail, postage prepaid. The Warrant Agent shall be entitled to rely on the
above-referenced accountant's certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the same
from time to time to any Holder desiring an inspection thereof during reasonable
business hours. The Warrant Agent shall not at any time be under any duty or
responsibility to any Holder to determine whether any facts exist that may
require any adjustment of the number of shares of Common Stock or other stock or
property issuable on exercise of the Warrants or the Exercise Price, or with
respect to the nature or extent of any such adjustment when made, or with
respect to the method employed in making such adjustment or the validity or
value (or the kind or amount) of any shares of Common Stock or other stock or
property which may be issuable on exercise of the Warrants. The Warrant Agent
shall not be responsible for any failure of the Company to make any cash payment
or to issue, transfer or deliver any shares of Common Stock or stock
certificates or other common stock or property upon the exercise of any Warrant.
In case:
(a) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other
than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends payable in shares of Common Stock
or distributions referred to in Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a party for
which approval of any shareholders of the Company is required and following
which the shareholders of the Company before such consolidation or merger
no longer hold at least 50% of the outstanding capital stock of the Company
following the merger or consolidation, or of the conveyance or transfer of
all or substantially all of the properties and assets of the Company, or of
any reclassification or change of Common Stock issuable upon exercise of
the Warrants (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision
or combination), or a tender offer or exchange offer for shares of Common
Stock, or other transaction that would result in a Change in Control; or
17
<PAGE>
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any other action that would require
an adjustment of the Exercise Price or the number of Warrant Shares
pursuant to Section 13;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered Holders of the Warrant Certificates at
such Holder's address appearing on the Warrant register, at least 20 days (or 10
days in any case specified in clauses (a) or (b) above) prior to the applicable
record date hereinafter specified, or promptly in the case of events for which
there is no record date, by first class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up or Change of Control is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up or Change of Control. The failure to give the notice required by this Section
16 or any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or Change of Control or the
vote upon any action. Nothing contained in this Agreement or in any of the
Warrant Certificates shall be construed as conferring upon the Holders thereof
the right to vote or to consent or to receive notice as shareholders in respect
of the meetings of shareholders or the election of Directors of the Company or
any other matter, or any rights whatsoever as shareholders of the Company.
Section 17. Merger, Consolidation or Change of Name of Warrant Agent.
--------------------------------------------------------
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the business of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor warrant agent under the provisions of
Section 19. Any such successor Warrant Agent shall promptly cause notice of its
succession as Warrant Agent to be mailed (by first class mail, postage prepaid)
to each Holder at such Holder's last address as shown on the register maintained
by the Warrant Agent pursuant to this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement, and in case at that time any of the Warrant Certificates shall have
been countersigned but not delivered, any such successor to the Warrant Agent
may adopt the countersignature of the original Warrant Agent; and in case at
that time any of the Warrant Certificates shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrant Certificates either
in the name of the predecessor Warrant Agent or in the name of the successor to
the Warrant Agent; and in all such cases such Warrant Certificates shall have
the full force and effect provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name, and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
18
<PAGE>
Section 18. Warrant Agent. The Warrant Agent undertakes the duties
-------------
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes
no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of
the Warrant Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or
in the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to any
Holder of any Warrant Certificate in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with the opinion
or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any Holder of any Warrant Certificate for any action
taken in reliance on any Warrant Certificate, certificate of shares,
notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature reasonably incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless against
any and all liabilities, including judgments, reasonable costs and counsel
fees, for anything done or omitted by the Warrant Agent in the execution of
this Agreement except as a result of its negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this
provision shall not affect the power of the Warrant Agent to take such
action as it may consider proper, whether with or without any such security
or indemnity. All rights of action under this Agreement or under any of
the Warrants may be enforced by the Warrant Agent without the possession of
any of the Warrant Certificates or the production thereof at any trial or
other proceeding relative thereto, and any such action, suit or proceeding
instituted by the Warrant Agent shall be brought in its name as Warrant
Agent and any recovery of judgment shall be for the ratable benefit of the
Holders of the Warrants, as their respective rights or interests may
appear.
(g) The Warrant Agent, and any stockholder, director, officer or
employee of it, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the
19
<PAGE>
Company or otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal
entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for anything which it may do
or refrain from doing in connection with this Agreement except for its own
negligence or bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any Holder of any Warrant Certificate to make or cause to
be made any adjustment of the Exercise Price or number of the Warrant
Shares or other securities or property deliverable as provided in this
Agreement, or to determine whether any facts exist which may require any of
such adjustments, or with respect to the nature or extent of any such
adjustments, when made, or with respect to the method employed in making
the same. The Warrant Agent shall not be accountable with respect to the
validity or value or the kind or amount of any Warrant Shares or of any
securities or property which may at any time be issued or delivered upon
the exercise of any Warrant or with respect to whether any such Warrant
Shares or other securities will when issued be validly issued and fully
paid and nonassessable, and makes no representation with respect thereto.
(j) In no event shall the Warrant Agent be liable hereunder for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Warrant Agent has
been advised of the likelihood of such loss or damage and regardless of the
form of action. No provision in this Agreement shall require the Warrant
Agent to risk or expend its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder.
Section 19. Resignation and Removal of Warrant Agent; Appointment of
--------------------------------------------------------
Successor. No resignation or removal of the Warrant Agent and no appointment of
- ---------
a successor warrant agent shall become effective until the acceptance of
appointment by the successor warrant agent as provided herein. The Warrant
Agent may resign its duties and be discharged from all further duties and
liability hereunder (except liability arising as a result of the Warrant Agent's
own negligence or willful misconduct) after giving written notice to the
Company. The Company may remove the Warrant Agent upon written notice, and the
Warrant Agent shall thereupon in like manner be discharged from all further
duties and liabilities hereunder, except as aforesaid. The Warrant Agent shall,
at the Company's expense, cause to be mailed (by first class mail, postage
prepaid) to each Holder of a Warrant at his last address as shown on the
register of the Company maintained by the Warrant Agent a copy of said notice of
resignation or notice of removal, as the case may be. Upon such resignation or
removal, the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of 30 days after it
has been notified in writing of such resignation by the resigning Warrant Agent
or after such removal, then the resigning or removed Warrant Agent or the Holder
of any Warrant may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a corporation doing business under the
laws of the United States or any state thereof, in good standing and having a
combined capital and surplus of not less than $10,000,000. The combined capital
and surplus of any such new warrant agent shall be deemed to be the combined
capital and surplus as set forth in the most recent annual report of its
condition published by such warrant agent prior to its appointment, provided
that such reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority. After
acceptance in writing of such appointment by the new warrant agent, it shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant
20
<PAGE>
Agent, without any further assurance, conveyance, act or deed; but if for any
reason it shall be necessary or expedient to execute and deliver any further
assurance, conveyance, act or deed, the same shall be done at the expense of the
Company and shall be legally and validly executed and delivered by the resigning
or removed Warrant Agent. Not later than the effective date of any such
appointment, the Company shall give notice thereof to the resigning or removed
Warrant Agent. Failure to give any notice provided for in this Section, however,
or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the appointment of a new warrant agent, as
the case may be.
Section 20. Registration. The Company acknowledges that Holders
------------
shall have the registration rights set forth in the Warrant Registration Rights
Agreement.
Section 21. Reports.
-------
(a) So long as any of the Warrants remain outstanding, the Company
shall cause copies of all quarterly and annual financial reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Company is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act ("SEC Reports") to be filed with the Warrant Agent and
mailed to the Holders of the Warrants at their addresses appearing in the
register of Warrant Holders maintained by the Warrant Agent, in each case,
within 15 days of filing with the Commission. If the Company is not subject to
the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
nevertheless continue to cause SEC Reports, comparable to those which it would
be required to file pursuant to Section 13 or 15(d) of the Exchange Act if it
were subject to the requirements of either such Section, to be so filed with the
Commission (but only if the Commission permits such filings) and with the
Warrant Agent and mailed to the Holders of the Warrants, in each case, within
the same time periods as would have applied (including under the preceding
sentence) had the Company been subject to the requirements of Section 13 or
15(d) of the Exchange Act.
(b) The Company shall provide the Warrant Agent with a sufficient
number of copies of all SEC Reports that the Warrant Agent may be required to
deliver to the Holders of the Warrants under this Section 21.
(c) The Warrant Agent shall not be responsible for reviewing any
reports filed with it by the Company pursuant to this Section 21.
Section 22. Rule 144A. The Company hereby agrees with each Holder,
---------
for so long as any Registrable Securities remain outstanding, to make available,
upon request of any Holder of Registrable Securities, to any Holder or
beneficial owner of Registrable Securities in connection with any sale thereof
and any prospective purchaser of such Registrable Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Securities Act in order to permit resales of such Registrable Securities
pursuant to Rule 144A.
Section 23. Notices to Company and Warrant Agent. Any notice or
------------------------------------
demand authorized by this Agreement to be given or made by the Warrant Agent or
by the Holder of any Warrant Certificate to or on the Company shall be
sufficiently given or made when and if deposited in the mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
Concentric Network Corporation
21
<PAGE>
10590 N. Tantau Avenue
Cupertino, California 95014
Telecopy: (408) 342-2810
Telephone: (408) 342-2800
Attention: Mike F. Anthofer
In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or by
the Holder(s) of any Warrant Certificate to the Warrant Agent shall be
sufficiently given when and if deposited in the mail, first-class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Warrant Agent with the Company) to the Warrant Agent as follows:
Chase Manhattan Bank and Trust Company, National Association
55 Water Street, Room 234
North Building
New York, New York 10001
Attention: Corporate Trust Department
Section 24. Supplements and Amendments. The Company and the Warrant
--------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any Holders of Warrant Certificates in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Warrant Agent may deem necessary or desirable and which shall not in any
way adversely affect the interests of the Holders of Warrant Certificates. Any
amendment or supplement to this Agreement that has a material adverse effect on
the interests of Holders shall require the written consent of Holders
representing a majority of the then outstanding Warrants (excluding Warrants
held by the Company or any of its Affiliates). The consent of each Holder of a
Warrant affected shall be required for any amendment pursuant to which the
Exercise Price would be increased or the number of Warrant Shares purchasable
upon exercise of Warrants would be decreased (other than pursuant to adjustments
provided for in Section 13 hereof). The Warrant Agent shall be entitled to
receive and, subject to Section 18, shall be fully protected in relying upon, an
officers' certificate and opinion of counsel as conclusive evidence that any
such amendment or supplement is authorized or permitted hereunder, that it does
or does not, as the case may be, require the written consent of Holders to be
effective hereunder, that it is not inconsistent herewith, and that it will be
valid and binding upon the Company in accordance with its terms.
Section 25. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 26. Termination. This Agreement (other than any party's
-----------
obligations with respect to Warrants previously exercised and with respect to
indemnification or any other payment then owed to Warrant Agent under Section
18) shall terminate at 5:00 p.m., New York City time on the Expiration Date.
Section 27. Governing Law. THIS AGREEMENT AND EACH WARRANT
-------------
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER
22
<PAGE>
THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF SAID STATE.
Section 28. Benefits of This Agreement.
--------------------------
(a) Nothing in this Agreement shall be construed to give to any
person other than the Company, the Warrant Agent and the Holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this Agreement;
but this Agreement shall be for the sole and exclusive benefit of the Company,
the Warrant Agent and the Holders of the Warrant Certificates.
(b) Prior to the exercise of the Warrants, no Holder of a Warrant
Certificate, as such, shall be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to receive dividends or
subscription rights, the right to vote, to consent, to exercise any preemptive
right, to receive any notice of meetings of stockholders for the election of
directors of the Company or any other matter or to receive any notice of any
proceedings of the Company, except as may be specifically provided for herein.
The Holders of the Warrants are not entitled to share in the assets of the
Company in the event of the liquidation, dissolution or winding up of the
Company's affairs.
(c) All rights of action in respect of this Agreement are vested in
the Holders of the Warrants, and any Holder of any Warrant, without the consent
of the Warrant Agent or the Holder of any other Warrant, may, on such Holder's
own behalf and for such Holder's own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company suitable to enforce,
or otherwise in respect of, such Holder's rights hereunder, including the right
to exercise, exchange or surrender for purchase such Holder's Warrants in the
manner provided in this Agreement.
Section 29. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
[Signature Page Follows]
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
CONCENTRIC NETWORK CORPORATION
By: /s/ Henry R. Nothhaft
_________________________
Name: Henry R. Nothhaft
Title: Chief Executive Officer
[Seal]
Attest: /s/ Secretary
___________________
Secretary
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL
ASSOCIATION,
as Warrant Agent
By: /s/ Chase Manhattan Bank and Trust Company,
National Association
____________________________________________
Name:
Title:
[Seal]
Attest: /s/ Secretary
____________________
Secretary
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS/2/
--------------------------------------------
The following exchanges of a part of this Global Warrant have been
made:
__________________________
/2/ This is to be included only if the Warrant is in global form.
A-7
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER
OF WARRANTS
Re: _________ Warrants to Purchase Common Stock (the "Warrants") of
CONCENTRIC NETWORK CORPORATION.
This Certificate relates to ______ Warrants held in/1/
__________ book-entry or _______________ definitive form by
_____________ (the "Transferor").
The Transferor:
[_] has requested the Warrant Agent by written order to deliver
in exchange for its beneficial interest in the Global Warrants held by
the depositary a Warrant or Warrants in definitive, registered form
equal to its beneficial interest in such Global Warrant (or the
portion thereof indicated above); or
[_] has requested the Warrant Agent by written order to exchange
or register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such
Warrant, the Transferor does hereby certify that the Transferor is
familiar with the Warrant Agreement relating to the above captioned
Warrants and that the transfer of this Warrant does not require
registration under the Securities Act of 1933, as amended (the
"Securities Act") because:
[_] Such Warrant is being acquired for the Transferor's own
account without transfer.
[_] Such Warrant is being transferred (i) to a qualified
institutional buyer (as defined in Rule 144A under the Securities
Act), in reliance on Rule 144A or (ii) pursuant to an exemption from
registration in accordance with Rule 904 under the Securities Act
(and, in the case of clause (ii), based on an opinion of counsel if
the Company or the Warrant Agent so requests).
[_] Such Warrant is being transferred (i) in accordance with
Rule 144 under the Securities Act (and based on an opinion of counsel
if the Company or the Warrant Agent so requests) or (ii) pursuant to
an effective registration statement under the Securities Act.
[_] Such Warrant is being transferred to an institutional
accredited investor within the meaning of Rule 501(a)(1), (2), (3) or
(7) under the Securities Act pursuant to a private placement exemption
from the registration requirements of the Securities Act (and based on
an opinion of counsel if the Company or the Warrant Agent so
requests).
_____________________
/1/ Check applicable box.
B-1
<PAGE>
[_] Such Warrant is being transferred in reliance on and in
compliance with another exemption from the registration requirements
of the Securities Act (and based on an opinion of counsel if the
Company or the Warrant Agent so requests).
[INSERT NAME OF TRANSFEROR]
By:___________________________
Name:_________________________
Title:________________________
Date:
B-2
<PAGE>
EXHIBIT C
Certificate of Applicable Transferee
(Section 501(a)(1), (2), (3) and (7) of Securities Act of 1933, as amended)
C-1
<PAGE>
Exhibit 10.46
WARRANT REGISTRATION RIGHTS AGREEMENT
Dated as of December 18, 1997
by and among
CONCENTRIC NETWORK CORPORATION,
UBS SECURITIES LLC,
BEAR, STEARNS & CO. INC.
and
WHEAT, FIRST SECURITIES, INC.
<PAGE>
THIS WARRANT REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of December 18, 1997, by and between CONCENTRIC NETWORK
CORPORATION, a Delaware corporation (the "Company"), UBS SECURITIES LLC, BEAR,
STEARNS & CO. INC. and WHEAT, FIRST SECURITIES, INC. (the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated December
15, 1997, between the Company and the Initial Purchasers (the "Purchase
Agreement"), relating to, among other things, the sale by the Company to the
Initial Purchasers of an aggregate of 150,000 Units, consisting in the aggregate
of (i) $150,000,000 principal amount at maturity of 12 3/4% Senior Notes due
2007 (the "Notes") and (ii) 150,000 Warrants (the "Unit Warrants"), each
representing the right to purchase initially 6.34072 shares of Common Stock, par
value $.001 per share, of the Company (the "Common Stock"). The Warrants have
been issued pursuant to the Warrant Agreement dated as of the date hereof
between the Company and Chase Manhattan Bank and Trust Company, National
Association as warrant agent (the "Warrant Agreement"). In order to induce the
Initial Purchasers to enter into the Purchase Agreement, the Company has agreed
to provide to the Initial Purchasers and the Holders (as defined herein), among
other things, the registration rights for the Warrant Shares (as defined herein)
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
Section 1. Definitions. As used in this agreement, the following defined
-----------
terms shall have the following meanings:
"Advice" has the meaning ascribed to such term in the last paragraph of
Section 4 hereof.
"Black Out Period" has the meaning ascribed to such term in Section 2.3(b)
hereof.
"Business Day" shall mean a day that is not a Legal Holiday.
"Common Stock" has the meaning ascribed to such term in the preamble
hereof.
"Company" shall have the meaning ascribed to that term in the preamble
hereof and shall also include the Company's permitted successors and assigns.
"Demand Registration" has the meaning ascribed to such term in Section
2.1(a) hereof.
"DTC" has the meaning ascribed to such term in Section 4(i) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Expiration Date" has the meaning ascribed to such term in the Warrant
Agreement.
<PAGE>
"Holder" shall mean the Initial Purchasers, for so long as they own any
Warrants or Warrant Shares, and each of their successors, assigns and direct and
indirect transferees who become registered owners of such Warrants or Warrant
Shares.
"Included Securities" has the meaning ascribed to such term in Section
2.1(a) hereof.
"indemnified party" has the meaning ascribed to such term in Section 5(c)
hereof.
"indemnifying party" has the meaning ascribed to such term in Section 5(c)
hereof.
"Indenture" means the Indenture, of even date herewith, between the Company
and Chase Manhattan Bank and Trust Company, National Association, as Trustee,
pursuant to which the Notes are issued.
