<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-20803
IXC COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 74-2644120
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5000 PLAZA ON THE LAKE, SUITE 200
AUSTIN, TEXAS 78746
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (512) 328-1112
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the Company outstanding) was 31,542,891 on November 10,
1997.
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<PAGE> 2
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1997 and December
31, 1996............................................................ 3
Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996......................................... 5
Notes to Condensed Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risks.......... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 19
Item 2. Changes in Securities................................................ 19
Item 3. Defaults Upon Senior Securities...................................... 20
Item 4. Submission of Matters to a Vote of Security Holders.................. 20
Item 5. Other Information.................................................... 20
Item 6. Exhibits and Reports on Form 8-K..................................... 21
SIGNATURE.............................................................................. 25
</TABLE>
2
<PAGE> 3
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER ------------------
30, (SEE NOTE 1)
1997
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 283,963 $ 61,340
Accounts receivable and other receivables, net of allowance
for doubtful accounts of $12,702 at September 30, 1997 and
$4,030 at December 31, 1996............................... 79,362 47,568
Other current assets......................................... 3,978 2,197
--------- --------
Total current assets................................. 367,303 111,105
Property and equipment......................................... 578,121 337,742
Less: accumulated depreciation................................. (101,429) (69,133)
--------- --------
476,692 268,609
Escrow under Senior Notes...................................... -- 51,412
Investment in unconsolidated subsidiary........................ 10,308 5,486
Deferred charges and other non-current assets.................. 35,570 22,539
--------- --------
Total assets......................................... $ 889,873 $459,151
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and other current liabilities............... $ 132,378 $ 74,945
Accrued interest............................................. 17,907 8,906
Current portion of long-term debt and capital lease
obligations............................................... 7,760 6,750
--------- --------
Total current liabilities............................ 158,045 90,601
Long-term debt and capital lease obligations, less current
portion...................................................... 295,959 295,531
Long-term portion of unearned fiber usage revenue.............. 50,132 5,302
Other noncurrent liabilities................................... 10,916 4,238
7 1/4% Junior Convertible Preferred Stock; $.01 par value;
authorized -- 3,000,000 shares of all classes of Preferred
Stock; 1,036,574 shares issued and outstanding (aggregate
liquidation preference of $103,657, including dividends of
$3,657 at September 30, 1997)................................ 99,354 --
12 1/2% Junior Exchangeable Preferred Stock, $.01 par value;
authorized -- 3,000,000 shares of all classes of Preferred
Stock; 300,000 shares issued and outstanding (aggregate
liquidation preference of $304,167, including accrued
dividends of $4,167 at September 30, 1997)................... 292,576 --
Stockholders' equity (deficit):
10% Junior Series 3 Cumulative Preferred Stock, $.01 par
value; authorized -- 3,000,000 shares of all classes of
Preferred Stock; 12,550 shares issued and outstanding
(aggregate liquidation preference of $20,484 at September
30, 1997)................................................. 13 13
Common stock, $.01 par value; 100,000,000 shares authorized:
shares issued and outstanding -- 30,923,690 at September
30, 1997 and 30,795,014 at December 31, 1996.............. 309 308
Additional paid-in capital..................................... 118,321 123,434
Accumulated deficit............................................ (135,752) (60,276)
--------- --------
Total stockholders' equity (deficit)................. (17,109) 63,479
--------- --------
Total liabilities and stockholders' equity
(deficit).......................................... $ 889,873 $459,151
========= ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND NUMBER OF SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net operating revenues:
Private line.................................. $ 41,948 $ 25,766 $111,311 $ 72,397
Switched long distance........................ 70,292 35,250 173,704 57,876
-------- ------- -------- --------
Net operating revenues................ 112,240 61,016 285,015 130,273
Operating expenses:
Cost of communication services................ 83,889 43,774 227,021 91,017
Operations and administration................. 22,240 12,083 57,471 33,286
Depreciation and amortization................. 17,666 7,280 41,031 19,934
-------- ------- -------- --------
Operating loss........................ (11,555) (2,121) (40,508) (13,964)
Interest income................................. 2,198 1,220 4,436 1,473
Interest income on escrow under Senior Notes.... -- 1,804 203 6,441
Interest expense................................ (7,960) (9,298) (23,720) (28,658)
Other, net...................................... (1,757) -- (1,757) --
Equity in net loss of unconsolidated
subsidiaries.................................. (7,317) (10) (13,668) (24)
-------- ------- -------- --------
Loss before benefit (provision) for income taxes
and minority interest......................... (26,391) (8,405) (75,014) (34,732)
Benefit (provision) for income taxes............ (211) 2,934 41 5,699
Minority interest............................... (186) (153) (503) (357)
-------- ------- -------- --------
Net loss........................................ (26,788) (5,624) (75,476) (29,390)
Dividends applicable to preferred stock......... (6,727) (437) (9,599) (1,302)
-------- ------- -------- --------
Net loss applicable to common and common
equivalent stockholders....................... $(33,515) $ (6,061) $(85,075) $(30,692)
-------- ------- -------- --------