"Initial Purchasers" has the meaning ascribed to such term in the preamble
hereof.
"Inspectors" has the meaning ascribed to such term in Section 4(n) hereof.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which banking
institutions in New York, New York are required by law, regulation or executive
order to remain closed.
"Notes" has the meaning ascribed to such term in the preamble hereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Piggy-Back Registration" has the meaning ascribed to such term in Section
2.2 hereof.
"Prospectus" means the prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Purchase Agreement" has the meaning ascribed to such term in the preamble
hereof.
"Registrable Securities" means any of (i) the Warrant Shares and (ii) any
other securities issued or issuable with respect to any Warrant Shares by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise,
unless, in each case, such Warrant Shares and securities, if any, have
been offered and sold to the Holder pursuant to an effective Registration
Statement under the Securities Act declared effective
2.
<PAGE>
prior to the exercisability of the Warrants or such Warrant Shares and
securities, if any, may be sold to the public pursuant to Rule 144 without any
restriction on the amount of securities which may be sold by such Holder or the
satisfaction of any condition. As to any particular Registrable Securities held
by a Holder, such securities shall cease to be Registrable Securities when (i) a
Registration Statement with respect to the exercise or offering of such
securities by the Holder thereof shall have been declared effective under the
Securities Act and such securities shall have been exercised and/or disposed of
by such Holder pursuant to such Registration Statement, (ii) such securities may
at the time of determination be sold to the public pursuant to Rule 144 without
any restriction on the amount of securities which may be sold by such Holder (or
any similar provision then in force, but not Rule 144A) promulgated under the
Securities Act without the lapse of any further time or the satisfaction of any
condition, (iii) such securities shall have been otherwise transferred by such
Holder and new certificates for such securities not bearing a legend restricting
further transfer shall have been delivered by the Company or its transfer agent
and subsequent disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force or
(iv) such securities shall have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all SEC and stock exchange or National Association of Securities Dealers, Inc.
registration and filing fees and expenses, fees and expenses of compliance with
securities or blue sky laws (including, without limitation, reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), printing expenses, messenger,
telephone and delivery expenses, fees and disbursements of counsel for the
Company and all independent certified public accountants, the fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (but not including any underwriting discounts or commissions or
transfer taxes, if any, attributable to the sale of Registrable Securities by
Holders of such Registrable Securities) and other reasonable out-of-pocket
expenses of Holders (including the fees and expenses of one counsel for the
Holders to be selected by a majority of such Holders).
"Registration Statement" shall mean any appropriate registration statement
of the Company filed with the SEC pursuant to the Securities Act which covers
any of the Registrable Securities pursuant to the provisions of this Agreement
and all amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Requisite Securities" shall mean a number of Registrable Securities equal
to not less than 25% of the Registrable Securities held in the aggregate by all
Holders; provided, however, that with respect to any action to be taken at the
request of the Holders of the Registrable Securities prior to such time as the
Warrants have expired pursuant to the terms thereof and of the Warrant
Agreement, each Warrant outstanding shall be deemed to represent that number of
Registrable Securities for which such Warrant would be then exercisable (without
giving effect to the cashless (net) exercise feature referred to in the Warrant
Agreement).
3.
<PAGE>
"Rule 144" shall mean Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Selling Holder" shall mean a Holder who is selling Registrable Securities
in accordance with the provisions of Section 2.1 or 2.2 hereof.
"Warrants" has the meaning ascribed to such term in the preamble hereof.
"Warrant Agent" means Chase Manhattan Bank and Trust Co., N.A. and any
successor Warrant Agent for the Warrants pursuant to the Warrant Agreement.
"Warrant Agreement" has the meaning ascribed to such term in the preamble
hereof.
"Warrant Shares" means the shares of Common Stock delivered or deliverable
upon exercise of the Warrants.
Section 2. Registration Rights.
-------------------
Section 2.1. Demand Registration.
-------------------
(a) General. At any time and from time to time after the
-------
first anniversary of the date of the Warrant Agreement, Holders owning,
individually or in the aggregate, not less than the Requisite Securities may
make a written request, on no more than three occasions (each, a "Demand
Registration"), that the Company register the resale of the Warrant Shares,
under the Securities Act. The Company shall file with the SEC and use its best
efforts to cause to become effective under the Securities Act a Registration
Statement with respect to such Registrable Securities within (i) 60 days of
receipt of such written request for a Demand Registration if the Company is then
eligible to register an offering pursuant to Form S-3 under the Securities Act;
(ii) 90 days of receipt of such written request for a Demand Registration if the
Company is not then eligible to register an offering pursuant to Form S-3 under
the Securities Act but is then qualified as a reporting company under the
Exchange Act; or (iii) 180 days of receipt of such written request for a Demand
Registration in any other case. Any such request will specify the number of
Registrable Securities proposed to be sold and will also specify
4.
<PAGE>
the intended method of disposition thereof. The Company shall give written
notice of such registration request to all other Holders of Registrable
Securities within 15 business days after the receipt thereof. Within 10 days
after receipt by any Holder of Registrable Securities of such notice from the
Company, such Holder may request in writing that such Holder's Registrable
Securities be included in such Registration Statement and the Company shall
include in such Registration Statement the Registrable Securities of any such
Holder requested to be so included (the "Included Securities"). Each such
request by such other Holders shall specify the number of Included Securities
proposed to be sold and the intended method of disposition thereof. Subject to
Sections 2.1(b) and 2.1(e) hereof, the Company shall be required to register
Registrable Securities pursuant to this Section 2.1(a) on a maximum of three
separate occasions.
Subject to Section 2.1(e) hereof, no other securities of the Company except
(i) Registrable Securities held by any Holder, (ii) equity securities to be
offered and sold for the account of the Company and (iii) any equity securities
of the Company held by and any Person having "piggy-back" registration rights
pursuant to any contractual obligation of the Company shall be included in a
Demand Registration. The inclusion of any such securities for the account of
the Company or any other Person shall be on the same terms as that of the
Registrable Securities.
(b) Effective Registration. A Registration Statement will
----------------------
not be deemed to have been effected as a Demand Registration unless it has been
declared effective by the SEC and the Company has complied in all material
respects with all of its obligations under this Agreement with respect thereto;
provided, however, that if, after such Registration Statement has become
effective, the offering of Registrable Securities pursuant to such Registration
Statement is or becomes the subject of any stop order, injunction or other order
or requirement of the SEC or any other governmental or administrative agency or
court that prevents, restrains or otherwise limits the sale of Registrable
Securities pursuant to such Registration Statement for any reason not
attributable to any Holder participating in such registration and such restraint
is not lifted within 60 days after being imposed, such Registration Statement
will be deemed not to have been effected. If (i) a registration requested
pursuant to this Section 2.1 is deemed not to have been effected or (ii) a
Demand Registration does not remain effective under the Securities Act until at
least the earlier of (A) an aggregate of six months after the effective date
thereof or (B) the consummation of the distribution by the Holders of all of the
Registrable Securities covered thereby, then such registration shall not count
towards determining if the Company has satisfied its obligation to effect three
Demand Registrations pursuant to this Section 2.1. For purposes of calculating
the six month period referred to in the preceding sentence, any period of time
during which such Registration Statement was not in effect shall be excluded.
The Holders of Registrable Securities shall be permitted to withdraw all or any
part of the Registrable Securities from a Demand Registration at any time prior
to the effective date of such Demand Registration; provided, however, that
should the Holders of Registrable Securities remaining after such withdrawal
own, individually or in the aggregate, less than the Requisite Securities, the
Company shall have the right to terminate or withdraw any registration initiated
by it under Section 2.1 prior to the effectiveness of such registration.
5.
<PAGE>
(c) Restrictions on Sale by Holders. Each Holder of
-------------------------------
Registrable Securities whose Registrable Securities are covered by a
Registration Statement filed pursuant to Section 2.1 and are to be sold by the
Holder thereunder agrees, if and to the extent reasonably requested by the
managing underwriter or underwriters in an underwritten offering of common stock
or common equivalents the gross proceeds of which equal at least $10.0 million,
not to effect any public sale or distribution of Registrable Securities of the
Company of the same class as any securities included in such Registration
Statement, including a sale pursuant to Rule 144 (except as part of such
underwritten offering), during the 10-day period prior to, and during the 180-
day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such managing underwriter or underwriters.
The foregoing provisions of Section 2.1(c) shall not apply to any Holder of
Registrable Securities if such Holder is prevented by applicable statute or
regulation from entering into any such agreement; provided, however, that any
such Holder shall undertake, in its request to participate in any such
underwritten offering, not to effect any public sale or distribution of any
Registrable Securities commencing on the date of sale of such Registrable
Securities unless it has provided 45 days' prior written notice of such sale or
distribution to the underwriter or underwriters.
(d) Underwritten Registrations. If any of the Registrable
--------------------------
Securities covered by a Demand Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the Company and will be
reasonably acceptable to the Holders of not less than a majority of the
Registrable Securities to be sold thereunder. The Company shall obtain the
consent of a majority of the Holders of Registrable Securities in order for the
third registration pursuant to Section 2.1(a) to be an underwritten offering.
No Holder of Registrable Securities may participate in any underwritten
registration pursuant to a Registration Statement filed under this Agreement
unless such Holder (a) agrees to (i) sell such Holder's Registrable Securities
on the basis provided in and in compliance with the underwriting arrangements
and (ii) comply with Rules 101, 102 and 104 of Regulation M promulgated under
the Exchange Act and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
(e) Priority in Demand Registration. In a registration
-------------------------------
pursuant to Section 2.1 hereof involving an underwritten offering, if the
managing underwriter or underwriters of such underwritten offering have
informed, in writing, the Company and the Selling Holders who have requested
such Demand Registration or who have sought inclusion therein that in such
underwriter's or underwriters' opinion the total number of securities which the
Selling Holders and any other Person entitled to participate in such
registration pursuant to Section 2.1(a) hereof intend to include in such
offering is such as to adversely affect the success of such offering, including
the price at which such securities can be sold, then the Company will be
required to include in such registration only the amount of securities which it
is so advised should be included in such registration. In such event, securities
shall
6.
<PAGE>
be registered in such registration in the following order of priority: (i)
first, the securities which have been requested to be included in such
registration by the Holders of Registrable Securities and the securities of
other Persons entitled to exercise "piggy-back" registration rights pursuant to
contractual commitments of the Company (pro rata based on the amount of
securities held by the Holders of Registrable Securities and such Persons), and
(ii) second, provided that no securities sought to be included by the Holders or
any other Person sought to be included therein have been excluded from such
registration, securities to be offered and sold for the account of the Company.
If 25% or more of the Registrable Securities which the Holders have
requested to be included in a registration statement pursuant to Section 2.1
hereof have been excluded from such registration statement pursuant to the
provisions of the foregoing paragraph, then such registration shall not count
towards determining whether the Company has satisfied its obligation to effect
three Demand Registrations pursuant to Section 2.1 hereof.
Section 2.2. Piggy-Back Registration.
-----------------------
(a) General. If at any time after the first anniversary
-------
date of the Warrant Agreement the Company proposes to file a Registration
Statement under the Securities Act with respect to an offering by the Company
for its own account or for the account of any of its security holders of any
class of its common equity securities (other than (i) a Registration Statement
on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC or
other form of limited purpose), (ii) a Registration Statement filed in
connection with an exchange offer or offering of securities solely to the
Company's existing security holders, or (iii) a Registration Statement filed
pursuant to the exercise of "demand" registration rights of existing security
holders pursuant to a contractual commitment of the Company) then the Company
shall give written notice of such proposed filing to the Holders of Registrable
Securities as soon as practicable (but in no event fewer than 15 days before the
anticipated filing date or 10 days if the Company is subject to filing reports
under the Exchange Act and able to use Form S-3 under the Securities Act), and
such notice shall offer such Holders the opportunity to register such number of
shares of Registrable Securities as each such Holder may request in writing not
later than 5 days prior to the anticipated filing date of the Registration
Statement after receipt of such written notice from the Company (which request
shall specify the Registrable Securities intended to be disposed of by such
Selling Holder and the intended method of distribution thereof) (a "Piggy-Back
Registration"). The Company shall use its best efforts to keep such Piggy-Back
Registration continuously effective under the Securities Act until at least the
earlier of (A) 90 days after the effective date thereof or (B) the consummation
of the distribution by the Holders of all of the Registrable Securities covered
thereby. The Company shall use its commercially reasonable efforts to cause the
managing underwriter or underwriters, if any, of such proposed offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company or any other security holder included therein, subject
to the restrictions set forth in Section 2.2(b), and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Selling Holder shall have the right to
withdraw its request for inclusion of its Registrable Securities in any
Registration Statement pursuant to this Section 2.2 by giving timely written
notice to the Company of
7.
<PAGE>
its request to withdraw. The Company may withdraw a Piggy-Back Registration at
any time prior to the time it becomes effective or the Company may elect to
delay the registration; provided, however, that the Company shall give prompt
written notice thereof to participating Selling Holders. The Company will pay
all Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.2, and each Holder of
Registrable Securities shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to a Registration Statement effected pursuant to
this Section 2.2.
No registration effected under this Section 2.2, and no failure to effect a
registration under this Section 2.2, shall relieve the Company of its obligation
to effect a registration pursuant to Section 2.1 hereof, and no failure to
effect a registration under this Section 2.2 and to complete the sale of
securities registered thereunder in connection therewith shall relieve the
Company of any other obligation under this Agreement.
(b) Priority in Piggy-Back Registration. In a registration
-----------------------------------
pursuant to Section 2.2 hereof involving an underwritten offering, if the
managing underwriter or underwriters of such underwritten offering have
informed, in writing, the Company and the Selling Holders requesting inclusion
in such offering that in such underwriter's or underwriters' opinion the total
number of securities which the Company, the Selling Holders and any other
Persons desiring to participate in such registration intend to include in such
offering is such as to adversely affect the success of such offering, including
the price at which such securities can be sold, then the Company will be
required to include in such registration only the amount of securities which it
is so advised should be included in such registration. In such event, securities
shall be registered in such offering in the following order of priority: (i)
first, the securities which the Company proposes to register, and (ii) second,
provided that no securities sought to be included by the Company have been
excluded from such registration, the securities which have been requested to be
included in such registration by the Holders of Registrable Securities and other
Persons entitled to exercise "piggy-back" registration rights pursuant to
contractual commitments of the Company (pro rata based on the amount of
securities held by the Holders of Registrable Securities requesting such
inclusion and such Persons).
If, as a result of the provisions of this Section 2.2(b), any Selling
Holder shall not be entitled to include all Registrable Securities in a Piggy-
Back Registration that such Selling Holder has requested to be included, such
Selling Holder may elect to withdraw his request to include Registrable
Securities in such registration.
Section 2.3. Limitations, Conditions and Qualifications to
---------------------------------------------
Obligations Under Registration Covenants. The obligations of the Company set
- ----------------------------------------
forth in Sections 2.1 and 2.2 hereof are subject to each of the following
limitations, conditions and qualifications:
(a) Subject to the next sentence of this paragraph, the
Company shall be entitled to postpone, for a reasonable period of time, the
filing or effectiveness of, or suspend the rights of any Holders to make sales
pursuant to, any Registration Statement otherwise required to be prepared,
8.
<PAGE>
filed and made and kept effective by it pursuant to Section 2.1 or 2.2
thereunder; provided, however, that the duration of such postponement or
suspension may not exceed the earlier to occur of (A) 15 days after the
cessation of the circumstances described in the next sentence of this paragraph
on which such postponement or suspension is based or (B) 90 days after the date
of the determination of the Board of Directors referred to in the next sentence,
and the duration of such postponement or suspension shall be excluded from the
calculation of the six month period described in Section 2.1(b). Such
postponement or suspension may be effected only if the Board of Directors of the
Company determines reasonably and in good faith that the filing or effectiveness
of, or sales pursuant to, such Registration Statement would materially impede,
delay or interfere with any material financing, offer or sale of securities,
acquisition, corporate reorganization or other significant transaction involving
the Company or any of its Subsidiaries which material financing, offer or sale
of securities, acquisition, corporate reorganization or other significant
transaction is under active consideration at the time of such postponement or
suspension; provided, however, that the Company shall not be entitled to such
postponement or suspension more than twice in any twelve-month period. If the
Company shall so postpone the filing of a Registration Statement it shall, as
promptly as possible, deliver a certificate signed by the Chief Executive
Officer or President of the Company to the Selling Holders as to such
determination, and the Selling Holders shall (y) have the right, in the case of
a postponement of the filing or effectiveness of a Registration Statement, upon
the affirmative vote of the Holders of not less than a majority of the
Registrable Securities to be included in such Registration Statement, to
withdraw the request for registration by giving written notice to the Company
within 10 days after receipt of such notice or (z) in the case of a suspension
of the right to make sales, receive an extension of the registration period
equal to the number of days of the suspension. Any Demand Registration as to
which the withdrawal election referred to in the preceding sentence has been
effected shall not be counted for purposes of the three Demand Registrations the
Company is required to effect pursuant to Section 2.1 hereof.
(b) The Company shall not be required by this Agreement to
file a registration statement with respect to a Demand Registration during the
period starting with the date of filing of, and within 120 days immediately
following, the effective date of any registration statement under the Securities
Act pertaining to a firmly underwritten offering of equity securities of the
Company for its own account; provided that this clause (c) shall not apply from
and after December 15, 2005.
(c) The Company shall not be required by this Agreement to
file a registration statement with respect to a Demand Registration during the
period starting with the date of notice of a proper demand for the registration
of Common Stock of the Company, pursuant to a firmly underwritten offering, for
the account of any security holder of the Company in accordance with the terms
of the contractual arrangements governing such registration, and ending at the
earlier of:
(i) the withdrawal of any such registration statement
or the request to file such registration statement by the
security holder requesting such registration; or
(ii) 90 days after the effective date of any such
registration statement;
9.
<PAGE>
provided, however, that the Company shall not be entitled to invoke this clause
(c) more than once during any 12-month period.