Net loss per common and common equivalent
share......................................... $ (1.08) $ (0.19) $ (2.76) $ (1.13)
======== ======= ======== ========
Weighted average common and common equivalent
shares........................................ 30,897 31,311 30,832 27,126
======== ======= ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- --------
<S> <C> <C>
Net cash provided by operating activities......................... $ 17,494 $ 7,007
Investing activities
Release of funds from escrow under Senior Notes................. 69,564 70,125
Deposit into escrow under Senior Notes.......................... (18,152) --
Investments in unconsolidated subsidiary........................ (17,742) (1,988)
Purchase of property and equipment.............................. (202,477) (73,259)
--------- --------
Net cash used in investing activities............................. (168,807) (5,122)
Financing activities
Net proceeds from the sale of convertible preferred stock....... 95,696 --
Principal payments on long-term debt and capital lease
obligations.................................................. (10,139) (11,585)
Net proceeds from the sale of exchangeable preferred stock...... 288,287 --
Net proceeds from issuance of common stock -- initial public
offering..................................................... -- 81,515
Proceeds from issuance of common stock -- private placement..... -- 12,500
Other financing activities...................................... 92 (1,286)
--------- --------
Net cash provided by financing activities......................... 373,936 81,144
--------- --------
Net increase in cash and cash equivalents......................... 222,623 83,029
Cash and cash equivalents at beginning of period.................. 61,340 6,915
--------- --------
Cash and cash equivalents at end of period........................ $ 283,963 $ 89,944
========= ========
Supplemental disclosure of cash flow information:
Cash paid (received) for:
Interest..................................................... $ 19,467 $ 19,156
========= ========
Taxes........................................................ $ 120 $ (864)
========= ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation for
the periods indicated have been included. Operating results for the three month
and nine month periods ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1997. The
Balance Sheet at December 31, 1996 has been derived from the audited financial
statements at that date, but does not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements. The accompanying financial statements should be read in conjunction
with the audited consolidated financial statements (including the notes thereto)
for the year ended December 31, 1996. Certain amounts shown in the 1996
financial statements have been reclassified to conform to the 1997 presentation.
2. LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Loss per common and common equivalent share is based on net loss less
preferred stock dividend requirements, divided by the weighted average common
and common equivalent shares outstanding during the period. Outstanding options
are included in the calculation to the extent they are dilutive. Loss per share
on a fully diluted basis is not presented as the fully diluted effect is either
antidilutive or not materially different from primary loss per common and common
equivalent share, as computed.
3. INCOME TAXES
The Company has determined that a valuation allowance should be applied
against a portion of the deferred tax assets related to the net operating loss
incurred in 1997 due to uncertainty regarding its realizability. The difference
between the tax benefit recorded for the nine months ended September 30, 1997
and the benefit calculated at the federal statutory rate is primarily due to the
valuation allowance applied against the deferred tax assets.
4. COMMITMENTS AND CONTINGENCIES
During 1997, the Company has made and will continue to make material
commitments related to the expansion of its fiber optic network.
During 1997, the Company has entered into several agreements with major
long distance carriers for the sale of dark fiber amounting to $243 million.
Although these agreements provide for certain penalties if the Company does not
complete construction of the defined routes within the time frame specified in
the agreements, management does not anticipate that the Company will incur any
material penalties under these provisions.
On April 4, 1997 Tel-Central Communications, Inc. ("Tel-Central") filed a
complaint against IXC Long Distance, Inc., one of the Company's subsidiaries, in
the United States District Court in the Western District of Missouri, after the
Company terminated service to Tel-Central for failure to pay for services. On
May 23, 1997, Tel-Central filed a voluntary Chapter 11 petition in bankruptcy.
The case was stayed as a result of the bankruptcy proceedings until August 1997,
when Tel-Central dismissed the action.
From time to time the Company is involved in various legal proceedings
arising in the ordinary course of business, some of which are covered by
insurance. In the opinion of the Company's management, none of the
6
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IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
claims relating to such proceedings will have a material effect on the financial
condition or results of operations of the Company.
5. STOCK OPTIONS
During the quarter ended September 30, 1997, the Company granted stock
options for an aggregate of 751,000 shares of common stock under the 1996 Stock
Plan and the 1997 Special Executive Stock Plan. At September 30, 1997 stock
options covering 2,751,046 shares of common stock were outstanding.
6. PROSPECTIVE ACCOUNTING CHANGES
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" ("SFAS
No. 128"), which simplifies the calculation of earnings per share. Under SFAS
No. 128, stock options and other equity instruments are excluded from the
calculation of "basic earnings per share", which will replace primary earnings
per share disclosures. SFAS No. 128 is effective for periods ending after
December 15, 1997. The Company believes that its future adoption of SFAS No. 128
will not have a significant impact on earnings per share disclosures for the
periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 131 will have no impact on the Company's consolidated
results of operations, financial position or cash flows.
7. PREFERRED STOCK
In April 1997, the Company issued $100 million of 7 1/4% Junior Convertible
Preferred Stock Due 2007 ("Convertible Preferred Stock"). The net proceeds of
approximately $95.7 million from the offering were used to fund capital
expenditures, investments in an unconsolidated subsidiary and general corporate
purposes. Resales of the Convertible Preferred Stock and the common stock
issuable upon conversion thereof were registered under the Securities Act of
1933, as amended (the "Securities Act") in August 1997 in compliance with the
registration rights agreement entered into by the Company with the initial
purchasers of the Convertible Preferred Stock. On March 31, 2007, the
Convertible Preferred Stock must be redeemed by the Company at a price equal to
the liquidation preference plus accrued and unpaid dividends; thus it is
"mandatorily redeemable" and is not reported in stockholders' equity. Dividends
payable prior to or on June 30, 1999 are, at the option of the Company, payable
in cash or through the issuance of additional shares of Convertible Preferred
Stock equal to the dividend amount divided by the liquidation preference of such
additional shares. After March 31, 1999, to the extent and for so long as the
Company is not permitted to pay cash dividends on the Convertible Preferred
Stock by the terms of any then outstanding indebtedness or any other agreement
or instrument to which the Company is subject, the Company will be required to
pay dividends, which shall accrue at the rate per annum of 8 3/4%, through the
issuance of additional shares of Convertible Preferred Stock. Payment of cash
dividends on the Convertible Preferred Stock is not currently permitted under
the indenture for the Company's 12 1/2% Senior Notes due 2005 until certain
financial conditions have been met. During September 1997, the Company issued
18,451 additional shares of Convertible Preferred Stock in satisfaction of its
September 1997 dividend requirements.
In August 1997, the Company issued $300 million of 12 1/2% Junior
Exchangeable Preferred Stock Due 2009 (the "Exchangeable Preferred Stock"). The
net proceeds of approximately $288.3 million from the offering are being used to
fund capital expenditures, investments in the Company's unconsolidated
subsidiaries
7
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IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
and general corporate purposes. The Exchangeable Preferred Stock has not been
registered under the Securities Act and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements. On August 15, 2009, the Exchangeable Preferred Stock must be
redeemed by the Company at a price equal to the liquidation preference plus
accrued and unpaid dividends; thus it is "mandatorily redeemable" and is not
included in stockholders' equity. Dividends on the Exchangeable Preferred Stock
will accrue at a rate of 12 1/2% per annum of the liquidation preference thereof
and will be payable quarterly in arrears on February 15, May 15, August 15 and
November 15 of each year commencing November 15, 1997. Dividends payable prior
to or on August 15, 2000 are, at the option of the Company, payable in cash or
through issuance of additional shares of Exchangeable Preferred Stock equal to
the dividend amount divided by the liquidation preference of such additional
shares. The registration rights agreement entered into by the Company with the
initial purchasers of the Exchangeable Preferred Stock requires that the Company
file an exchange offer registration statement (the "Exchange Offer Registration
Statement") with respect to an offer (the "Registered Exchange Offer") to
exchange the Exchangeable Preferred Stock for a new series of Exchangeable
Preferred Stock registered under the Securities Act. In October 1997, the
Company filed the Exchange Offer Registration Statement with the Securities and
Exchange Commission. If, on or before January 19, 1998, the Registered Exchange
Offer has not been consummated, or a shelf registration statement has not been
declared effective with respect to the Exchangeable Preferred Stock, the
Exchangeable Preferred Stock dividend rate is subject to increase pursuant to
the terms of the registration rights agreement. After February 15, 2001,
interest on the Exchangeable Preferred Stock may be paid only in cash. Payment
of cash dividends on the Exchangeable Preferred Stock is not currently permitted
under the indenture for the Company's 12 1/2% Senior Notes due 2005 until
certain financial conditions have been met.
8. PSINET INC.
In July 1997 the Company announced agreements with PSINet Inc. ("PSINet").
Under the terms of the PSINet agreements, after consummation of the transaction,
the Company will provide PSINet with an indefeasible right to use 10,000 miles
of OC-48 transmission capacity on its Network over a 20-year period in exchange
for 20% (post-issuance) of PSINet common stock. In addition, if the value of the
PSINet common stock received by the Company is less than $240 million at the
earlier of one year after the final delivery of the transmission capacity
(scheduled for late-1999) or four years after closing, PSINet will pay the
Company cash or, at PSINet's option, deliver additional PSINet common stock to
bring the value of the Company's investment to $240 million. Upon delivery of
the transmission capacity to PSINet, the Company will also receive a maintenance
fee which, when all the capacity has been delivered, will be approximately $11.5
million per year. The Company expects to consummate the transactions
contemplated by the PSINet agreements upon the satisfaction of certain
conditions, including the approval of PSINet stockholders. There can be no
assurance that such conditions will be satisfied or that the PSINet transaction
will be consummated.
9. SUBSEQUENT EVENTS
In October 1997, the Company formed a joint venture with Telenor AS, the
Norwegian national telephone company, to provide telecommunication services to
carriers and resellers in nine European countries. The joint venture will be
owned 40 percent by the Company, 40 percent by Telenor Global Services AS, and
20 percent by Clarion Resources Communications Corporation, a U.S.-based
telecommunications company in which Telenor owns a controlling interest. Under
the terms of the agreement, the Company will have two seats on the joint
venture's board.