(d) The Company's obligations shall be subject to the
obligations of the Selling Holders, which the Selling Holders acknowledge, to
furnish all information and materials required of such Selling Holders and to
take any and all actions required of such Selling Holders as may be required
under applicable federal and state securities laws and regulations to permit the
Company to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such Registration Statement; and
(e) The Company shall not be obligated to cause any special
audit to be undertaken in connection with any registration pursuant to this
Agreement unless such audit is required by the SEC or requested by the
underwriters with respect to such registration.
Section 2.4. Restrictions on Sale by the Company and Others. The
----------------------------------------------
Company covenants and agrees that (i) it shall not, and that it shall not cause
or permit any of its subsidiaries to, effect any public sale or distribution of
any securities of the same class as any of the Registrable Securities or any
securities convertible into or exchangeable or exercisable for such securities
(or any option or other right for such securities), other than any Common Stock
and/or options, warrants or other Common Stock purchase rights, and the Common
Stock issued pursuant to such option, warrants or other rights, to employees,
officers or directors of, or consultants or advisors to the Company or any
subsidiary pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board of Directors of the Company, during
the 10-day period prior to, and during the 180-day period beginning on, the
commencement of any underwritten offering of Registrable Securities pursuant to
a Demand Registration which has been requested pursuant to this Agreement, prior
to the Company or any of its subsidiaries publicly announcing its intention to
effect any such public sale or distribution; and (ii) the Company will not, and
the Company will not cause or permit any subsidiary of the Company to, after the
date hereof, enter into any agreement or contract that conflicts with or limits
or prohibits the full and timely exercise by the Holders of Registrable
Securities of the rights herein to request a Demand Registration or to join in
any Piggy-Back Registration subject to the other terms and provisions hereof.
Section 2.5. Rule 144 and Rule 144A. The Company covenants that it
----------------------
will file the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the SEC thereunder in
a timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder or beneficial owner of
Registrable Securities, make available such information necessary to permit
sales pursuant to Rule 144A under the Securities Act. The Company further
covenants that it will take
10.
<PAGE>
such further action as any Holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under
the Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC (it being expressly
understood that the foregoing shall not create any obligation on the part of the
Company to file periodic reports or other reports under the Exchange Act at any
time that it is not then required to file such reports pursuant to the Exchange
Act). Upon the request of any Holder of Registrable Securities, the Company
will in a timely manner deliver to such Holder a written statement as to whether
it has complied with such information requirements.
Section 3. "Market Stand-Off" Agreement.
---------------------------
(a) Each Holder hereby agrees that it shall not, to the
extent requested by a managing underwriter of common stock or common equivalents
of the Company, sell or otherwise transfer or dispose of any Registrable
Securities of the Company then owned by such Holder (other than to donees or
partners of the Holder who agree to be similarly bound) for up to 180 days
following the date of the final Prospectus in connection with each Registration
Statement of the Company filed under the Securities Act; provided, however, that
such agreement (i) shall not be applicable to Registrable Securities sold
pursuant to such registration, and (ii) shall only be applicable if the managing
underwriters request such agreement from each Holder.
(b) In order to enforce the foregoing covenant, the Company
shall have the right to impose stop transfer instructions with respect to the
Registrable Securities (and the Registrable Securities of every other person
subject to the foregoing restriction) until the end of such period. The
provisions of this Section 3 shall be binding upon any transferee of any
Registrable Securities.
Section 4. Registration Procedures. In connection with the obligations of
-----------------------
the Company with respect to any Registration Statement pursuant to Sections 2.1,
2.2 and 2.5 hereof, the Company shall, except as otherwise provided:
(a) Prepare and file with the SEC as soon as practicable each
such Registration Statement (but in any event on or prior to the date of filing
thereof required under this Agreement) and cause such Registration Statement to
become effective and remain effective as provided herein; provided, however,
that before filing any such Registration Statement or any Prospectus (for
registrations pursuant to Sections 2.1 and 2.2 hereof) or any amendments or
supplements thereto (only for registrations pursuant to Section 2.1 hereof), the
Company shall make available to the Holders of the Registrable Securities
covered by such Registration Statement, and the managing underwriter or
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review and comment of such Holders and
underwriters in connection with such sale, if any, for a period of at least five
Business Days, and the Company will not file any such Registration Statement or
any amendment or supplement to any such Registration Statement (including all
such documents incorporated by reference) to which the Holders of the
Registrable Securities covered by such Registration Statement or the
underwriters in connection with such sale, if any, shall reasonably object
11.
<PAGE>
within five Business Days after the receipt thereof. A participating Holder or
underwriter, if any, shall be deemed to have reasonably objected to such filing
if such Registration Statement, amendment or supplement, as applicable, as
proposed to be filed, contains a material misstatement or omission or fails to
comply with the applicable requirements of the Act;
(b) Prepare and file with the SEC such amendments and post-
effective amendments to the Registration Statement as may be necessary to keep
such Registration Statement continuously effective for the time periods
prescribed hereby; cause the related Prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; and comply with the provisions of the Securities Act, the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to it with respect to the disposition of all securities covered by
such Registration Statement as so amended or in such prospectus as so
supplemented.
(c) Notify the Holders of Registrable Securities, their
counsel and the managing underwriter or underwriters, if any, promptly (but in
any event within two (2) Business Days), and confirm such notice in writing, (i)
when a Prospectus or any prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective (including in such notice a
written statement that any Holder may, upon request, obtain, without charge, one
conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules and exhibits), (ii) of the issuance
by the SEC of any stop order suspending the effectiveness of such Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation or threatening of any proceedings for that purpose,
(iii) of the receipt by the Company of any notification with respect to (A) the
suspension of the qualification or exemption from qualification of the
Registration Statement or any of the Registrable Securities covered thereby for
offer or sale in any jurisdiction, or (B) the initiation of any proceeding for
such purpose, (iv) of the happening of any event, the existence of any condition
or information becoming known that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of such
Registration Statement, it will conform in all material respects with the
requirements of the Securities Act and it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, not misleading, and that in
the case of the Prospectus, it will conform in all material respects with the
requirements of the Securities Act and it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (v) of the
Company's reasonable determination that a post-effective amendment to such
Registration Statement would be appropriate.
(d) Use commercially reasonable efforts to prevent the
issuance of any order suspending the effectiveness of the Registration Statement
or of any order preventing or suspending the use of a Prospectus or suspending
the qualification (or exemption from qualification) of any of the Registrable
Securities covered thereby for sale in any jurisdiction, and, if any such order
is issued, to obtain the withdrawal of any such order at the earliest
practicable moment.
12.
<PAGE>
(e) If requested by the managing underwriter or underwriters,
if any, or the Holders of a majority of the Registrable Securities being sold in
connection with an underwritten offering (only for registrations pursuant to
Section 2.1 hereof), (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or
underwriters, if any, or such Holders reasonably request to be included therein
to comply with applicable law, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
prospectus supplement or post effective amendment, and (iii) supplement or make
amendments to such Registration Statement.
(f) Furnish to each Holder of Registrable Securities who so
requests and to counsel for the Holders of Registrable Securities and each
managing underwriter, if any, without charge, upon request, one conformed copy
of the Registration Statement and each post effective amendment thereto,
including financial statements and schedules, and of all documents incorporated
or deemed to be incorporated therein by reference and all exhibits (including
exhibits incorporated by reference).
(g) Deliver to each Holder of Registrable Securities, their
counsel and each underwriter, if any, without charge, as many copies of each
Prospectus (including each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request; and, subject to the last
paragraph of this Section 4, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the Holders of
Registrable Securities and the underwriter or underwriters or agents, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(h) Prior to any offering of Registrable Securities, to
register or qualify, and cooperate with the Holders of Registrable Securities,
the underwriter or underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of, such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as the managing underwriter or underwriters reasonably request in
writing, or, in the event of a non-underwritten offering, as the Holders of a
majority of the Registrable Securities may request; provided, however, that
where Registrable Securities are offered other than through an underwritten
offering, the Company agrees to cause its counsel to perform Blue Sky
investigations and file registrations and qualifications required to be filed
pursuant to this Section 4(h); keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the securities covered thereby; provided, however, that
the Company will not be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or (C) become subject to taxation in any jurisdiction where
it is not then so subject.
(i) Cooperate with the Holders of Registrable Securities
and the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates
13.
<PAGE>
representing Registrable Securities to be sold, which certificates shall not
bear any restrictive legends whatsoever and shall be in a form eligible for
deposit with The Depository Trust Company ("DTC"); and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriter or underwriters, if any, or Holders may reasonably request
at least two business days prior to any sale of Registrable Securities in a firm
commitment underwritten public offering.
(j) Pay all Registration Expenses in connection with the
registrations requested pursuant to Sections 2.1 and 2.2 hereof. Each Holder of
Registrable Securities shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to a Registration Statement requested pursuant
to Section 2.1.
(k) Upon the occurrence of any event contemplated by
Section 4(c)(iv) or 4(c)(v) above, as promptly as practicable prepare a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and, subject to Section 4(a) hereof, file
such with the SEC so that, as thereafter delivered to the purchasers of
Registrable Securities being sold thereunder, such Prospectus will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(l) Prior to the effective date of a Registration
Statement, (i) provide the registrar for the Registrable Securities with
certificates for such securities in a form eligible for deposit with DTC and
(ii) provide a CUSIP number for such securities.
(m) If the Company determines to conduct any offering
provided for herein by meaning of an underwriting, enter into an underwriting
agreement in form, scope and substance as is customary in underwritten offerings
and take all such other actions as are reasonably requested by the managing
underwriter or underwriters in order to expedite or facilitate the registration
or disposition of such Registrable Securities in any underwritten offering to be
made of the Registrable Securities in accordance with this Agreement, and in
such connection, (i) make such representations and warranties to the underwriter
or underwriters, with respect to the business of the Company and the
subsidiaries of the Company, and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings, and confirm the same if and
when requested; (ii) use reasonable efforts to obtain an opinion of counsel to
the Company, addressed to the underwriter or underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by underwriters; (iii) use
reasonable efforts to obtain "cold comfort" letters from the independent
certified public accountants of the Company (and, if applicable, the
subsidiaries of the Company) and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement, addressed to each of the
underwriters, such letters to be in customary form and covering matters of the
14.
<PAGE>
type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by the
managing underwriter or underwriters and as permitted by the Statement of
Auditing Standards No. 72; and (iv) if an underwriting agreement is entered
into, the same shall contain customary indemnification provisions and procedures
with respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
(n) Make available for inspection by a representative of
the Holders of Registrable Securities being sold, any underwriter participating
in any such disposition of Registrable Securities, if any, and any attorney or
accountant retained by such representative of the Holders or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
reasonable business hours, at the Inspector's expense, all financial and other
records, pertinent corporate documents and properties of the Company and the
subsidiaries of the Company as reasonably requested by the Inspector, and cause
the officers, directors and employees of the Company and the subsidiaries of the
Company to supply all information in each case reasonably requested by any such
Inspector in connection with such Registration Statement; provided, however,
that all such information shall be kept confidential by such Inspector and shall
not be used for any purpose other than as contemplated hereby, except to the
extent that (i) the disclosure of such information is necessary or advisable to
avoid or correct a misstatement or omission in the Registration Statement or in
any Prospectus; provided however, that prior notice is given to the Company, and
the Company's legal counsel and such Holder's legal counsel concur that
disclosure is required, (ii) the release of such information is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction, (iii)
disclosure of such information is necessary or advisable in connection with any
action, claim, suit or proceeding, directly or indirectly, involving or
potentially involving such Inspector and arising out of, based upon, relating to
or involving this Agreement or any of the transactions contemplated hereby or
arising thereunder; provided, however, that prior notice shall be provided as
soon as practicable to the Company of the potential disclosure of any
information by such Inspector pursuant to clauses (ii) or (iii) of this sentence
to permit the Company to obtain a protective order (or waive the provisions of
this paragraph (n)) and that such Inspector shall take all actions as are
reasonably necessary to protect the confidentiality of such information (if
practicable) to the extent such action is otherwise not inconsistent with, an
impairment of or in derogation of the rights and interests of the Holder or any
Inspector, or (iv) such information has been made generally available to the
public.
(o) Comply with all applicable rules and regulations of the
SEC and make generally available to its security holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than forty-five (45) days after the end of any 12-month period (or ninety (90)
days after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to an underwriter or to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to an underwriter or to underwriters
in such an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of the relevant Registration Statement,
which statements shall cover said 12-month periods.
15.
<PAGE>
(p) Use its best efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on each
securities exchange, if any, on which similar securities issued by the Company
are then listed.
(q) Cooperate with the Selling Holders of Registrable
Securities to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any restrictive
legends and registered in such names as the Selling Holders may reasonably
request at least two business days prior to the closing of any sale of
Registrable Securities.
Each seller of Registrable Securities as to which any registration is being
effected agrees, as a condition to the registration obligations with respect to
such seller provided herein, to furnish to the Company such information
regarding such seller and the distribution of such Registrable Securities as the
Company may, from time to time, reasonably request in writing to comply with the
Securities Act and other applicable law. The Company may exclude from such
registration the Registrable Securities of any seller for so long as such seller
fails to furnish such information within a reasonable time after receiving such
request. If the identity of a seller of Registrable Securities is to be
disclosed in the Registration Statement, such seller shall be permitted to
include all information regarding such seller as it shall reasonably request.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii),
4(c)(iv), or 4(c)(v) hereof, such Holder will forthwith discontinue disposition
of such Registrable Securities covered by the Registration Statement or
Prospectus until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 4(k) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and has received copies of any amendments or
supplements thereto, and, if so directed by the Company, such Holder will, at
the Company's expense, deliver to the Company all copies, other than permanent
file copies, then in such Holder's actual possession of the Prospectus covering
such Registrable Securities current at the time of receipt of such notice;
provided, however, that nothing herein shall create any obligation on the part
of any Holder to undertake unreasonable efforts to retrieve or return any such
Prospectus not within the actual possession or control of such Holder. In the
event the Company shall give any such notice, the period of time for which a
Registration Statement is required thereunder to be effective shall be extended
by the number of days during such periods from and including the date of the
giving of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 4(k)
hereof or (y) the Advice.
Section 5. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Holder and each Person, if any, who controls such Holder within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, or is
under common control with, or is controlled by, such Holder, from and against
all losses, claims, damages and liabilities (including, without limitation, and
16.
<PAGE>
subject to clause (c) of this Section 5 below, the reasonable legal fees and
other reasonable out-of-pocket expenses actually incurred by any Holder or any
such controlling or affiliated Person in connection with any suit, action or
proceeding or any claim asserted), caused by, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which Registrable
Securities were registered under the Securities Act, or caused by any omission
or alleged omission to state in any such Registration Statement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or caused by any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or Prospectus (as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state in
any such preliminary prospectus or Prospectus a material fact required to be
stated in any such preliminary prospectus or Prospectus or necessary to make the
statements in any such preliminary prospectus or Prospectus in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Holder furnished to the Company in
writing by such Holder expressly for use in any such Registration Statement or
Prospectus; provided, however, that the Company shall not be required to
indemnify any such Person if such untrue statement or omission or alleged untrue
statement or omission was contained or made in any preliminary prospectus and
corrected in the Prospectus, or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and any such loss, liability, claim, damage or expense
suffered or incurred by such indemnified Person resulted from any action, claim
or suit by any Person who purchased Registrable Securities which are the subject
thereof from such indemnified Person and it is established in the related
proceeding that such indemnified Person failed to deliver or provide a copy of
the Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Securities sold to such Person if
required by applicable law, unless such failure to deliver or provide a copy of
the Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 4 hereof or as a result of the failure of the Company to
provide such Prospectus.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
any Registration Statement, and each Person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Holder, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto). The liability of any Holder under this
paragraph shall in no event exceed the proceeds received by such Holder from
sales of Registrable Securities giving rise to such obligations.
(c) In case any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
either paragraph (a) or (b) above, such Person (the "indemnified
17.
<PAGE>
party") shall promptly notify the Person against which such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may reasonably designate in such proceeding and shall pay the
reasonable fees and expenses actually incurred of such counsel relating to such
proceeding; provided, however, that the failure to so notify the indemnifying
party shall not relieve it of any obligation or liability which it may have
thereunder or otherwise unless the indemnifying party has been materially
prejudiced by such failure. In any such proceeding, any indemnified party shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
contrary, (ii) the indemnifying party shall have failed to retain within a
reasonable period of time counsel reasonably satisfactory to such indemnified
party or parties or (iii) the named parties to any such proceeding (including
any impleaded parties) include both such indemnified party or parties and the
indemnifying parties or any affiliate of the indemnifying parties or such
indemnified parties and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between the
indemnifying party or parties and the indemnified party or parties. It is
understood that the indemnifying parties 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 or parties and that all such fees and expenses shall be
reimbursed within reasonable time of the request after the incurrence thereof.
Any such separate firm for the Holders and such control Persons of the Holders
shall be designated in writing by Holders who sold a majority in interest of
Registrable Securities sold by all such Holders and shall be reasonably
acceptable to the Company and any such separate firm for the Company, its
directors, its officers and such control Persons of the Company shall be
designated in writing by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its prior written consent
(which consent shall not be unreasonably withheld or delayed) but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify and hold harmless the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement or compliance of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party, or indemnity could
have been sought thereunder by such indemnified party, unless such settlement or
compliance involves only the payment of money damages that are actually paid by
the indemnifying party or includes an unconditional written release of such
indemnified party in form and substance reasonably satisfactory to such
indemnified party of such indemnified party from all liability or claims that
are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in
paragraph (a) or (b) of this Section 5 is unavailable to, or insufficient to
hold harmless, an indemnified party in respect of any losses, claims, damages or
liabilities, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder and in order to provide for just
and equitable contribution, shall contribute to the amount paid or payable by
such indemnified party as a result of such
18.
<PAGE>
losses, claims, damages or liabilities in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
the Holders on the other hand from the offering of such Registrable Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Company on the one hand and the Holders on the other hand in connection with
the statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Holders on the other shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of discounts and commissions but before deducting expenses) of the Warrants sold
pursuant to the Purchase Agreement received by the Company bears to the total
proceeds received by such Holder from the sale of Registrable Securities, as the
case may be. The relative fault of the Company on the one hand and the Holders
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in the
circumstances.
(e) The Company and each Holder agree that it would not be
just or equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 5(d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in Section 5(d) above shall be
deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5, in no event shall a Holder be
required to contribute any amount in excess of the amount by which proceeds
received by such Holder from sales of Registrable Securities exceeds the amount
of any damages that such Holder has otherwise been required to pay or has paid
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 5 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
(f) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 5 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 5 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, the Company, their respective directors or officers or any person
controlling the Company and (ii) any termination of this Agreement.
19.
<PAGE>
Section 6. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company represents and
--------------------------
warrants to the Holders that it has not entered into nor will the Company on or
after the date of this Agreement enter into, or cause or permit any of its
subsidiaries to enter into, any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
thereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's other issued and outstanding
securities, if any, under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement
----------------------
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given unless the Company
consents and the Company has obtained the prior written consent of Holders of
not less than a majority in number of the then outstanding Warrants and
Registrable Securities not resold to the public for the purpose of adding any
provision to or changing in any manner or eliminating any of the provisions of
this Agreement or modifying in any manner the rights of the Holders of the
outstanding Warrants; provided, however, that Section 5 hereof and this Section
6(b) may not be amended, modified or supplemented without the prior written
consent of each Holder (including any Person who was a Holder of Registrable
Securities disposed of pursuant to any Registration Statement) affected by such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to departure from the provisions hereof that relates exclusively to
the rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of Registrable
Securities may be given the Company and by the Holders of not less than a
majority of the Registrable Securities proposed to be sold by such Holders
pursuant to such Registration Statement.
(c) Notices. All notices and other communications provided
-------
for or permitted thereunder shall be made in writing by hand delivery,
registered first-class mail, telex, telecopier, or any courier guaranteeing
overnight delivery, (i) if to a Holder, at the most current address of Holder as
set forth in the register for the Warrants or the Warrant Shares, which address
initially is, with respect to the Initial Purchasers, the address set forth in
the Purchase Agreement; and (ii) if to the Company, initially at the address set
forth below the Company's name on the signature pages hereto and thereafter at
such other address, notice of which is given in accordance with the provisions
of this Section 6(c).
A copy of all notices and other communications under this Section 6(c)
shall be delivered to Wilson Sonsini Goodrich & Rosati, Professional
Corporation, 650 Page Mill Road, Palo Alto, California 94304, Attention: David
J. Segre, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
20.
<PAGE>
(d) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders. If any transferee of any Holder shall
acquire Warrants and/or Registrable Securities, in any manner, whether by
operation of law or otherwise, such Warrants and/or Registrable Securities shall
be held subject to all of the terms of this Agreement, and by taking and holding
such Warrants and/or Registrable Securities such Person shall be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement and such Person shall be entitled to receive the
benefits hereof.
(e) Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE
---------------------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Each of the parties hereto hereby irrevocably and unconditionally: (i)
submits itself and its property in any legal action or proceeding relating to
this Warrant Registration Rights Agreement or for recognition and enforcement of
any judgment in respect thereof, to the non-exclusive jurisdiction of the courts
of the State of New York and the courts of the United States of America for the
Southern District of New York, and appellate courts thereof, and consents and
agrees to such action or proceeding being brought in such courts; and (ii)
waives any objection that it may now or hereafter have to the venue of any such
action or proceeding in any such court or that such action or proceeding was
brought in any inconvenient court and agrees not to plead or claim the same.
(h) Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(i) Entire Agreement. This Agreement, together with the
----------------
Purchase Agreement and the Warrant Agreement is intended by the parties as a
final expression of their
21.
<PAGE>
agreement, and is 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. This Agreement, the Purchase Agreement and
the Warrant Agreement supersede all prior agreements and understandings between
the parties with respect to such subject matter.
(j) Attorneys' Fees. As between the parties to this Agreement,
---------------
in any action or proceeding brought to enforce any provision of this Agreement,
or where any provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
(k) Securities Held by the Company or Its Affiliates. Whenever
------------------------------------------------
the consent or approval of Holders of a specified percentage of Registrable
Securities or Warrants is required thereunder, Registrable Securities or
Warrants held by the Company or by any of its affiliates (as such term is
defined in Rule 405 under the Securities Act) shall not be counted (in either
the numerator or the denominator) in determining whether such consent or
approval was given by the Holders of such required percentage.
(l) Remedies. In the event of a breach by the Company of any
--------
of its obligations under this Agreement, each Holder, in addition to being
entitled to exercise all rights provided herein, in the Purchase Agreement or
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement.
[signature page follows]
22.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CONCENTRIC NETWORK CORPORATION
By: /s/ Henry R. Nothhaft
___________________________________
Name: Henry R. Nothhaft
Title: President and Chief Executive Officer
Address for Notices:
10590 N. Tantau Avenue
Cupertino, CA 95104
UBS SECURITIES LLC
BEAR, STEARNS & CO. INC.
WHEAT, FIRST SECURITIES, INC.
By UBS SECURITIES LLC
By: /s/ UBS Securities LLC
___________________________________
Name:
Title:
By: /s/ UBS Securities LLC
___________________________________
Name:
Title:
Address for Notices:
299 Park Avenue
New York, New York 10171
<PAGE>
Exhibit 10.47
ESCROW AGREEMENT
Dated as of December 18, 1997
by and among
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(as Escrow Agent),
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(as Trustee)
and
CONCENTRIC NETWORK CORPORATION
<PAGE>
THIS ESCROW AGREEMENT (this "Agreement"), dated as of December 18,
1997, among CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, as
escrow agent (in such capacity, "Escrow Agent"), CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, as Trustee (in such capacity, "Trustee") under
the Indenture (as defined herein), and CONCENTRIC NETWORK CORPORATION, a
Delaware corporation (the "Company").
WHEREAS, pursuant to the Indenture, dated as of December 18, 1997 (the
"Indenture"), between the Company and Trustee, the Company is issuing
$150,000,000 aggregate principal amount of 12 3/4% Senior Notes due 2007 (the
"Securities").
WHEREAS, as security for its obligations under the Securities and the
Indenture, the Company hereby grants to Escrow Agent, for the benefit of
Trustee, any predecessor Trustee under the Indenture and the holders of the
Securities, a security interest in and lien upon the Escrow Account (as defined
herein).
WHEREAS, the parties have entered into this Agreement in order to set
forth the conditions upon which, and the manner in which, funds will be
disbursed from the Escrow Account and released from the security interest and
lien described above.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. All terms used but not defined herein shall have
-------------
the meanings ascribed to them in the Indenture. In addition to any other
defined terms used herein, the following terms shall constitute defined terms
for purposes of this Agreement and shall have the meanings set forth below:
"Affiliate" of any specified person means any other person which,
directly or indirectly, controls, is controlled by or is under common control
with such specified person. For the purposes of this definition, "control" when
used with respect to any person means the power to direct the management and
policies of such person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applied" means that disbursed funds have been applied (i) to the
payment of interest on the Securities, (ii) pursuant to Section 3(c), or (iii)
pursuant to Section 6(b)(iii) hereof.
"Available Funds" means, at any date, (A) the sum of (i) the Pledged
Securities and any funds or U.S. Government Securities (ii) interest earned or
dividends paid on the Pledged Securities and any funds or U.S. Government
Securities, less (B) the aggregate disbursements made prior to such date
pursuant to this Agreement.
"Beneficiaries" see Section 2(b).
<PAGE>
"Collateral" see Section 6(a).
"Escrow Account" shall mean the escrow account established pursuant to
Section 2.
"Escrow Account Statement" see Section 2(f).
"Escrow Funds" see Section 6(c).
"Initial Escrow Amount" shall mean $52,395,935.20.
"Interest" has, other than for purposes of Section 2(d)(v), the
meaning set forth in the Indenture.
"Interest Payment Date" means June 15 and December 15 of each year,
commencing on June 15, 1998 until the Securities are paid in full.
"Payment Notice and Disbursement Request" means a notice sent by the
Company to Escrow Agent requesting a disbursement of funds from the Escrow
Account, in substantially the form of Exhibit A hereto. Each Payment Notice and
---------
Disbursement Request shall be signed by an officer of the Company.
"Pledged Securities" means the U.S. Government Securities, as more
fully described on Schedule I attached hereto, purchased by the Escrow Agent
with a portion of the net proceeds from the offering of the Notes and deposited
into the Escrow Account. The scheduled payments of principal and interest on
the Pledged Securities will be sufficient to provide for the payment in full of
the interest due on the Notes on the first six scheduled Interest Payment Dates
commencing June 15, 1998 and ending December 15, 2000.
"Secured Obligations" see Section 6(a).
"U.S. Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
obligations the full faith and credit of the United States is pledged.
2. Escrow Account; Escrow Agent.
----------------------------
(a) Appointment of Escrow Agent. The Company and Trustee hereby
---------------------------
appoint Escrow Agent, and Escrow Agent hereby accepts appointment, as escrow
agent, under the terms and conditions of this Agreement.
2.
<PAGE>
(b) Establishment of Escrow Account.
-------------------------------
(i) On the Issue Date, Escrow Agent shall establish an escrow
account entitled the "Escrow Account pledged by Concentric Network Corporation
to Chase Manhattan Bank and Trust Company, National Association, as Trustee"
(the "Escrow Account") at its office located at 101 California Street, Suite
2725, San Francisco, CA 94111. The Escrow Account shall be a "securities
account" as such term is defined in Section 8-501(a) of the 1994 Official Text
of Article 8 of the Uniform Commercial Code with conforming amendments to
Article 9 (the "Revised UCC"). All funds, including the Initial Escrow Amount,
Pledged Securities and any U.S. Government Securities accepted by Escrow Agent
pursuant to this Agreement shall be held for the exclusive benefit of Trustee,
any predecessor Trustee under the Indenture and holders of the Securities, as
secured parties hereunder (collectively, the "Beneficiaries"). All such funds
shall be held in the Escrow Account until disbursed or paid in accordance with
the terms hereof. The Escrow Account and all funds held therein, including the
Initial Escrow Amount, the Pledged Securities and any U.S. Government Securities
held by Escrow Agent shall be under the sole dominion and control of Escrow
Agent for the benefit of the Beneficiaries.
(ii) On the Issue Date, the Company shall deliver, or cause the
delivery of, the Initial Escrow Amount to Escrow Agent for deposit into the
Escrow Account against Escrow Agent's written acknowledgment and receipt of the
Initial Escrow Amount. The Escrow Agent shall purchase, or cause to be
purchased, the Pledged Securities, with all or a portion of the Initial Escrow
Amount. The Pledged Securities shall be held by the Escrow Agent and deposited
into the Escrow Account for the exclusive benefit of the Beneficiaries. All
payments of interest and principal on the Pledged Securities shall be deposited
into the Escrow Account to be paid or disbursed in accordance with the terms
hereof or, to the extent permitted by Section 2(d) hereof, reinvested in U.S.
Government Securities.
(c) Escrow Agent Compensation. The Company shall pay to Escrow
-------------------------
Agent such compensation for services to be performed by it under this Agreement
as the Company and Escrow Agent may agree in writing from time to time. Escrow
Agent shall be paid any compensation owed to it directly by the Company and
shall not disburse from the Escrow Account any such amounts nor shall Escrow
Agent have any interest in the Escrow Account with respect to such amounts.
The Company shall reimburse Escrow Agent upon request for all
reasonable expenses, disbursements, and advances incurred or made by Escrow
Agent in implementing any of the provisions of this Agreement, including
compensation and the reasonable expenses and disbursements of its counsel.
Escrow Agent shall be paid any such expenses owed to it directly by the Company
and shall not disburse from the Escrow Account any such amounts nor shall Escrow
Agent have any interest in the Escrow Account with respect to such amounts.
(d) Investment of Funds in Escrow Account. Any funds on
-------------------------------------
deposit in
3.
<PAGE>
the Escrow Account which are not invested may be reinvested, at the Company's
option, only upon the following terms and conditions:
(i) Acceptable Investments. All funds deposited or held in the
----------------------
Escrow Account at any time shall be invested by Escrow Agent in U.S.
Government Securities in accordance with the Company's written instructions
from time to time to Escrow Agent; provided, however, that (1) the Company
-------- -------
shall only designate investment of funds in U.S. Government Securities
maturing in an amount sufficient to and/or generating interest income
sufficient to, when added to the balance of funds held in the Escrow
Account, provide for the payment of interest on the outstanding Securities
on each Interest Payment Date beginning on and including June 15, 1998 and
through and including the Interest Payment Date on December 15, 2000 and
(2) any such written instruction shall specify the particular investment to
be made, shall state that such investment is authorized to be made hereby
and in particular satisfies the requirements of the preceding clause (1) of
this proviso, shall contain the certification referred to in Section
2(d)(ii), if required, and shall be executed by an Officer of the Company.
Escrow Agent shall have no responsibility for determining whether funds
held in the Escrow Account shall have been invested in such a manner so as
to comply with the requirements of this clause (i). All U.S. Government
Securities shall be assigned to and held in the possession of, or, in the
case of U.S. Government Securities maintained in book entry form with the
Federal Reserve Bank, transferred to a book entry account in the name of
Escrow Agent for the benefit of the Beneficiaries, with such guarantees as
are customary, except that U.S. Government Securities maintained in book
entry form with the Federal Reserve Bank shall be transferred to a book
entry account in the name of Escrow Agent at the Federal Reserve Bank that
includes only U.S. Government Securities held by Escrow Agent for its
customers and segregated by separate recordation in the books and records
of Escrow Agent. Escrow Agent shall not be liable for losses on any
investments made by it pursuant to and in compliance with such written
instructions. In the absence of instructions from the Company that meet
the requirements of this Section 2(d)(i), Escrow Agent shall have no
obligation to invest funds held in the Escrow Account.
(ii) Security Interest in Investments. No investment of funds in
--------------------------------
the Escrow Account shall be made unless the Company has certified to Escrow
Agent and Trustee that, upon such investment, Escrow Agent will have a
first priority perfected security interest in the applicable investment.
If a certificate as to a class of investments has been provided to Escrow
Agent, a certificate need not be issued with respect to individual
investments in securities in that class if the certificate applicable to
the class remains accurate with respect to such individual investments,
which continued accuracy Escrow Agent may conclusively assume. Promptly
following the date of this Agreement, and on each anniversary of the date
of this Agreement (upon receipt of written notice from Escrow Agent), until
the date upon which the balance of the Available Funds shall have been
reduced to zero, each of Trustee and Escrow Agent shall receive an Opinion
of
4.
<PAGE>
Counsel to the Company, dated each such date as applicable, which opinion
shall meet the requirements of Section 314(b) of the United States Trust
Indenture Act of 1939, as amended (the "TIA") and shall comply with Section
1302 of the Indenture.
(iii) Interest and Dividends. All interest earned and dividends
----------------------
paid on the Pledged Securities or any funds invested in U.S. Government
Securities shall be deposited in the Escrow Account as additional
Collateral and, if not required to be disbursed in accordance with the
terms hereof, subject to subsections 6(b)(iii), 6(e) and 6(f), shall be
reinvested in accordance with the terms hereof at the Company's written
instruction unless a Default or Event of Default has occurred or Trustee
has notified Escrow Agent that it should only take direction from Trustee
or should no longer take direction from the Company.
(iv) Limitation on Escrow Agent's Responsibilities. Escrow
---------------------------------------------
Agent's sole responsibilities under this Section 2 shall be (A) to retain
possession of certificated U.S. Government Securities (except, however,
that Escrow Agent may surrender possession to the issuer of any such U.S.
Government Securities for the purposes of effecting assignment, crediting
interest, or reinvesting such security or reducing such security to cash)
and to be the registered or designated owner of the Pledged Securities and
any U.S. Government Securities which are not certificated, (B) to follow
the Company's written instructions given in accordance with Section
2(d)(i), (C) to invest and reinvest funds pursuant to this Section 2(d) and
(D) to use reasonable efforts to reduce to cash such U.S. Government
Securities as may be required to fund any disbursement or payment in
accordance with Section 3. In connection with clause (A) above, Escrow
Agent will maintain continuous possession in the jurisdiction of its
principal place of business of certificated U.S. Government Securities and
cash included in the Collateral and will cause the Pledged Securities and
any uncertificated U.S. Government Securities to be registered in the book-
entry system of, and transferred to an account of Escrow Agent or a sub-
agent of Escrow Agent at, any Federal Reserve Bank. Except as provided in
Section 6, Escrow Agent shall have no other responsibilities with respect
to perfecting or maintaining the perfection of the security interest in the
Collateral and shall not be required to file any instrument, document or
notice in any public office at any time or times. In connection with
clause (D) above and subject to the following sentence, Escrow Agent shall
not be required to reduce to cash any U.S. Government Securities to fund
any disbursement or payment in accordance with Section 3 in the absence of
written instructions signed by an Officer of the Company specifying the
particular investment to liquidate. If no such written instructions are
received, Escrow Agent may liquidate those U.S. Government Securities
having the lowest interest rate per annum or if none such exist, those
having the nearest maturity.
(e) Substitution of Escrow Agent. Escrow Agent may resign by
----------------------------
giving no less than 15 Business Days prior written notice to the Company and
Trustee. Such
5.
<PAGE>
resignation shall take effect upon the later to occur of (i) delivery of all
funds, the Pledged Securities and any U.S. Government Securities maintained by
Escrow Agent hereunder and copies of all books, records, plans and other
documents in Escrow Agent's possession relating to such funds, the Pledged
Securities or any U.S. Government Securities or this Agreement to a successor
escrow agent mutually approved by the Company and Trustee (which approvals shall
not be unreasonably withheld or delayed) and the taking of such other steps as
may be necessary to give the successor escrow agent a first priority security
interest in the Pledged Securities and (ii) the Company, Trustee and such
successor escrow agent entering into this Agreement or any written successor
agreement no less favorable to the interests of the holders of the Securities
and Trustee than this Agreement; and Escrow Agent shall thereupon be discharged
of all obligations under this Agreement and shall have no further duties,
obligations or responsibilities in connection herewith, except as set forth in
Section 4. If a successor escrow agent has not been appointed or has not
accepted such appointment within 20 Business Days after notice of resignation is
given to the Company, Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor escrow agent.