In October 1997, the Company consummated its offer to exchange shares of
its Common Stock for the 12,550 outstanding shares of its 10% Junior Series 3
Cumulative Redeemable Preferred Stock (the "Series 3 Preferred Stock"). Each
holder that tendered shares of Series 3 Preferred Stock prior to the expiration
date of
8
<PAGE> 9
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
the tender offer (October 31, 1997) received approximately 49.85 shares of
Common Stock for each share of Series 3 Preferred Stock. The number of shares of
Common Stock issued for each share of Series 3 Preferred Stock was calculated by
dividing the aggregate per share liquidation preference, including accrued and
unpaid dividends, of one share of Series 3 Preferred Stock as of October 31,
1997 by $33.00, the last reported sale price of the Company's Common Stock on
the Nasdaq National Market at that date. The aggregate liquidation preference,
including accrued and unpaid dividends, of the Series 3 Preferred Stock at the
tender date was approximately $20.6 million ($1,645 per share for the 12,550
shares outstanding). Over 95% of the shares of Series 3 Preferred Stock were
tendered prior to the expiration of the exchange offer.
10. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through
subsidiaries. The Senior Notes are unconditionally guaranteed, jointly and
severally, by certain wholly owned direct and indirect subsidiaries (the
"Subsidiary Guarantors"). The obligations of each Subsidiary Guarantor are
limited to the minimum extent necessary to prevent the guarantee from violating
or becoming voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
Certain subsidiaries of the Company do not guarantee the Senior Notes (the
"Non-Guarantor Subsidiaries"). The claims of creditors of Non-Guarantor
Subsidiaries have priority over the rights of the Company to receive dividends
or distributions from such subsidiaries.
The equity method has been used by the Company with respect to investments
in subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors. Presented below is condensed consolidating financial information
for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as
of and for the nine months ended September 30, 1997.
9
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IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $295,479 $(21,708) $ 10,192 $ -- $283,963
Accounts receivable and
other receivables, net... 974 57,779 20,609 -- 79,362
Other current assets........ 1,643 2,299 36 -- 3,978
-------- -------- -------- ---------- --------
Total current
assets............ 298,096 38,370 30,837 -- 367,303
Property and equipment, net... 9,895 415,752 51,305 (260) 476,692
Escrow under Senior Notes..... -- -- -- -- --
Due from affiliates........... 448,905 -- 11,202 (460,107) --
Deferred charges and other
non-current assets.......... 10,859 9,679 32,170 (6,830) 45,878
-------- -------- -------- ---------- --------
Total assets........ $767,755 $463,801 $ 125,514 $ (467,197) $889,873
======== ======== ======== ========== ========
Current liabilities:
Accounts payable, accrued
interest and other
current liabilities...... $ 27,196 $ 75,082 $ 48,008 $ (1) $150,285
Current portion of long-term
debt and capital lease
obligations.............. 46 998 6,716 -- 7,760
-------- -------- -------- ---------- --------
Total current
liabilities....... 27,242 76,080 54,724 -- 158,045
Long-term debt and capital
lease obligations, less
current portion............. 278,189 2,850 14,920 -- 295,959
Due to affiliates............. -- 379,231 89,367 (468,598) --
Investments in and advances to
unconsolidated
subsidiaries................ 86,737 25,626 -- (112,363) --
Other noncurrent
liabilities................. -- 65,379 -- (4,331) 61,048
Convertible preferred stock... 99,354 -- -- -- 99,354
Exchangeable preferred
stock....................... 292,576 -- -- -- 292,576
Stockholders' equity
(deficit):
Preferred stock............. 13 -- 2,585 (2,585) 13
Common stock................ 309 3 -- (3) 309
Additional paid-in
capital.................. 118,321 30,054 36,347 (66,401) 118,321
Retained earnings
(accumulated deficit).... (134,986) (115,422) (72,429) 187,085 (135,752)
-------- -------- -------- ---------- --------
Total stockholders'
(deficit)......... (16,343) (85,365) (33,497) 118,096 (17,109)
-------- -------- -------- ---------- --------
Total liabilities
and stockholders'
(deficit)......... $767,755 $463,801 $ 125,514 $ (467,197) $889,873
======== ======== ======== ========== ========
</TABLE>
10
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IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net operating revenue:
Private line................ $ 43 124,690 10,553 (23,975) 111,311
Switched long distance...... -- 88,484 157,135 (71,915) 173,704
-------- -------- -------- -------- --------
Net operating
revenues.......... 43 213,174 167,688 (95,890) 285,015
Operating expenses:
Cost of communication
services................. 3 156,634 165,637 (95,253) 227,021
Operations and
administration........... (53) 40,406 17,823 (705) 57,471
Depreciation and
amortization............. 1,202 30,900 8,997 (68) 41,031
-------- -------- -------- -------- --------
Operating loss...... (1,109) (14,766) (24,769) 136 (40,508)
Interest income............... 32,951 510 307 (29,332) 4,436
Interest income on escrow
under Senior Notes.......... 203 -- -- 203
Interest expense.............. (27,073) (20,330) (5,648) 29,331 (23,720)
Other, net.................... -- (1,757) -- -- (1,757)
Equity in net loss of
unconsolidated
subsidiaries................ (80,002) (32,335) (12,231) 110,900 (13,668)
-------- -------- -------- -------- --------