(f) Escrow Account Statement. At least 30 days prior to each
------------------------
Interest Payment Date, Escrow Agent shall deliver to the Company and Trustee a
statement setting forth with reasonable particularity the balance of funds then
in the Escrow Account and the manner in which such funds are invested ("Escrow
Account Statement"). The parties hereto irrevocably instruct Escrow Agent that
on the first date upon which the balance in the Escrow Account (including the
holdings of all U.S. Government Securities) is reduced to zero, Escrow Agent
shall deliver to the Company and to Trustee a notice that the balance in the
Escrow Account has been reduced to zero.
3. Disbursements.
-------------
(a) Payment Notice and Disbursement Request; Disbursements. Up
------------------------------------------------------
to five business days prior to an Interest Payment Date, the Company may submit
to Escrow Agent, with a copy to Trustee a completed Payment Notice and
Disbursement Request substantially in the form of Exhibit A hereto.
---------
Escrow Agent's disbursement pursuant to any Payment Notice and
Disbursement Request shall be subject to the satisfaction of the applicable
conditions set forth in Section 3(b). Provided such Payment Notice and
Disbursement Request is not rejected by it, Escrow Agent, as soon as reasonably
practicable on the Interest Payment Date, but in no event later than 12:00 Noon
(New York City time) on the Interest Payment Date, shall disburse the funds
requested in such Payment Notice and Disbursement Request by wire or book-entry
transfer of immediately available funds to the account of Trustee for the
benefit of the Beneficiaries. Escrow Agent shall notify Trustee as soon as
reasonably possible (but not later than two (2) Business Days from the date of
receipt of the Payment Notice and Disbursement Request) if any Payment Notice
and Disbursement Request is rejected and the reason(s) therefor. In the event
such rejection is based
6.
<PAGE>
upon nonsatisfaction of the condition in Section 3(b)(I), the Company shall
thereupon resubmit the Payment Notice and Disbursement Request with appropriate
changes.
(b) Conditions Precedent to Disbursement. Escrow Agent's payment
------------------------------------
of any disbursement shall be made only if: (I) the Company shall have submitted,
in accordance with the provisions of Section 3(a), a completed Payment Notice
and Disbursement Request to Escrow Agent substantially in the form of Exhibit A
---------
with blanks appropriately filled in, and (II) Escrow Agent shall not have
received any notice from Trustee that as a result of an Event of Default the
indebtedness represented by the Securities has been accelerated and has become
due and payable (in which event Escrow Agent shall apply all Available Funds as
required by Section 6(b)(iii)).
(c) The Company Payments. If the Company makes any interest
--------------------
payment or portion of an interest payment on the Securities from a source of
funds other than the Escrow Account ("the Company Funds"), the Company may,
after payment in full of such interest payment, direct Escrow Agent to release
to the Company or at the direction of the Company an amount of funds from the
Escrow Account less than or equal to the amount of the Company Funds so
expended. Upon receipt of a request from the Company (including the certificate
described in the following sentence), Escrow Agent will pay over to the Company
the requested amount. Concurrently with any release of funds to the Company
pursuant to this Section 3(c), the Company will deliver to Escrow Agent a
certificate signed by an authorized signatory of the Company stating that such
release has been duly authorized by all necessary corporate action, and does not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the Certificate of Incorporation of the Company or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Company or result in the creation or imposition of any Lien on any assets of
the Company.
(d) If at any time the principal of and interest on the
Collateral exceeds 100% of the amount sufficient, in the written opinion of a
nationally recognized firm of independent accountants selected by the Company
and delivered to Escrow Agent and Trustee, to provide for payment in full of the
interest on outstanding Securities on each Interest Payment Date beginning on
and including June 15, 1998 and through and including the Interest Payment Date
on December 15, 2000 (or, in the event one or more interest payments have been
made thereon, an amount sufficient to provide for the payment in full of any and
all interest payments on the Securities then remaining, up to and including the
fourth scheduled interest payment), the Company may direct Escrow Agent and
Trustee to release any such overfunded amount to the Company or to such other
party as the Company may direct. Upon receipt of written instructions executed
by the Company in the form of an Officers' Certificate, Trustee shall pay, or
shall cause the payment, over to the Company or the Company's designee, as the
case may be, any such overfunded amount.
4. Limitation of Escrow Agent's Liability; Responsibilities of
-----------------------------------------------------------
Escrow Agent.
- ------------
7.
<PAGE>
Escrow Agent's responsibility and liability under this Agreement shall be
limited as follows: (i) Escrow Agent does not represent, warrant or guaranty to
the holders of the Securities from time to time the performance of the Company;
(ii) Escrow Agent shall have no responsibility to the Company or the holders of
the Securities or Trustee from time to time as a consequence of performance or
non-performance by Escrow Agent hereunder, except for any bad faith, gross
negligence or willful misconduct of Escrow Agent; (iii) the Company shall remain
solely responsible for all aspects of the Company's business and conduct; and
(iv) Escrow Agent is not obligated to supervise, inspect or inform the Company
or any third party of any matter referred to above. In no event shall Escrow
Agent be liable (i) for acting in accordance with or relying upon any
instruction, notice, demand, certificate or document from the Company or any
entity acting on behalf of the Company, (ii) for any consequential, punitive or
special damages, (iii) for the acts or omissions of its nominees,
correspondents, designees, subagents or subcustodians, (iv) for an amount in
excess of the value of the Escrow Account, valued as of the date of deposit or
(v) for the validity, sufficiency or priority of this Agreement or any
Collateral or other security furnished hereby.
No implied covenants or obligations shall be inferred from this
Agreement against Escrow Agent, nor shall Escrow Agent be bound by the
provisions of any agreement beyond the specific terms hereof. Specifically and
without limiting the foregoing, Escrow Agent shall in no event have any
liability in connection with its investment, reinvestment or liquidation, in
good faith and in accordance with the terms hereof, of any funds, the Pledged
Securities or U.S. Government Securities held by it hereunder, including without
limitation any liability for any delay not resulting from gross negligence or
willful misconduct in such investment, reinvestment or liquidation, or for any
loss of principal or income incident to any such delay.
Escrow Agent shall be entitled to rely upon any judicial or
administrative order or judgment, upon any opinion of counsel or upon any
certification, instruction, notice, or other writing delivered to it by the
Company or Trustee in compliance with the provisions of this Agreement without
being required to determine the authenticity or the correctness of any fact
stated therein or the propriety or validity of service thereof. Escrow Agent
may act in reliance upon any instrument comporting with the provisions of this
Agreement or signature believed by it to be genuine and may assume that any
person purporting to give notice or receipt or advice or make any statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so.
At any time Escrow Agent may request in writing an instruction in
writing from the Company (other than any disbursement pursuant to Section
6(b)(iii)), and may at its own option include in such request the course of
action it proposes to take and the date on which it proposes to act, regarding
any matter arising in connection with its duties and obligations hereunder;
provided, however, that Escrow Agent shall state in such request that it
- -------- -------
believes in good faith that such proposed course of action is consistent with
another identified provision of this Agreement. Escrow Agent shall not be
liable to the Company for acting without the
8.
<PAGE>
Company's consent in accordance with such a proposal on or after the date
specified therein if (i) the specified date is at least four Business Days after
the Company receives Escrow Agent's request for instructions and its proposed
course of action, and (ii) prior to so acting, Escrow Agent has not received the
written instructions requested from the Company.
At the expense of the Company, Escrow Agent may act pursuant to the
advice of counsel chosen by it with respect to any matter relating to this
Agreement and (subject to clause (ii) of the first paragraph of this Section 4)
shall not be liable for any action taken or omitted in accordance with such
advice.
Escrow Agent shall not be called upon to advise any party as to
selling or retaining, or taking or refraining from taking any action with
respect to, any securities or other property deposited hereunder.
In the event of any ambiguity in the provisions of this Agreement with
respect to any funds, securities or property deposited hereunder, Escrow Agent
shall be entitled to refuse to comply with any and all claims, demands or
instructions with respect to such funds, securities or property, and Escrow
Agent shall not be or become liable for its failure or refusal to comply with
conflicting claims, demands or instructions. Escrow Agent shall be entitled to
refuse to act until either any conflicting or adverse claims or demands shall
have been finally determined by a court of competent jurisdiction or settled by
agreement between the conflicting claimants as evidenced in a writing,
satisfactory to Escrow Agent, or Escrow Agent shall have received security or an
indemnity satisfactory to Escrow Agent sufficient to save Escrow Agent harmless
from and against any and all loss, liability or expense which Escrow Agent may
incur by reason of its acting. Escrow Agent may in addition elect in its sole
option to commence an interpleader action or seek other judicial relief or
orders as Escrow Agent may deem necessary. The costs and expenses (including
reasonable attorney's fees and expenses) incurred in connection with such
proceedings shall be paid by, and shall be deemed an obligation of the Company.
No provision of this Agreement shall require Escrow Agent to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder.
Escrow Agent shall not incur any liability for not performing any act
or fulfilling any duty, obligation or responsibility hereunder by reason of any
occurrence beyond the control of Escrow Agent (including but not limited to any
act or provision of any present or future law or regulation or governmental
authority, any act of God or war, or the unavailability of the Federal Reserve
Bank wire or telex or other wire or communication facility).
5. Indemnity. The Company shall indemnify, hold harmless and defend
---------
Trustee and Escrow Agent and their respective directors, officers, agents,
employees and controlling persons, from and against any and all claims, actions,
obligations, liabilities and
9.
<PAGE>
expenses, including reasonable defense costs, reasonable investigative fees and
costs, reasonable legal fees, and claims for damages, arising from Trustee's or
Escrow Agent's performance or non-performance, or in connection with Escrow
Agent's acceptance of appointment as Escrow Agent under this Agreement, except
to the extent that such liability, expense or claim is solely and directly
attributable to the bad faith, gross negligence or willful misconduct of any of
the foregoing persons. The provisions of this Section 5 shall survive any
termination, satisfaction or discharge of this Agreement as well as the
resignation or removal of Escrow Agent.
6. Grant of Security Interest; Instructions to Escrow Agent.
--------------------------------------------------------
(a) The Company hereby irrevocably grants a first priority
security interest in and lien on, and pledges to Escrow Agent for the ratable
benefit of the Beneficiaries, all of the Company's right, title and interest in
the Escrow Account, and all property now or hereafter placed or deposited in, or
delivered to Escrow Agent for placement or deposit in, the Escrow Account,
including, without limitation, the Pledged Securities, all funds held therein,
all U.S. Government Securities held by (or otherwise maintained in the name of)
Escrow Agent pursuant to Section 2, and all proceeds thereof as well as all
rights of the Company under this Agreement (collectively, the "Collateral"), in
order to secure all obligations and indebtedness of the Company under the
Indenture, the Securities, this Agreement and any other obligation, now or
hereafter arising, of every kind and nature, owed by the Company under the
Indenture or the Securities to the holders of the Securities or to Trustee or
any predecessor Trustee (the "Secured Obligations"). Escrow Agent hereby
acknowledges Trustee's security interest and lien as set forth above. The
Company shall take or direct the Escrow Agent to take all actions necessary on
its part to insure the continuance of a first priority security interest in the
Collateral in favor of Trustee in order to secure all such obligations and
indebtedness.
(b) The Company and Trustee hereby irrevocably instruct Escrow
Agent to, and Escrow Agent shall:
(i) (A) maintain sole dominion and control over the Pledged
Securities, funds and any U.S. Government Securities in the Escrow Account
for the benefit of Trustee to the extent specifically required herein, (B)
maintain, or cause its agent within the jurisdiction of its principal place
of business to maintain, possession of all certificated U.S. Government
Securities purchased hereunder that are physically possessed by Escrow
Agent in order for Trustee to enjoy a continuous perfected first priority
security interest therein under the law of the State of New York (the
Company hereby agreeing that in the event any certificated U.S. Government
Securities are in the possession of the Company or a third party, the
Company shall use its best efforts to deliver all such certificates to
Escrow Agent), (C) comply with all directions furnished by the Company
pursuant to paragraph (a) of this Section 6 to cause Escrow Agent to enjoy
a continuous perfected first priority security interest under any
applicable Federal and State of New York law in all U.S. Government
Securities purchased hereunder that are
10.
<PAGE>
not certificated and (D) maintain the Collateral free and clear of all
liens, security interests, safekeeping or other charges, demands and claims
against Escrow Agent of any nature now or hereafter existing in favor of
anyone other than Trustee (other than tax liens for taxes not yet due and
payable);
(ii) promptly notify Trustee if Escrow Agent receives written
notice that any person other than Escrow Agent has a lien or security
interest upon any portion of the Collateral other than as permitted in
clause (i) of this Section 6(b); and
(iii) in addition to disbursing amounts held in escrow pursuant
to any Payment Notice and Disbursement Requests given to it pursuant to
Section 3, upon receipt of written notice from Trustee of the acceleration
of the maturity of the Securities, and direction from Trustee to disburse
all Available Funds to Trustee, as promptly as practicable, disburse all
funds held in the Escrow Account to Trustee and transfer title to all U.S.
Government Securities held by Escrow Agent hereunder to Trustee. In
addition, upon an Event of Default (as defined in the Indenture) and for so
long as such Event of Default continues, Trustee may, and Escrow Agent
shall on behalf of Trustee when instructed by Trustee, exercise in respect
of the Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party under the UCC or other applicable law, and Trustee may, and
Escrow Agent shall on behalf of Trustee when instructed by Trustee, also
upon obtaining possession of the Collateral as set forth herein, without
notice to the Company except as specified below, sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of Trustee's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as
Trustee may deem commercially reasonable. The Company acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable to the seller than if such sale were a public sale. The Company
agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' notice to the Company of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Trustee shall not be obligated to make
any sale regardless of notice of sale having been given. Trustee may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
The lien and security interest provided for by this Section 6 shall
automatically terminate and cease as to, and shall not extend or apply to, and
Trustee and Escrow Agent shall have no security interest in, any funds disbursed
by Escrow Agent whether for payment of interest or to the Company pursuant to
this Agreement to the extent not inconsistent with the terms hereof.
Notwithstanding any other provision contained in this Agreement, Escrow Agent
shall act solely as Trustee's agent in connection with its duties under this
Section 6 or any other duties herein relating to the Escrow Account or the
Pledged Securities or any funds or U.S.
11.
<PAGE>
Government Securities held thereunder. Escrow Agent shall not have any right to
receive compensation from Trustee and shall have no authority to obligate
Trustee or to compromise or pledge its security interest hereunder. Accordingly,
Escrow Agent is hereby directed to cooperate with Trustee in the exercise of its
rights in the Collateral provided for herein.
(c) Any money and U.S. Government Securities collected by
Trustee pursuant to Section 6(b)(iii) shall be applied as provided in Section
1023 of the Indenture. Any surplus of such cash or cash proceeds held by Trustee
and remaining after indefeasible payment in full of all the obligations under
the Indenture (the "Escrow Funds") shall be paid over to the Company upon the
Company request or as a court of competent jurisdiction may direct.
(d) The Company will execute and deliver or cause to be executed
and delivered, or use its best efforts to procure, all stock powers, proxies,
assignments, instruments and other documents, deliver any instruments to Trustee
and take any other actions that are necessary or desirable to perfect, continue
the perfection of, or protect the first priority of Trustee's security interest
in and to the Collateral, to protect the Collateral against the rights, claims,
or interests of third persons or to effect the purposes of this Agreement. The
Company also hereby authorizes Trustee to file any financing or continuation
statements with respect to the Collateral without the signature of the Company
(to the extent permitted by applicable law). The Company will pay all reasonable
costs incurred in connection with any of the foregoing. It is expressly
understood and agreed that Trustee has no duty to determine whether to file or
record any document or instrument relating to Collateral.
(e) The Company hereby appoints Trustee as its attorney-in-fact
with full power of substitution to do any act which the Company is obligated
hereto to do, and Trustee may, but shall not be obligated to, exercise such
rights as the Company might exercise with respect to the Collateral and take
any action in the Company's name to protect Trustee's security interest
hereunder.
(f) If at any time Escrow Agent shall receive an "entitlement
order" (within the meaning of Section 8-102(a)(8) of the Revised UCC) issued by
Trustee and relating to the Escrow Account, Escrow Agent shall comply with such
entitlement order without further consent by the Company or any other person.
7. Termination. This Agreement and the security interest in the
-----------
Collateral evidenced by this Agreement shall terminate automatically and be of
no further force or effect upon the payment in full in cash of all interest
(including any Additional Interest) due through the Interest Payment Date
occurring on December 15, 2000 and the Collateral shall promptly be paid over
and transferred to the Company; provided, however, that the obligations of the
-------- -------
Company under Section 2(c) and Section 5 (and any existing claims thereunder)
shall survive termination of this Agreement and the resignation of Escrow Agent
for a period of one year. At such time, Escrow Agent shall, pursuant to a
certificate of an officer of the Company, reassign
12.
<PAGE>
and redeliver to the Company all of the Collateral hereunder that has not been
sold, disposed of, retained or applied by Escrow Agent in accordance with the
terms of this Agreement and the Indenture. Such reassignment and delivery shall
be without warranty by or recourse to Escrow Agent in its capacity as such,
except as to the absence of any liens on the Collateral created by or arising
through Escrow Agent, and shall be at the sole expense of the Company.
8. Representations and Warranties.
------------------------------
The Company hereby represents and warrants that:
(a) The execution, delivery and performance by the Company of this
Agreement are within the Company's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene, or
constitute a default under, any provision of applicable law or regulation
or of the Certificate of Incorporation of the Company or of any material
agreement, judgment, injunction, order, decree or other instrument binding
upon the Company or result in the creation or imposition of any Lien on any
assets of the Company, except for the security interests granted under this
Agreement.
(b) The Company is the beneficial owner of the Collateral, free and
clear of any Lien or claims of any person or entity (except for the
security interest, granted under this Agreement). No financing statement
covering the Collateral is on file in any public office other than the
financing statements, if any, filed pursuant to this Agreement.
(c) This Agreement has been duly executed and delivered by the
Company and assuming the due authorization and valid execution and delivery
of this Agreement by Trustee and Escrow Agent and enforceability of this
Agreement against Escrow Agent and Trustee in accordance with its terms,
constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by (i) the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, (ii) general principles of equity
and commercial reasonableness or, (iii) the exculpation provisions and
rights to indemnification hereunder may be limited by U.S. federal and
state securities laws and public policy considerations and (iv) the waiver
of rights and defenses contained in Sections 15(j) and 15(o).
(d) Upon the delivery to Escrow Agent of the certificates or
instruments, if any, representing the Collateral and the filing of
financing statements, if any, required by the Uniform Commercial Code (the
"UCC"), and the transfer and pledge to Escrow Agent of the Collateral and
the acquisition by Escrow Agent of a security entitlement thereto in
accordance with Section 6, the pledge of the Collateral pursuant to this
Agreement creates a valid and perfected first priority security interest in
and to the Collateral, securing the
13.
<PAGE>
payment of the Secured Obligations for the benefit of the Beneficiaries,
enforceable as such against all creditors of the Company and any persons
purporting to purchase any of the Collateral from the Company other than as
permitted by the Indenture.
(e) No consent of any other person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by the Company of the Collateral pursuant to this Agreement or for
the execution, delivery or performance of this Agreement by the Company
(except for any filings necessary to perfect Liens on the Collateral) or
(ii) for the exercise by Trustee of the rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement, except, in each case, as may be required in connection with such
disposition by laws affecting the offering and sale of securities.
(f) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Company, threatened by or against the Company with respect to this
Agreement or any of the transactions contemplated hereby.
(g) The pledge of the Collateral pursuant to this Agreement is not
prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System).
9. Covenants.
---------
The Company covenants and agrees with the Beneficiaries from and after
the date of this Agreement until the earlier of payment in full in cash of (A)
all interest due through the Interest Payment Date occurring on December 15,
2000 or (B) all obligations due and owing under the Indenture and the Securities
in the event such obligations become due and payable prior to the payment of the
first six scheduled interest payments on the Securities:
(a) The Company agrees that it will not (i) sell or otherwise dispose
of, or grant any option or warrant with respect to, any of the Collateral
or (ii) create or permit to exist any Lien upon or with respect to any of
the Collateral (except for the lien created pursuant to or permitted under
this Agreement) and at all times will be the sole beneficial owner of the
Collateral.
(b) The Company agrees that it will not (i) enter into any agreement
or understanding that restricts or inhibits Trustee's rights or remedies
hereunder, including, without limitation, Trustee's right to sell or
otherwise dispose of the Collateral other than
14.
<PAGE>
any agreement with the Trustee or (ii) fail to pay or discharge any tax,
assessment or levy of any nature not later than five days prior to the date
of any proposed sale under any judgment, writ or warrant of attachment with
regard to the Collateral.
10. Power of Attorney.
-----------------
In addition to all of the powers granted to Trustee pursuant to
Article 6 of the Indenture, the Company hereby appoints and constitutes Trustee
as the Company's attorney-in-fact to exercise to the fullest extent permitted by
law all of the following powers upon and at any time after the occurrence and
during the continuance of an Event of Default: (i) collection of proceeds of
any Collateral; (ii) conveyance of any item of Collateral to any purchaser
thereof; (iii) giving of any notices or recording of any Liens under Section 6;
(iv) making of any payments or taking any acts under Section 11; and (v) paying
or discharging taxes or Liens levied or placed upon the Collateral, the legality
or validity thereof and the amounts necessary to discharge the same to be
determined by Trustee in its sole discretion, and such payments made by Trustee
to become the obligations of the Company to Trustee, due and payable immediately
upon demand. Trustee's authority hereunder shall include, without limitation,
the authority to endorse and negotiate any checks or instruments representing
proceeds of Collateral in the name of the Company, execute and give receipt for
any certificate of ownership or any document constituting Collateral, transfer
title to any item of Collateral, sign the Company's name on all financing
statements (to the extent permitted by applicable law) or any other documents
deemed necessary or appropriate by Trustee to preserve, protect or perfect this
security interest in the Collateral and to file the same, prepare, file and sign
the Company's name on any notice of Lien, to take any other actions arising from
or incident to the powers granted to Trustee in this Agreement. This power of
attorney is coupled with an interest and is irrevocable by the Company.
11. Trustee May Perform.
-------------------
If the Company fails to perform any agreement contained herein,
Trustee may itself perform, but shall not be obligated to, or cause performance
of, such agreement, and the reasonable expenses of Trustee incurred in
connection therewith shall be payable by the Company under Section 13 hereof.
12. No Assumption of Duties; Reasonable Care.
----------------------------------------
The rights and powers granted to Trustee hereunder are being granted
in order to preserve and protect Trustee's and the holders' of Securities
security interest in and to the Collateral granted hereby and shall not be
interpreted to, and shall not, impose any duties on Trustee in connection
therewith other than those expressly imposed under applicable law. Except as
provided by applicable law or by the Indenture, Trustee shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the
15.
<PAGE>
Collateral is accorded treatment substantially equal to that which Trustee
accords similar property in similar situations, it being understood that Trustee
shall not have any responsibility for (i) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether or not Trustee has or is deemed to have
knowledge of such matters or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Collateral; provided, however, that
nothing contained in this Agreement shall relieve Trustee of any
responsibilities as a securities intermediary under applicable law. The Trustee
is entering into this Agreement solely in its capacity as Trustee under the
Indenture, and not in its individual capacity, and shall be entitled to the
rights, protections and exculpations furnished to it under the Indenture,
including, without limitation, Article 6 thereof, in addition to (and not in
limitation of) any rights, protections or exculpations furnished to it under
this Agreement.
13. Expenses.
--------
The Company will upon demand pay to Trustee the amount of any and all
reasonable expenses, including, without limitation, the reasonable fees,
expenses and disbursements of its counsel, experts and agents retained by
Trustee that Trustee may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Beneficiaries hereunder, or (iv) the
failure by the Company to perform or observe any of the provisions hereof.
14. Security Interest Absolute.
--------------------------
All rights of the Beneficiaries and security interests hereunder, and
all obligations of the Company hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or nonperfection of any
Liens on any other collateral for all or any of the Secured Obligations; or
(d) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Company in respect of the Secured Obligations or of this
Agreement.
16.
<PAGE>
15. Miscellaneous.
-------------
(a) Waiver. Any party hereto may specifically waive any breach
------
of this Agreement by any other party, but no such waiver shall be deemed to have
been given unless such waiver is in writing, signed by the waiving party and
specifically designating the breach waived, nor shall any such waiver constitute
a continuing waiver of similar or other breaches.
(b) Invalidity. If for any reason whatsoever any one or more of
----------
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.
(c) Assignment. This Agreement is personal to the parties
----------
hereto, and the rights and duties of any party hereunder shall not be assignable
except with the prior written consent of the other parties. Notwithstanding the
foregoing, this Agreement shall inure to and be binding upon the parties and
their successors and permitted assigns.
(d) Benefit. The parties hereto and their successors and
-------
permitted assigns, but no others, shall be bound hereby and entitled to the
benefits hereof; provided, however, that the Beneficiaries (including holders of
------- -------- -------
the Securities) and their assigns shall be entitled to the benefits hereof and
to enforce this Agreement.
(e) Time. Time is of the essence with respect to each provision
----
of this Agreement.
(f) Entire Agreement; Amendments. This Agreement and the
----------------------------
Indenture contain the entire agreement among the parties with respect to the
subject matter hereof and supersede any and all prior agreements, understandings
and commitments, whether oral or written. Any amendment or waiver of any
provision of this Agreement and any consent to any departure by the Company from
any provision of this Agreement shall be effective only if made or duly given in
compliance with all of the terms and provisions of the Indenture, and none of
Escrow Agent, Trustee or any holder of Securities shall be deemed, by any act,
delay, indulgence, omission or otherwise, to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. Failure of Escrow Agent,
Trustee or any holder of Securities to exercise, or delay in exercising, any
right, power or privilege hereunder shall not operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the Escrow
Agent, Trustee or any holder of Securities of any right or remedy
17.
<PAGE>
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that Escrow Agent, Trustee or such holder of Securities would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
(g) Notices. All notices and other communications required or
-------
permitted to be given or made under this Agreement shall be in writing and shall
be deemed to have been duly given and received when actually received,
including: (a) on the day of hand delivery; (b) three business days following
the day sent, when sent by United States certified mail, postage and
certification fee prepaid, return receipt requested, addressed as set forth
below; (c) when transmitted by telecopy with verbal confirmation of receipt by
the telecopy operator to the telecopy number set forth below; or (d) one
business day following the day timely delivered to a next-day air courier
addressed as set forth below:
To Escrow Agent:
Chase Manhattan Bank and Trust Company, National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Telecopy: (415) 693-8850
Telephone: (415) 954-9526
To Trustee:
Chase Manhattan Bank and Trust Company, National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Telecopy: (415) 693-8850
Telephone: (415) 954-9526
To the Company:
Concentric Network Corporation
10590 N. Tantau Avenue
Cupertino, CA 95014
18.
<PAGE>
Attention: Michael Anthofer
Telecopy: (408) 342-2876
Telephone: (408) 342-2893
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
(h) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) Captions. Captions in this Agreement are for convenience
--------
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(j) GOVERNMENT LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
----------------------------------------------------------
TRIAL; WAIVER OF DAMAGES.
- ------------------------
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THE COMPANY, ESCROW AGENT, TRUSTEE AND THE HOLDERS OF SECURITIES IN
CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS
(AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE
OF NEW YORK.
(ii) THE COMPANY AGREES THAT TRUSTEE SHALL, IN ITS CAPACITY AS
TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF SECURITIES, HAVE THE
RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
COMPANY OR ITS PROPERTY IN A COURT IN ANY LOCATION REASONABLY SELECTED IN
GOOD FAITH (AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE COMPANY OR
ITS PROPERTY, AS THE CASE MAY BE) TO ENABLE TRUSTEE TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
TRUSTEE. THE COMPANY AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS,
SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY TRUSTEE TO REALIZE ON
SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT
19.
<PAGE>
ORDER IN FAVOR OF TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR
CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT
OTHERWISE BE BROUGHT OR ASSERTED. THE COMPANY WAIVES ANY OBJECTION THAT IT
MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TRUSTEE HAS COMMENCED A
PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(iii) THE COMPANY, ESCROW AGENT AND TRUSTEE EACH WAIVE ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH
THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN
A BENCH TRIAL WITHOUT A JURY,
(iv) THE COMPANY AGREES THAT NONE OF ESCROW AGENT, TRUSTEE OR
ANY HOLDER OF SECURITIES SHALL HAVE ANY LIABILITY TO THE COMPANY (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE COMPANY
IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT
THAT IS BINDING ON ESCROW AGENT, TRUSTEE OR SUCH HOLDER OF SECURITIES, AS
THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON
THE PART OF ESCROW AGENT, TRUSTEE OR SUCH HOLDER OF SECURITIES, AS THE CASE
MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(v) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, THE COMPANY WAIVES ALL RIGHTS OF
NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE TRUSTEE OR ANY
HOLDER OF SECURITIES OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF
DEFAULT TO REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY,
ATTACH OR LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE SECURED
OBLIGATIONS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ESCROW AGENT, TRUSTEE OR ANY
HOLDER OF SECURITIES
20.
<PAGE>
IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION
OF, REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE
SECURED OBLIGATIONS, TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED
IN FAVOR OF ESCROW AGENT, TRUSTEE OR ANY HOLDER OF SECURITIES, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY
OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT
BETWEEN THE COMPANY ON THE ONE HAND AND ESCROW AGENT, TRUSTEE AND/OR THE
HOLDERS OF SECURITIES ON THE OTHER HAND.
(k) No Adverse Interpretation of Other Agreements. This
----------------------------------------------
Agreement may not be used to interpret another pledge, security or debt
agreement of the Company or any subsidiary thereof. No such pledge, security or
debt agreement may be used to interpret this Agreement.
(l) Benefits of Agreement. Nothing in this Agreement, express or
---------------------
implied, shall give to any person, other than the parties hereto and their
successors hereunder, and the holders of Securities, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
(m) Interpretation of Agreement. All terms not defined herein or
---------------------------
in the Indenture shall have the meaning set forth in the applicable Uniform
Commercial Code, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with the Indenture, the Indenture
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Agreement shall not be relevant to determine the meaning of this Agreement even
though the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
(n) Survival of Provisions. All representations, warranties and
----------------------
covenants of the Company contained herein shall survive the execution and
delivery of this Agreement, and shall terminate only upon the termination of
this Agreement.
(o) Waivers. The Company waives presentment and demand for
-------
payment of any of the Secured Obligations, protest and notice of dishonor or
default with respect to any of the Secured Obligations, and all other notices to
which the Pledgor might otherwise be entitled, except as otherwise expressly
provided herein or in the Indenture.
(p) Agent for Service; Submission to Jurisdiction; Waiver of the
------------------------------------------------------------
Immunities. By the execution and delivery of this Agreement, the Company (i)
- ----------
acknowledges that it has, by separate written instruments, designated and
appointed CT Corporation System,
21.
<PAGE>
1633 Broadway, New York, NY 10019 ("CT Corporation System") (and any successor
entity), as its authorized agent upon which process may be served in any suit or
proceeding arising out of or relating to this Agreement that may be instituted
in any federal or state court in the Borough of Manhattan, City of New York,
State of New York or brought under federal or state securities laws, and
represent and warrant that CT Corporation System has accepted such designation,
(ii) submit to the jurisdiction of any such court in any such suit or proceeding
and (iii) agree that service of process upon CT Corporation System and written
notice of said service to the Company in accordance with the provisions of this
Agreement shall be deemed in every respect effective service of process upon the
Company in any such suit or proceeding. The Company further agrees to take any
and all action, including the execution and filing of any and all such documents
and instruments, as may be necessary to continue such designation and
appointment of CT Corporation System in full force and effect for as long as any
of the Securities remain outstanding (subject to the limitation set forth in
clause (i)); provided, however, that the Company may, and to the extent CT
-------- -------
Corporation System ceases to be able to be served on the basis contemplated
herein shall, by written notice to the Escrow Agent and the Trustee, designate
such additional or alternative agent for service of process that (i) maintains
an office located in the Borough of Manhattan, City of New York, State of New
York, and (ii) is either (x) United States counsel for the Company or (y) a
corporate service company which acts as agent for service of process for other
persons in the ordinary course of its business. Such written notice shall
identify the name of such agent for service of process and the address of the
office of such agent for service of process in the Borough of Manhattan, City of
New York, State of New York.
To the extent that the Company has or hereafter may acquire any
immunity from jurisdiction of any court of any jurisdiction in which the Company
owns or leases property or assets or the United States or the State of New York,
or from any legal process (whether through service of notice, attachment prior
to judgment, attachment in aid of execution, execution or otherwise) with
respect to itself or its property and assets or this Agreement or the Escrow
Account or actions to enforce judgments in respect of any thereof, the Company
hereby irrevocably waives such immunity in respect of its obligations under the
above-referenced documents, to the extent permitted by law.
[Signature Page Follows]
22.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Escrow Agreement as of the day first above written.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
/s/ Chase Manhattan Bank and Trust Company,
National Association
______________________________________________
as Escrow Agent
By: /s/ Chase Manhattan Bank and Trust Company,
National Association
___________________________________________
Name:
Title:
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
/s/ Chase Manhattan Bank and Trust Company,
National Association
______________________________________________
as Trustee
By: /s/ Chase Manhattan Bank and Trust Company,
National Association
____________________________________________
Name:
Title:
CONCENTRIC NETWORK CORPORATION
By: /s/ Henry R. Nothhaft
_______________________________________
Name: Henry R. Nothhaft
Title: Chief Financial Officer
23.
<PAGE>
SCHEDULE I
PLEDGED SECURITIES
<TABLE>
<CAPTION>
INTEREST DUE ON
FIRST 6 INTEREST
SECURITY MATURITY CUSIP YIELD PRICE COST PAYMENT DATES
- -------- -------- ----- ----- ----- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
US Strip 5/15/98 912833FG0 5.40% 97.84 $9,355,460.80
US Strip 11/15/98 912820AQ0 5.55% 95.13 $9,097,860.52 9,562,000
US Strip 5/15/99 912833FJ4 5.60% 92.51 $8,846,188.68 9,562,000
US Strip 11/15/99 912833FK1 5.60% 89.98 $8,605,226.28 9,562,000
US Strip 5/15/00 912833FL9 5.62% 87.50 $8,366,941.24 9,562,000
US Strip 11/15/00 912820AY3 5.66% 85.00 $8,129,038.68 9,562,000
-------------
Total Purchase Price: $52,400,716.20
==============
</TABLE>
26.
<PAGE>
EXHIBIT 12.1
EXHIBIT 12.1--STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1991 NINE MONTHS
(INCEPTION) ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
------------ ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss before interest
income and other
income................. $ (28) $(1,221) $(4,309) $(22,145) $(66,995) $(40,654) $(43,536)
Interest expense........ -- 24 76 858 3,874 2,783 5,437
Interest portion of
rental expense......... -- -- 23 110 176 101 108
----- ------- ------- -------- -------- -------- --------
Earnings (loss)......... $ (28) $(1,197) $(4,210) $(21,177) $(62,945) $(37,770) $(37,991)
===== ======= ======= ======== ======== ======== ========
Interest expense........ -- $ 24 $ 76 $ 858 $ 3,874 $ 2,783 $ 5,437
Interest portion of
rental charges......... -- -- 23 110 176 101 108
----- ------- ------- -------- -------- -------- --------
Fixed charges........... $ -- $ 24 $ 99 $ 968 $ 4,050 $ 2,884 $ 5,545
===== ======= ======= ======== ======== ======== ========
Ratio of earnings to
fixed charges.......... -- -- -- -- -- -- --
===== ======= ======= ======== ======== ======== ========
Deficiency of earnings
to cover fixed
charges................ $ (28) $(1,221) $(4,309) $(22,145) $(66,995) $(40,654) $(43,536)
===== ======= ======= ======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Historical Consolidated Financial and Other Data" and to the use of
our report dated March 14, 1997 (except for Note 1 "The Company" as to which
the date is November 24, 1997 and Note 5 and Note 10, as to which the date is
September 30, 1997, and Note 11, as to which the date is December 18, 1997),
in the Registration Statement (Form S-4) and the related Prospectus of
Concentric Network Corporation for the registration of $150 million of 12 3/4%
Senior Notes due 2007.