Loss before benefit
(provision) for income taxes
and minority interest....... (75,030) (68,678) (42,341) 111,035 (75,014)
Benefit (provision) for
income taxes............. (446) (299) 786 41
Minority Interest............. -- -- -- (503) (503)
-------- -------- -------- -------- --------
Net loss...................... $(75,476) $(68,977) $ (41,555) $110,532 $(75,476)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
11
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IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR
IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities......... $ 27,991 $ (13,659) $ 3,983 $ (821) $ 17,494
Investing activities:
Release of funds from escrow
under Senior Notes........ 69,564 -- -- -- 69,564
Deposits into escrow under
Senior Notes.............. (18,152) -- -- -- (18,152)
Investments in unconsolidated
subsidiary................ -- -- (17,742) -- (17,742)
Purchase of property and
equipment................. (9,533) (176,543) (16,401) (202,477)
-------- --------- -------- ------- ---------
Net cash provided by (used
in), investing
activities................ 41,879 (176,543) (34,143) -- (168,807)
Financing activities:
Net proceeds from convertible
preferred stock........... 95,696 -- -- -- 95,696
Net proceeds from
exchangeable preferred
stock..................... 288,287 -- -- -- 288,287
Payments from (advance to)
affiliates................ (223,951) 179,995 43,956 -- --
Principal payments on
long-term debt and capital
lease obligations......... 122 (2,046) (8,215) -- (10,139)
Other financing activities... 92 -- -- -- 92
-------- --------- -------- ------- ---------
Net cash provided by
financing activities...... 160,246 177,949 35,741 -- 373,936
Net increase (decrease) in
cash and cash
equivalents............... 230,116 (12,253) 5,581 (821) 222,623
Cash and cash equivalents at
beginning of period....... 65,363 (9,455) 4,611 821 61,340
-------- --------- -------- ------- ---------
Cash and cash equivalents at
end of period............. $295,479 $ (21,708) $ 10,192 $ -- $283,963
======== ========= ======== ======= =========
</TABLE>
See accompanying notes.
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained below, the matters
discussed in this item are forward-looking statements that involve a number of
risks and uncertainties. The Company's actual liquidity needs, capital resources
and results may differ materially from the discussion set forth in the
forward-looking statements. For a discussion of important factors that may cause
the actual results, performance or achievements of the Company to be materially
different from those expressed or implied by the forward-looking statements, see
"Business -- Risk Factors" in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996. In light of such risks and uncertainties,
there can be no assurance that the forward-looking information contained in this
item will in fact transpire.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1996
Net operating revenue for the third quarter and year-to-date 1997 increased
by 84.0% and 118.8% over the comparable 1996 periods, due mainly to the
continuing implementation of the Company's switched services business. Revenue
for the switched services business increased 99.4% and 200.1% for the 1997 third
quarter and year-to-date over 1996. Billable minutes of use ("MOUs") increased
over 1996 by 120.1% to 825.3 million minutes for the quarter and 245.4% to 2.1
billion minutes year-to-date. Revenue for the Company's private line business
increased 62.8% for the quarter and 53.8% year-to-date over 1996 due to
increased demand for capacity and the availability of additional capacity
resulting from the Company's network expansion.
Cost of communication services consists primarily of access charges paid to
Local Exchange Carriers ("LECs") and transmission lease payments to, and
exchanges with, other carriers. These costs increased 91.6% for the quarter and
149.4% year-to-date over 1996 due to additional leases supporting the Company's
private line and switched services businesses, MOUs obtained from other carriers
and access charges paid to LECs in connection with the switched services
business. The Company has historically had a relatively low cost of
communication services as a percentage of revenues because substantially all its
revenues were derived from private line services, generally provided at a
relatively low cost over its own network. Expenses in the switched services
business are substantially greater than the private line business due to the
additional cost of LEC access charges, leases for long distance circuits and
MOUs obtained from other carriers. In July 1997 the Federal Communications
Commission ("FCC") mandated rate reductions for the connection charges paid by
long distance carriers to LEC's. The favorable impact of these rate reductions
during the third quarter are reflected in the financial statements. The Company
expects its cost of communication services as a percentage of revenue to
increase over historical results as the switched services revenue becomes a
larger share of the Company's business.
Operations and administration expenses for the quarter and year-to-date for
1997 have increased 84.1% and 72.7% over 1996 primarily as a result of costs
associated with the Company's switched network. Although the Company has been
successful in establishing its nationwide switched services business with
significant revenues, the Company's operating loss, plus depreciation and
amortization ("EBITDA") in the switched services business has been negative and
the Company believes it is likely to remain negative for the balance of the
year.