/s/ Ernst & Young LLP
San Jose, California
January 27, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM T-1
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
_______________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)____
_________________________
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4655078
(I.R.S. Employer Identification No.)
101 California Street, San Francisco, California
(Address of principal executive offices)
94111
(Zip Code)
__________________
CONCENTRIC NETWORK CORPORATION
(Exact name of Obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
65-0257497
(I.R.S. Employer Identification No.)
10590 North Tantau Avenue
Cupertino, CA
(Address of principal executive offices)
95014
(Zip Code)
________________________________
Senior Notes
(Title of Indenture securities)
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Comptroller of the Currency, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
Exhibit 1. Articles of Association of the Trustee as Now in Effect.
Exhibit 2. Certificate of Authority of the Trustee to Commence Business.
Exhibit 3. Authorization of the Trustee to Exercise Corporate Trust Powers
(Contained in Exhibit 2.)
Exhibit 4. Existing By-Laws of the Trustee.
Exhibit 5. Not Applicable
Exhibit 6. The consent of the Trustee required by Section 321 (b) of the
Act.
Exhibit 7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its
supervising or examining authority.
Exhibit 8. Not Applicable
Exhibit 9. Not Applicable
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Manhattan Bank and Trust Company, National Association, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of San
Francisco, and State of California, on the ______ day of ____________, 1998.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ Paula Oswald
-----------------
Paula Oswald
Assistant Vice President
<PAGE>
EXHIBIT 1. Articles of Association of the Trustee as now in Effect.
- --------------------------------------------------------------------------------
EXHIBIT 1
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
CHARTER NO. 23470
ARTICLES OF ASSOCIATION
For the purpose of organizing an Association to perform any lawful activities of
national banks, the undersigned do enter into the following Articles of
Association:
FIRST. The title of this Association shall be Chase Manhattan Bank and Trust
Company, National Association (the "Association").
SECOND. The main office of the Association shall be in the City of Los Angeles,
County of Los Angeles, State of California. The general business of the
Association shall be conducted at its main office and its branches.
THIRD. The board of directors of this Association shall consist of not less
than five nor more than twenty-five persons, the exact number to be fixed and
determined from time to time by resolution of a majority of the full board of
directors or by resolution of a majority of the shareholders at any annual or
special meeting thereof. Each director, during the full term of his
directorship, shall own common or preferred stock of the Association or of a
holding company owning the Association, with an aggregate par, fair market or
equity value of not less than $1,000. Any vacancy in the board of directors may
be filled by action of the shareholders or a majority of the remaining
directors.
<PAGE>
Terms of directors, including directors selected to fill vacancies, shall expire
at the next regular meeting of shareholders at which directors are elected,
unless the directors resign or are removed from office.
Despite the expiration of a director's term, the director shall continue to
serve until his or her successor is elected and qualifies or until there is a
decrease in the number of directors and his or her position is eliminated.
FOURTH. There shall be an annual meeting of the shareholders to elect directors
and transact whatever other business may be brought before the meeting. It
shall be held at the main office or any other convenient place the board of
directors may designate, on the day of each year specified therefore in the by-
laws, or if that day falls on a legal holiday in the state in which the
Association is located, on the next following banking day. If no election is
held on the day fixed or in event of a legal holiday, on the following banking
day, an election may be held on any subsequent day within 60 days of the day
fixed, to be designated by the board of directors, or, if the directors fail to
fix the day, by shareholders representing two-thirds of the shares issued and
outstanding. Advance notice of the meeting may be waived duly waived by the
sole shareholder in accordance with 12 C.F.R. (S) 7.2001.
A director may resign at any time by delivering written notice to the board of
directors, its Chairperson, or to the Association, which resignation shall be
effective when the notice is delivered unless the notice specifies a later
effective date.
A director may be removed by shareholders at a meeting called to remove him or
her, when notice of the meeting stating that the purpose or one of the purposes
is to remove him or her is provided, if there is a failure to fulfill one of the
affirmative requirements for qualification, or for cause.
FIFTH. The authorized amount of capital stock of this Association shall be Six
Hundred Thousand ($600,000), divided into Six Thousand (6,000) shares of common
stock of the par value of One Hundred dollars ($100) each; but said capital
stock may be increased or decreased from time to time, according to the
provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any preemptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued, or sold, nor
any right to subscription to any thereof other than such, if any, as the board
of directors, in its discretion may from time to time determine and at such
price as the board of directors may from time to time fix.
Unless otherwise specified in the Articles of Association or required by law,
(1) all matters requiring shareholder action, including amendments to the
Articles of Association, must be approved by shareholders owning a majority
voting interest in the outstanding voting stock, and (2) each shareholder shall
be entitled to one vote per share.
<PAGE>
The Association, at any time and from time to time, may authorize and issue debt
obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The board of directors may appoint one of its members President of this
Association, and one of its members Chairperson of the board or two of its
members as Co-Chairpersons of the board, and shall have the power to appoint one
or more Vice Presidents, a Secretary who shall keep minutes of the directors'
and shareholders' meetings and be responsible for authenticating the records of
the Association, and such other officers and employees as may be required to
transact the business of this Association. A duly appointed officer may appoint
one or more officers or assistant officers if authorized by the board of
directors in accordance with the by-laws.
The board of directors shall have the power to:
(1) Define the duties of the officers, employees, and agents of the
Association.
(2) Delegate the performance of its duties, but not the responsibility for its
duties, to the officers, employees, and agents of the Association.
(3) Fix the compensation and enter into employment contracts with its officers
and employees upon reasonable terms and conditions consistent with
applicable law.
(4) Dismiss officers and employees.
(5) Require bonds from officers and employees and fix the penalty thereof.
(6) Ratify written policies authorized by the Association's management or
committees of the board.
(7) Regulate the manner in which any increase or decrease of the capital of the
Association shall be made, provided that nothing herein shall restrict the
power of shareholders to increase or decrease the capital of the
Association in accordance with law.
(8) Manage and administer the business and affairs of the Association.
<PAGE>
(9) Adopt initial by-laws, not inconsistent with law or the Articles of
Association, for managing the business and regulating the affairs of the
Association.
(10) Amend or repeal by-laws, except to the extent that the Articles of
Association reserve this power in whole or in part to shareholders.
(11) Make contracts.
(12) Generally perform all acts that are legal for a board of directors to
perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other location permitted under applicable law, without
the approval of the shareholders, and shall have the power to establish or
change the location of any branch or branches of the Association to any other
location permitted under applicable law, without the approval of the
shareholders subject to approval by the Office of the Comptroller of the
Currency.
EIGHTH. The corporate existence of this Association shall continue until
termination according to the laws of the United States.
NINTH. These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of a greater
amount of stock is required by law, and in that case by the vote of the holders
of such greater amount. The Association's board of directors may propose one or
more amendments to the Articles of Association for submission to the
shareholders.
<PAGE>
EXHIBIT 2. Certificate of Authority of the Trustee to Commence Business.
- --------------------------------------------------------------------------------
EXHIBIT 2
- --------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- --------------------------------------------------------------------------------
Northeastern District Licensing
1114 Avenue of the Americas, Suite 3900 Telephone: (212) 790-4055
New York, New York 10036 Fax:(212) 790-4098
November 14, 1997
Mr. Joseph R. Bielawa
Vice President and Assistant
General Counsel
THE CHASE MANHATTAN BANK
270 Park Avenue, 39th Floor
New York, New York 10017-2070
Re; Final Authorization to charter a national trust bank, Chase Trust Company,
National Association, Los Angeles, California ("Bank"), Charter No.: 23470
Dear Mr. Bielawa:
The Comptroller of the Currency (OCC) has found that you have met all conditions
imposed by the OCC and completed all steps necessary to commence the business of
a national trust bank. This letter constitutes OCC authorization to exercise
fiduciary powers. Your charter certificate is enclosed. You are authorized to
commence business on November 15, 1997.
You are reminded that several of the standard conditions contained in the
preliminary approval letter dated August 12, 1997 will continue to apply once
the bank opens and by opening, you agree to subject your association to these
conditions of operation. Some of the conditions bear reiteration here:
1. The trust company's financial statements must be prepared on an accrual
basis, if applicable, according to generally accepted accounting principles.
2. For a period of two years after the trust company has opened for business,
the OCC must review and have no objection to any new executive officer or
director prior to that person assuming such position. The proposed individual
may not assume the position until the OCC has issued a letter of no
objection.
3. The president must serve as a member of the board of directors.
<PAGE>
Mr. Joseph R. Bielawa
THE CHASE MANHATTAN BANK
Page two
4. The board of directors is responsible for regular review and update of
policies and procedures and for assuring ongoing compliance with them. This
includes maintaining an internal control system that ensures compliance with
the currency reporting and record keeping requirements of the Bank Secrecy
Act (BSA). The board is expected to train its personnel in BSA procedures and
designate one person or a group to monitor day-to-day compliance.
5. Stock certificates must not be issued prior to the date the trust company
opens for business, but must be issued immediately following the opening of
the bank.
Following the commencement of operations, bank management is urged to become
familiar with the requirements of the Securities Exchange Act of 1934 and Part
11 of the Comptroller's regulations relative to the registration of the bank's
equity securities and related periodic reports. These requirements will be
applicable to your bank when the number of shareholders of record is maintained
at 500 or more. Such registration may be subsequently terminated pursuant to the
Act, only when the number of shareholders of record is reduced to fewer than
300.
Should you have any questions regarding the supervision of your bank, please
contact National Bank Examiner Mr. Anthony DiLorenzo who will be responsible for
OCC's ongoing supervisory effort at your institution.
Sincerely,
/s/ Michael G. Tiscia
Licensing Manager
Enclosure
cc: Official File
Field File
<PAGE>
- --------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- --------------------------------------------------------------------------------
Northeastern District Licensing
1114 Avenue of the Americas, Suite 3900 Telephone: (212) 790-4055
New York, New York 10036 Fax:(212) 790-4098
November 14, 1997
Mr. Joseph R. Bielawa
Vice President and Assistant
General Counsel
THE CHASE MANHATTAN BANK
270 Park Avenue, 39th Floor
New York, New York 10017-2070
Re: 1) Application to consolidate The Chase Manhattan Trust Company of
California , National Association, San Francisco, California, Charter No.
20435, and Chase Trust Company of California, San Francisco, California,
and Chase Trust Company, National Association, Los Angeles, California,
Charter No. 23470, under the charter number of the latter and with the
title of "Chase Manhattan Bank and Trust Company, National Association"
("Resulting Bank"), 2) Amendment to the Articles of Association of the
Resulting Bank, and 3) Purchase and assumption of the assets and
liabilities of the Los Angeles branch of Chase Manhattan Private Bank,
National Association, Tampa, Florida, Charter No. 21177, by Chase Manhattan
Bank and Trust Company, National Association.
Dear Mr. Bielawa:
This letter is the official certification of the Office of the Comptroller of
the Currency (OCC) for the consolidation of three uninsured trust banks, The
Chase Manhattan Trust Company of California, National Association, San
Francisco, California, Charter No. 20435, and Chase Trust Company of California,
San Francisco, California, and Chase Trust Company, National Association, Los
Angeles, California, Charter No. 23470, under the charter number of the latter
and with the title of "CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL
ASSOCIATION", ("Resulting bank"), effective November 15, 1997. The former San
Francisco head offices of the consolidating banks will not be retained as
branches of the Resulting Bank.
Also, receipt is acknowledged of the Secretary Certificate of Shareholder
Approval which amends the Resulting Bank's Article Second of its Articles of
Association by expanding the Resulting Bank's activities to those of a full
service bank, upon the receipt of FDIC insurance and effective November 15, 1997
("Insured Resulting Bank"). The amendment
<PAGE>
Mr. Joseph R. Bielawa
THE CHASE MANHATTAN BANK
Page two
was filed pursuant to OCC approval dated August 12, 1997. Attached is a copy of
the accepted Amendment for the Bank's files. Finally, this letter is also the
official certification of the OCC to the Insured Resulting Bank to purchase
certain assets and assume certain liabilities of the LOS ANGELES BRANCH of Chase
Manhattan Private Bank, National Association, Tampa, Florida, effective November
15, 1997.
The Los Angeles Branch, located at 1800 Century Park East, Los Angeles,
California will not be operated as a separate branch of the Insured Resulting
Bank. The Los Angeles Branch Certificate (#104350A) should be returned to this
Office as soon as possible.
Very truly yours,
/s/ Michael G. Tiscia
Michael G. Tiscia
Licensing Manager
Charter No. 23470
Control No. 97 NE 02 0027
97 NE 02 0028
***OCC SEAL***
<PAGE>
COMPTROLLER OF THE CURRENCY
TREASURY DEPARTMENT OF THE UNITED STATES
WASHINGTON, D.C.
Whereas, satisfactory evidence has been presented by the Comptroller of the
Currency that Chase Trust Company, National Association located in Los Angeles
State of California has complied with all provisions of the statutes of the
United States required to be complied with before being authorized to commence
the business of banking as a National Banking Association;
Now therefore, I hereby certify that the above-named association is authorized
to commence the business of banking as a National Banking Association.
[SEAL] In testimony whereof, witness my signature and
seal of office this 15th day of November 1997
Charter No. 23470
Deputy Comptroller of the Currency
<PAGE>
EXHIBIT 3. Authorization of the Trustee to Exercise Corporate Trust Powers.
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(Contained in Exhibit 2.)
<PAGE>
EXHIBIT 4. Existing By-laws of the Trustee.
- --------------------------------------------------------------------------------
EXHIBIT 4
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of the shareholders to
elect directors and transact whatever other business may properly come before
the meeting, shall be held at the main office of the Association, or such other
place as the board may designate, and at such time in each year as may be
designated by the board of directors. Unless otherwise provided by law, notice
of the meeting may be waived by the Association's sole shareholder in accordance
with 12 C.F.R. (S) 7.2001. If, for any cause, an election of directors is not
made on that date, or in the event of a legal holiday, on the next following
banking day, an election may be held on any subsequent day within 60 days of the
date fixed, to be designated by the board, or, if the directors fail to fix the
date, by shareholders representing two thirds of the shares issued and
outstanding.
Section 1.2. Special Meetings. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by a majority of the board of directors or by any one or more
shareholders owning, in the aggregate, not less than twenty-five percent of the
stock of the Association or by the Chairperson of the board of directors or the
President. Unless otherwise provided by law, advance notice of a special
meeting may be waived by the Association's Sole Shareholder in accordance with
12 C.F.R. (S) 7.2001.
Section 1.3. Nominations of Directors. Nominations for election to the board
of directors may be made by the board of directors or by any stockholder of any
outstanding class of capital stock of the Association entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of
the existing management of the Association, shall be made in writing and shall
be delivered or mailed to the President of the Association and to the
Comptroller of the Currency, Washington, D.C., not less than 14 days nor more
than 50 days prior to any meeting of shareholders called for the election of
directors, provided, however, that if less than 21 days' notice of the meeting
is given to shareholders, such nomination shall be mailed or delivered to the
President of the Association and to the Comptroller of the Currency not later
than
<PAGE>
the close of business on the seventh (7th) day following the day on which the
notice of meeting was mailed. Such notification shall contain the following
information to the extent known to the notifying shareholder.
(1) The name and address of each proposed nominee.
(2) The principal occupation of each proposed nominee.
(3) The total number of shares of capital stock of the Association that will be
voted for each proposed nominee.
(4) The name and residence address of the notifying shareholder.
(5) The number of shares of capital stock of the Association owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in his/her discretion, be
disregarded by the Chairperson of the meeting, and upon his/her instructions,
the vote tellers may disregard all votes cast for each such nominee.
Section 1.4. Proxies. Shareholders may vote at any meeting of the shareholders
by proxies duly authorized in writing, but no officer or employee of this
Association shall act as proxy. Proxies shall be valid only for one meeting to
be specified therein, and any adjournments of such meeting. Proxies shall be
dated and filed with the records of the meeting. Proxies with rubber stamped
facsimile signatures may be used and unexecuted proxies may be counted upon
receipt of a confirming telegram from the shareholder. Proxies meeting above
requirements submitted at any time during a meeting shall be accepted.
Section 1.5 Quorum. A majority of the outstanding capital stock, represented
in person or by proxy, shall constitute a quorum at any meeting of shareholders,
unless otherwise provided by law, or by the shareholders or directors pursuant
to Section 10.2, but less than a quorum may adjourn any meeting, from time to
time, and the meeting may be held, as adjourned, without further notice. A
majority of the votes cast shall decide every question or matter submitted to
the shareholders at any meeting, unless otherwise provided by law or by the
Articles of Association, or by the shareholders or directors pursuant to Section
10.2. Any action required or permitted to be taken by the shareholders may be
taken without a meeting by unanimous written consent of the shareholders to a
resolution authorizing the action. The resolution and the written consent shall
be filed with the minutes of the proceedings of the shareholders.
<PAGE>
ARTICLE II
Directors
Section 2.1. Board of Directors. The board of directors ("board") shall have
the power to manage and administer the business and affairs of the Association.
Except as expressly limited by law, all corporate powers of the Association
shall be vested in and may be exercised by the board.
Section 2.2. Number. The board shall consist of not less than five nor more
than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and determined from time to time by resolution of a majority
of the full board or by resolution of a majority of the shareholders at any
meeting thereof; provided, however, that a majority of the full board may not
--------- --------
increase the number of directors to a number which: (1) exceeds by more than
two the number of directors last elected by shareholders where such number was
15 or less; and (2) exceeds by more than four the number of directors last
elected by shareholders where such number was 16 or more, but in no event shall
the number of directors exceed 25.
Section 2.3. Organization Meeting. The Secretary shall notify the directors-
elect of their election and of the time at which they are required to meet at
the main office of the Association to organize the new board and elect and
appoint officers of the Association for the succeeding year. Such meeting shall
be held on the day of the election or as soon thereafter as practicable, and, in
any event, within 30 days thereof. If, at the time fixed for such meeting,
there shall not be a quorum, the directors present may adjourn the meeting, from
time to time, until a quorum is obtained.