Depreciation and amortization for the quarter and year-to-date for 1997
increased 142.7% and 105.8% over the comparable 1996 periods due to the increase
in depreciable assets related to the Company's network expansion. Depreciation
and amortization will continue to increase in conjunction with spending on
capital assets to increase network capacity.
Interest income for the quarter and year-to-date for 1997 decreased over
1996 by $.8 million and $3.3 million as proceeds from the Company's 1996 and
1997 debt and equity placements were used to construct the Company's network and
operate its business. The Company's sale of $300 million of its 12 1/2% Junior
Exchangeable Preferred Stock Due 2009 (the "Exchangeable Preferred Stock") which
occurred in August 1997, did not have a significant impact on interest income
for the quarter.
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<PAGE> 14
Interest expense for the quarter and year-to-date periods decreased over
1996 by $1.3 million and $4.9 million. Total interest expense expensed for the
year-to-date 1997 period were $23.7 million, compared to $28.7 million for the
comparable 1996 period. Capitalization of interest reduced interest expense by
$4.9 million year-to-date in 1997 compared to $1.4 million in 1996.
"Other, net" represents the net book value of a write-off of an operating
software module retired during 1997.
Equity in net loss of unconsolidated subsidiaries increased by $7.3 million
for the third quarter and $13.6 million for the year-to-date 1997 over 1996 due
to both the increased equity portion attributed to the Company and the increased
losses in the Mexican telecommunications investment described below. The losses
are expected to continue for this investment during the foreseeable future.
The income tax benefit for the quarter and year-to-date for 1997 decreased
by $3.1 million and $5.7 million over 1996. This decrease occurred because
although the tax benefit of the Company's losses are being fully reserved in
both 1997 and 1996, in 1996 the Company recognized tax benefits related to the
favorable resolution of federal income tax examinations.
The net loss applicable to common and common equivalent shareholders for
the quarter and nine months ended September 30, 1997 were larger than the
comparable 1996 periods due to the factors described above and the increase in
preferred stock dividends in 1997. The increase in preferred stock dividends of
$6.3 million for the quarter, and $8.3 million for the nine month period is the
result of issuing the Convertible Preferred Stock in April 1997 and the
Exchangeable Preferred Stock in August 1997.
LIQUIDITY AND CAPITAL RESOURCES
Actual Results
The Company's private line operations have historically provided positive
cash flow from operations, which has provided adequate liquidity to meet the
Company's operational needs. However, the Company's capital expenditures and,
since the issuance of the Company's 12 1/2% Senior Notes due 2005 (the "Senior
Notes") in the fourth quarter of 1995, its interest expense have been financed
with the proceeds of debt and equity securities.
Cash provided by operating activities was $17.5 million for the nine months
ended September 30, 1997 compared to $7.0 million in the comparable period of
1996. The improvement is due to the sale of fiber capacity partially offset by
decreased year-over-year operating results associated with the implementation of
the switched services business.
Cash used in investing activities for the nine months ended September 30,
1997 was $168.8 million compared to $5.1 million for the nine months ended
September 30, 1996. The increase was due in part to higher capital spending and
investment in the Marca-Tel joint venture. Capital spending, related to the
expansion of the Company's network capacity, increased $129.2 million to $202.5
million for the nine months ended September 30, 1997. Funding of the Company's
investment in the Marca-Tel joint venture was $17.7 million during the first
nine months of 1997, an increase of $15.7 million over the comparable 1996
period. Escrow funding activity from the Company's senior debt to support the
network expansion ended during the first nine months of 1997, with a
year-over-year reduction of $18.7 million.
Cash provided by financing activities increased to $373.9 million for the
first nine months of 1997 versus $81.1 million for the comparable period in
1996. Increased funding during 1997 was the result of issuing the Company's
7 1/4% Junior Convertible Preferred Stock due 2007 (the "Convertible Preferred
Stock") in April 1997 and issuing the Exchangeable Preferred Stock in August
1997. Net proceeds of $95.7 million were received for the Convertible Preferred
Stock while net proceeds of $288.3 million were received for the Exchangeable
Preferred Stock. During the comparable period in 1996, net proceeds of $94.0
million were received from issuance of common stock in connection with the
Company's initial public offering and concurrent private placement to General
Electric Pension Trust which occurred in July 1996.
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<PAGE> 15
Sources of Cash
As of September 30, 1997, the Company had approximately $284.0 million in
cash. The Company expects that its primary sources of cash over the next twelve
months will be cash on hand, cash generated by operations, the proceeds if any,
from offerings of debt and/or equity securities, the Proposed Credit Facility
(as herein defined), the NTFC Equipment Facility (as herein defined), additional
vendor and working capital financing the Company may seek and the anticipated
proceeds of fiber sales.