Section 2.4. Regular Meetings. The time and location of regular meetings of
the board shall be set by the board. Such meetings may be held without notice.
Any business may be transacted at any regular meeting. The board may adopt any
procedures for the notice and conduct of any meetings as are not prohibited by
law.
Section 2.5. Special Meetings. Special meetings of the board may be called at
the request of the Chairperson or Co-Chairperson of the board, the President, or
three or more directors. Each member of the board shall be given notice stating
the time and place, by telegram, telephone, letter or in person, of each such
special meeting at least one day prior to such meeting. Any business may be
transacted at any special meeting.
Section 2.6. Action by the Board. Except as otherwise provided by law,
corporate action to be taken by the board shall mean such action at a meeting of
the board. Any action required or permitted to be taken by the board or any
committee of the board may be taken without a meeting if all members of the
board or the committee consent in writing to a resolution authorizing the
action. The resolution and the written consents thereto shall be filed with the
minutes of the proceedings of the board or committee. Any one or more members
of the board or any committee may participate in a meeting of the board or
committee by means of a conference telephone or similar communications equipment
allowing all persons participating in the
<PAGE>
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at such meeting.
Section 2.7. Waiver of Notice. Notice of a special meeting need not be given
to any director who submits a signed waiver of notice, whether before or after
the meeting, or who attends the meeting without protesting, prior thereto or at
its commencement, the lack of notice to him or her.
Section 2.8. Quorum and Manner of Acting. Except as otherwise required by law,
the Articles of Association or these by-laws, a majority of the directors shall
constitute a quorum for the transaction of any business at any meeting of the
board and the act of a majority of the directors present and voting at a meeting
at which a quorum is present shall be the act of the board. In the absence of a
quorum, a majority of the directors present may adjourn any meeting, from time
to time, until a quorum is present and no notice of any adjourned meeting need
be given. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Section 2.9. Vacancies. In the event a majority of the full board increases
the number of directors to a number which exceeds the number of directors last
elected by shareholders, as permitted by Section 2.2, directors may be appointed
to fill the resulting vacancies by vote of such majority of the full board. In
the event of a vacancy in the board for any other cause, a director may be
appointed to fill such vacancy by vote of a majority of the remaining directors
then in office.
Section 2.10. Removal of Directors. The vacancy created by the removal of a
director pursuant to this Section may be filled by the board in accordance with
Section 2.9 of these by-laws or by the shareholders.
ARTICLE III
Committees
Section 3.1. Executive Committee. There may be an executive committee
consisting of the Chairperson or Co-Chairperson of the board and not less than
two other directors appointed by the board annually or more often. Subject to
the limitations in Section 3.4(g) of these by-laws, the executive committee
shall have the maximum authority permitted by law.
Section 3.2. Audit Committee. There may be an audit committee composed of not
less than two directors, exclusive of any active officers, appointed by the
board annually or more often, whose duty it shall be to make an examination at
least once during each calendar year and within fifteen months of the last
examination into the affairs of the Association, or cause continuous suitable
examinations to be made, by
<PAGE>
auditors responsible only to the board, and to report the results of any such
examinations in writing to the board from time to time. Such examinations shall
include audits of the fiduciary business of the Association as may be required
by law or regulation.
Section 3.3. Other Committees. The board may appoint, from time to time, other
committees of one or more persons, for such purposes and with such powers as the
board may determine.
Section 3.4. General.
(a) Each committee shall elect a Chairperson from among the members thereof
and shall also designate a Secretary of the committee, who shall keep a record
of its proceedings.
(b) Vacancies occurring from time to time in the membership of any committee
shall be filled by the board for the unexpired term of the member whose
departure causes such vacancy. The board may designate one or more alternate
members of any committee, who may replace any absent member or members at any
meeting of such committee.
(c) Each committee shall adopt its own rules of procedure and shall meet at
such stated times as it may, by resolution, appoint. It shall also meet
whenever called together by its Chairperson or the Chairperson of the board.
(d) No notice of regular meetings of any committee need be given. Notice of
every special meeting shall be given either by mailing such notice to each
member of such committee at his or her address, as the same appears in the
records of the Association, at least two days before the day of such meeting, or
by notifying each member on or before the day of such meeting by telephone or by
personal notice, or by leaving a written notice at his or her residence or place
of business on or before the day of such meeting. Waiver of notice in writing
of any meeting, whether prior or subsequent to such meeting, or attendance at
such meeting, shall be equivalent to notice of such meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at any
special meeting.
(e) All committees shall, with respect to all matters, be subject to the
authority and direction of the board and shall report to it when required.
(f) Unless otherwise required by law, the Articles of Association or these
by-laws, a quorum at any meeting of any committee shall be one-third of the full
membership and the act of a majority of members present and voting at a meeting
at which a quorum is present shall be the act of the committee.
<PAGE>
(g) No committee shall have authority to take any action which is expressly
required by law or regulation to be taken at a meeting of the board or by a
specified proportion of directors.
ARTICLE IV
Officers and Employees
Section 4.1. Chairperson of the Board. The board shall appoint one of its
members to be the Chairperson of the board, or two persons to serve as Co-
Chairperson of the board to serve at its pleasure. Such person shall preside at
all meetings of the board. The Chairperson or Co-Chairpersons of the board
shall supervise the carrying out of the policies adopted or approved by the
board; shall have general executive powers, as well as the specific powers
conferred by these by-laws; and shall also have and may exercise such further
powers and duties as from time to time may be conferred upon, or assigned by the
board.
Section 4.2. President. The board may appoint one of its members to be the
President of the Association. In the absence of the Chairperson or Co-
Chairpersons, the President shall preside at any meeting of the board. The
President shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulation, or practice
to the office of President, or imposed by these by-laws. The President shall
also have and may exercise such further powers and duties as from time to time
may be conferred, or assigned by the board.
Section 4.3. Vice President. The board may appoint one or more Vice
Presidents. Each Vice President shall have such powers and duties as may be
assigned by the board.
Section 4.4. Secretary. The board shall appoint a Secretary, Cashier, or other
designated officer who shall be Secretary of the board and of the Association,
and shall keep accurate minutes of all meetings. The Secretary shall attend to
the giving of all notices required by these by-laws; shall be custodian of the
corporate seal, records, documents and papers of the Association; shall provide
for the keeping of proper records of all transactions of the Association; shall
have and may exercise any and all other powers and duties pertaining by law,
regulation or practice, to the office of Cashier, or imposed by these by-laws;
and shall also perform such other duties as may be assigned from time to time,
by the board.
Section 4.5. Other Officers. The board may appoint one or more Assistant Vice
Presidents, one or more Trust Officers, one or more Assistant Secretaries, one
or more Assistant Cashiers, one or more Managers and Assistant Managers of
branches and such other officers and attorneys in fact as from time to time may
appear to the board to be required or desirable to transact the business of the
Association. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be conferred upon, or
assigned to, them by the board, the Chairperson or Co-Chairpersons of the board,
or the President. The board may authorize an officer to appoint one or more
officers or assistant officers.
<PAGE>
Section 4.6. Resignation. An officer may resign at any time by delivering
notice to the Association. A resignation is effective when the notice is given
unless the notice specifies a later effective date.
ARTICLE V
Fiduciary Activities
Section 5.1. Trust Committee. There shall be a Trust Committee of this
Association composed of four or more members, who shall be capable and
experienced officers or directors of the Association. The Committee is charged
with the responsibility for the investment, retention, or disposition of assets
held in accounts with respect to which the Association has investment authority;
for the review of the assets of accounts for which the Association has
investment authority promptly after the acceptance of such an account and at
least once during every calendar year thereafter to determine the advisability
of retaining or disposing of such assets; for the determination of the manner in
which proxies received for accounts for which the Association has responsibility
for the voting of proxies shall be voted; for the determination of all
substantial questions involving discretionary authority of the Association of a
non-investment nature, including, but not limited to, distribution of principal
and/or income in respect of any account; for providing advice as to the
investment, retention, or disposition of assets in investment advisory accounts
maintained by the Association; for the making of such reports as this board
shall require; and for such other responsibilities as may be assigned by this
board. The Trust Committee, in discharging its aforementioned responsibilities,
may authorize officers of the Association to exercise such powers and under such
conditions as the Committee may from time to time prescribe.
Section 5.2. Trust Investments. Funds held in a fiduciary capacity shall be
invested according to the instrument establishing the fiduciary relationship and
local law. Where such instrument does not specify the character and class of
investments to be made and does not vest in the Association a discretion in the
matter, funds held pursuant to such instrument shall be invested in investments
in which corporate fiduciaries may invest under applicable law.
Section 5.3. Trust Audit Committee. The board shall appoint a committee of at
least two directors, exclusive of any active officer of the association, which
shall, at least once during each calendar year make suitable audits of the
association's fiduciary activities or cause suitable audits to be made by
auditors responsible only to the board, and at such time shall ascertain whether
fiduciary powers have been administered according to law, Part 9 of the
Regulations of the Comptroller of the Currency, and sound fiduciary principles.
Section 5.4. Fiduciary Files. There shall be maintained by the association all
fiduciary records necessary to assure that its fiduciary responsibilities have
been properly undertaken and discharged.
<PAGE>
ARTICLE VI
Stock and Stock Certificates
Section 6.1. Transfers. Shares of stock shall be transferable on the books of
the Association, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his or her shares, succeed to all rights of the prior
holder of such shares.
The board may impose conditions upon the transfer of the stock reasonably
calculated to simplify the work of the Association with respect to stock
transfers, voting at shareholder meetings, and related matters and to protect it
against fraudulent transfers.
Section 6.2. Stock Certificates. Certificates of stock shall bear the
signature of the Chairperson or Co-Chairpersons of the board or President (which
may be engraved, printed or impressed), and shall be signed manually or by
facsimile process by the Secretary, Assistant Secretary, Cashier, Assistant
Cashier, or any other officer appointed by the board for that purpose, to be
known as an authorized officer, and the seal of the Association shall be
engraved thereon. Each certificate shall recite on its face that the stock
represented thereby is transferable only upon the books of the Association
properly endorsed. In case any such officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
before such certificate is issued, it may be issued by the Association with the
same effect as if such officer had not ceased to be such at the time of its
issue. The corporate seal may be a facsimile, engraved or printed.
ARTICLE VII
Corporate Seal
The Chairperson, the President, the Cashier, the Secretary or any Assistant
Cashier or Assistant Secretary, or other officer thereunto designated by the
board, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially
in the following form: A circle, with the words "Chase Manhattan Bank and Trust
Company, National Association" within such circle.
[IMPRESSION OF SEAL]
<PAGE>
ARTICLE VIII
Miscellaneous Provisions
Section 8.1. Fiscal Year. The fiscal year of the Association shall be the
calendar year.
Section 8.2. Execution of Instruments. All agreements, indentures, mortgages,
deeds, conveyances, transfers, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, proxies and other instruments or documents may
be signed, executed, acknowledged, verified, delivered or accepted on behalf of
the Association by the Chairperson or Co-Chairpersons of the board, or the
President, or any Vice Chairperson, or any Managing Director, or any Vice
President, or any Assistant Vice President, or the Chief Financial Officer, or
the Controller, or the Secretary, or the Cashier, or, if in connection with
exercise of fiduciary powers of the Association, by any of those officers or by
any Trust Officer. Any such instruments may also be executed, acknowledged,
verified, delivered or accepted on behalf of the Association in such other
manner and by such other officers as the board may from time to time direct.
The provisions of this Section 8.2 are supplementary to any other provision of
these by-laws.
Section 8.3. Records. The Articles of Association, the by-laws and the
proceedings of all meetings of the shareholders, the board, and standing
committees of the board, shall be recorded in appropriate minute books provided
for that purpose. The minutes of each meeting shall be signed by the Secretary,
Cashier or other officer appointed to act as Secretary of the meeting.
Section 8.4. Corporate Governance Procedures. To the extent not inconsistent
with applicable Federal banking law, bank safety and soundness or these by-laws,
the corporate governance procedures found in the Delaware General Corporation
Law shall be followed by the Association.
ARTICLE IX
Indemnification
Section 9.1. Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or
<PAGE>
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or an officer of the Association or is or was serving at
the request of the Association as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Association to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Association to provide broader indemnification
rights than such law permitted the Association to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section 9.3 of these
by-laws with respect to proceedings to enforce rights to indemnification, the
Association shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the board.
Section 9.2. Right to Advancement of Expenses. The right to indemnification
conferred in Section 9.1 of these by-laws shall include the right to be paid by
the Association the expenses (including attorney's fees) incurred in defending
any such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Association of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 9.2 or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections 9.1 and 9.2 of these by-laws shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
Section 9.3. Right of Indemnitee to Bring Suit. If a claim under Section 9.1
or 9.2 of these by-laws is not paid in full by the Association within sixty (60)
days after a written claim has been received by the Association except in the
case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Association to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit brought by the
Association to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (1) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (2) any suit brought by the Association to recover an
advancement of expenses pursuant to the terms of an undertaking, the Association
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Association
(including the board, the Association's independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Association (including the board, the Association's independent legal counsel,
or its shareholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such
<PAGE>
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Association to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article IX or
otherwise shall be on the Association.
Section 9.4. Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this Article IX shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, the Association's Articles of Association, by-laws, agreement, vote of
shareholders or disinterested directors or otherwise.
Section 9.5. Insurance. The Association may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Association or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Association would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 9.6. Indemnification of Employees and Agents of the Association. The
Association may, to the extent authorized from time to time by the board, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Association to the fullest extent of the provisions of this Article
IX with respect to the indemnification and advancement of expenses of directors
and officers of the Association.
ARTICLE X
By-laws
Section 10.1. Inspection. A copy of the by-laws, with all amendments, shall at
all times be kept in a convenient place at the main office of the Association,
and shall be open for inspection to all shareholders during banking hours.
Section 10.2. Amendments. The by-laws may be amended, altered or repealed, at
any regular meeting of the board by a vote of a majority of the total number of
the directors except as provided below. The Association's shareholders may
amend or repeal the by-laws even though the by-laws may be amended or repealed
by its board.
<PAGE>
EXHIBIT 6. Consent of the Trustee.
- --------------------------------------------------------------------------------
Chase Manhattan Bank and Trust Company, National Association hereby
consents, in accordance with the provisions of Section 321(b) of the Trust
Indenture Act of 1939, that reports of examinations by Federal, State,
Territorial and District of Columbia authorities may be furnished by such
authorities to the Securities and Exchange Commission upon its request therefor.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
BY: /s/ Paula Oswald
----------------
Paula Oswald
Assistant Vice President
<PAGE>
EXHIBIT 7. Report of Condition of the Trustee.
- --------------------------------------------------------------------------------
TRUST COMPANY
CONSOLIDATED REPORT OF CONDITION OF Chase Trust Company of California
-----------------------------------
(Legal Title)
LOCATED AT San Francisco San Francisco CA 94111
------------------ --------------------- ------- -----
(City) (County) (State) (Zip)
AS OF CLOSE OF BUSINESS ON September 30, 1997 BANK NO. 1476
--------------------- ----
================================================================================
================================================================================
<TABLE>
<CAPTION>
ASSETS DOLLAR AMOUNT IN THOUSANDS
<S> <C>
1. Cash and due from banks 13,026
2. U.S. Treasury securities 9,894
3. Obligations of other U.S. Government agencies and corporations
4. Obligations of States and political subdivisions
5. Other securities (including $___________________________ corporate stock
(a) Loans
(b) Less: Reserve for possible loan losses
(c) Loans (Net) 0
7. Bank Premises, furniture and fixtures and other assets representing bank
premises (including $ -0- capital leases) 83
_____________________________________
8. Real estate owned other than bank premises
9. Investments in subsidiaries not consolidated
10. Other assets (complete schedule on reverse) (including
$___________________ intangibles) 765
11. TOTAL ASSETS 23,768
LIABILITIES
12. Liabilities For borrowed money
13. Mortgage indebtedness (including $___________________ capital leases)
14. Other liabilities (complete on schedule on reverse 3,482
15. TOTAL LIABILITIES 3,482
======
16. Capital notes and debentures
SHAREHOLDERS EQUITY
17. Preferred stock--
(Number shares outstanding ________________________________) Amount $
18. Common stock-- 10
(Number shares authorized 100 ) Amount $ 100
_________________________________
(Number shares outstanding 100 ) Amount $ 100
_________________________________
19. Surplus Amount $ 9,990
20. TOTAL CONTRIBUTED CAPITAL 10,000
21. Retained earnings and other capital reserves 10,286
22. TOTAL SHAREHOLDERS EQUITY 20,286
23. TOTAL LIABILITIES AND CAPITAL ACCOUNTS 23,768
======
</TABLE>
<PAGE>
MEMORANDA
1. Assets deposited with State Treasurer to qualify for exercise of fiduciary
powers (market value) 628
- --------------------------------------------------------------------------------
The undersigned, Francis J. Farrell, VP & Manager and
--------------------------------
(Name and Title)
C. Scott Boone, Senior Vice President
-------------------------------------
(Name and Title)
of the above named trust company, each declares, for himself alone and not for
the other: I have a personal knowledge of the matters contained in this report
(including the reverse side hereof), and I believe that each statement in said
report is true. Each of the undersigned, for himself alone and not for the
other, certifies under penalty of perjury that the foregoing is true and
correct.
Executed on 10/21/97 , at San Francisco, California
-------- -------------
(Date) (City)
s/Francis J. Farrell s/C. Scott Boone
-------------------- ----------------
(Signature) (Signature)
SCHEDULE OF OTHER ASSETS
<TABLE>
<CAPTION>
<S> <C>
Accounts Receivable $266
Permanent Payroll Advance 3
Severance payout to be Reimbursed 111
Deferred Taxes 385
Total (same as Item 10) $765
</TABLE>
SCHEDULE OF OTHER LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
Accrued Income Taxes $2,102
Accounts Payable 26
Retirement Benefits 913
Accrued Employee Benefits 79
All Other Liabilities 362
------
Total (same as Item 14) $3,482
</TABLE>