The Company is engaged in discussions with potential lenders regarding a
revolving credit facility (the "Proposed Credit Facility") under which it seeks
to borrow up to a certain percentage of eligible accounts receivable. Although
the total availability under the Proposed Credit Facility would vary from time
to time according to the aggregate amount of eligible accounts receivable, the
Company anticipates that the lender would impose a limit on borrowings under the
facility. There can be no assurance that the Company will obtain such a
facility. In July 1997, the Company entered into a secured equipment financing
facility with NTFC Capital Corporation, an affiliate of Northern Telecom Inc.,
to provide up to $28 million in financing. Provided the Company meets certain
financial tests, the Company expects to borrow approximately $28 million under
this agreement in the fourth quarter in connection with the purchase of certain
equipment for use in its network.
In February 1997, the Company and a carrier entered into a contract ("IRU
Agreement") pursuant to which the carrier will purchase an indefeasible right to
use ("IRU") fibers from Chicago to Los Angeles (the "Chicago-Los Angeles Fiber
Sale") which, following performance by the Company of its obligations thereunder
to the satisfaction of such carrier, will result in proceeds to the Company of
approximately $97.9 million. The Company has already received $43.3 million from
this contact, with the balance expected to be paid in the first quarter of 1998.
In February 1997, the Company entered into a contract with another carrier
pursuant to which the carrier will purchase an indefeasible right to use fibers
from Los Angeles to New York (the "New York-Los Angeles Fiber Sale") which
entitles the Company to receive, following performance by the Company of its
Obligations thereunder to the satisfaction of such carrier, approximately $121.0
million. Assuming that the network expansion proceeds according to schedule,
this amount will be due in January 1998. In October 1997, the carrier elected an
option to pay this amount over a period of up to eighteen months. The Company
has continued to enter into IRU agreements with carriers for varying amounts
with substantially similar provisions as the two identified above. Entering into
these IRU agreements allows the Company to build its network at a reduced cost
per mile.
In July 1997, the Company announced agreements with PSINet Inc. ("PSINet").
Under the terms of the PSINet agreements, after consummation of the transaction,
the Company will provide PSINet with an indefeasible right to use 10,000 miles
of OC-48 transmission capacity on its Network over a 20-year period in exchange
for 20% (post-issuance) of PSINet common stock. In addition, if the value of the
PSINet common stock received by the Company is less than $240 million at the
earlier of one year after the final delivery of the transmission capacity
(scheduled for late-1999) or four years after closing, PSINet will pay the
Company cash or, at PSINet's option, deliver additional PSINet common stock to
bring the value of the Company's investment to $240 million. Upon delivery of
the transmission capacity to PSINet, the Company will also receive a maintenance
fee which, when all the capacity has been delivered, will be approximately $11.5
million per year. The Company expects to consummate the transactions
contemplated by the PSINet agreements upon the satisfaction of certain
conditions, including receipt of approval of PSINet stockholders. There can be
no assurance that such conditions will be satisfied or that the PSINet
transaction will be consummated.
The preceding forward-looking statements regarding the Company's sources of
cash are based on certain assumptions as to future events, many of which are not
within the Company's control. Important factors that could adversely affect the
Company's ability to generate cash as discussed above include: (i) delays or
cost overruns with respect to the network expansion; (ii) delays by the
Company's contractors and partners in cost-saving arrangements in fulfilling
their obligations; (iii) delays or higher-than-expected costs in obtaining
rights-of-way; (iv) delays in the completion of the routes of the network
expansion scheduled for completion in 1997; (v) an inability by the Company to
continue to increase traffic on its switched network, in particular, higher
margin traffic; (vi) an inability by the Company to successfully provide service
for its switched services
15
<PAGE> 16
business on a cost-effective basis (including the provision of billing
information in an accurate and timely manner) for volumes that it has not
previously handled, (vii) the loss of one or more large customers; (viii) an
inability to decrease expenses; (ix) decreases in the Company's rates caused by
competitive pressures, among other unknown factors; and (x) an inability to
successfully complete the Chicago-Los Angeles Fiber Sale or the New York-Los
Angeles Fiber Sale. The ability of the Company to supplement cash through
financing activities is subject to the ability of the Company to find willing
buyers of debt or equity instruments on terms acceptable to the Company, market
conditions generally, and, with respect to debt instruments, the Company's
ability to obtain any required consents from the Company's existing bondholders.
Uses of Cash
The Company anticipates the following uses for its available cash: (i) the
network fiber and optronic expansion and other capital expenditures (including
those related to the PSINet transaction); (ii) debt service; (iii) lease
payments; (iv) funding its joint venture in Mexico; and (v) working capital.
The Company anticipates 1997 capital expenditures will be approximately
$400 million, of which $202.5 million has been spent through September 30, 1997.
The 1997 projected spending level encompasses the addition of additional fiber
route miles, as well as network upgrades and capacity expansion of the existing
fiber route. The preceding forward-looking statement regarding capital
expenditures for 1997 are based on certain assumptions as to future events, many
of which are not under the Company's control. Important factors which could
increase or decrease the amount of the capital expenditures include construction
delays or construction cost overruns, delays or higher than expected costs in
obtaining rights-of-way, or changes in the scope of the network expansion and
increased demands for capacity by the Company's customers. The Company expects
to continue to make substantial capital expenditures during the remainder of
1997 and thereafter. The Company currently anticipates that 1998 capital
expenditures will be in the mid-$400 million range. The Company frequently
revises its estimates of capital expenditures because of the rapid growth of the
Company's business and because the large, on-going network expansion is subject
to changes in timing, design, route and capacity, and variances from expected
costs.
The Company is required to make interest payments in the amount of $35.6
million on the Senior Notes each year. The Company's EBITDA is currently
insufficient to cover these debt service requirements. At November 1, 1997, the
aggregate liquidation preference of the Company's 10% Junior Series 3 Cumulative
Redeemable Preferred Stock (the "Series 3 Preferred Stock") was approximately
$.7 million, including accrued and unpaid dividends, after giving effect to the
consummation of the Company's offer to exchange shares of its common stock for
all of its outstanding shares of Series 3 Preferred Stock. Such dividends accrue
at an annual rate of 10% (based on the liquidation preference) plus interest.
The Company is also required (except in certain limited circumstances) to pay
quarterly cash dividends on the Convertible Preferred Stock (at an annual rate
of 7 1/4%) beginning with the dividend payment required to be made on June 30,
1999 (prior to such time these dividends may at the Company's option be paid in
cash or additional shares of Convertible Preferred Stock). Payment of cash
dividends on the Series 3 Preferred Stock, the Convertible Preferred Stock and
the Exchangeable Preferred Stock is not currently permitted under the terms of
the indenture (the "Indenture") for the Senior Notes until certain financial
conditions have been met. Additionally, cash dividends cannot be paid on the
Convertible Preferred Stock until all current and accrued dividends have been
paid in cash on the Series 3 Preferred Stock. During September 1997, the Company
issued 18,451 additional shares of Convertible Preferred Stock in satisfaction
of its dividend requirements. During September 1997, the Company accrued $4.2
million of in-kind dividends relating to the Exchangeable Preferred Stock.
In October 1997, the Company formed a joint venture with Telenor AS, the
Norwegian national telephone company, to provide telecommunication services to
carriers and resellers in nine European countries. The joint venture will be
owned 40 percent by the Company, 40 percent by Telenor Global Services AS, and
20 percent by Clarion Resources Communications Corporation, a U.S.-based
telecommunications company in which Telenor owns a controlling interest. Under
the terms of the agreement, the Company will have two seats on the joint
venture's board. Although the Company cannot accurately predict the capital that
16
<PAGE> 17
will be required to implement the Telenor joint venture, it estimates that the
funding of $6 million will be sufficient for the remainder of 1997 and 1998.
The Company is indirectly participating in the development of a long
distance network to engage in the telecommunications business in Mexico by
Marca-Tel S.A. de C.V. ("Marca-Tel"). The Company indirectly owns 24.5% of
Marca-Tel through its ownership of 50% of Progress International LLC ("Progress
International"), which owns 49% of Marca-Tel. The remaining 51% of Marca-Tel is
owned by a Mexican individual and Fomento Radio Beep, S.A. de C.V. The other 50%
of Progress International is owned by Westel International, Inc. ("Westel").
Progress International has provided all the capital required from Marca-Tel
shareholders in order to finance Marca-Tel. The Company and Westel have agreed
to jointly contribute funds to Progress International. From inception to
September 30, 1997, the Company has provided approximately $25.0 million of the
$36.8 million contributed or loaned to Progress International. Substantially all
of the funding of Progress International has been contributed to Marca-Tel. The
Company is recognizing its share of the Progress International losses in line
with its pro rata share of the contributions to Progress International.
Although the Company cannot accurately predict the capital that will be
required to implement the Marca-Tel business plan, it estimates that an
additional $50.0 million (and possibly significantly more) will be required by
Marca-Tel from its stockholders during the remainder of 1997 and 1998. The
Company and Westel have pursued and are continuing to pursue selling equity
interests in Progress International to one or more third parties who could
assist Progress International with the funding of Marca-Tel. However, there can
be no assurance that any such funding will be available on satisfactory terms or
at all. The Company is currently, and may remain, the primary source of funds
available to Progress International for investment in Marca-Tel. Since the
ownership interests of the Company and Westel in Progress International are to
be proportional to their respective capital contributions, the Company's
percentage ownership of Progress International, and therefore its indirect
ownership interest in Marca-Tel, could increase if it continues to make
additional capital contributions which are not matched by Westel. The Indenture
contains significant limitations on the amount the Company may invest in
Progress International and other non-majority owned entities. Marca-Tel has
deployed three switching centers and is constructing a fiber optic route linking
Mexico's three major cities (Mexico City, Monterrey and Guadalajara), with
interconnection to the Company's U.S. network at its border crossing at
Reynosa/McAllen. Marca-Tel has entered into a turn-key contract with a major
international supplier of telecommunications equipment for a portion of this
build that provides for interim vendor financing for the equipment and fiber
purchases as well as a portion of the construction work. The Company anticipates
that Marca-Tel may be able to obtain additional funding through some combination
of the following: (i) offerings of debt or equity securities; (ii) other
incurrences of debt; (iii) joint venture arrangements with third parties; and
(iv) additional vendor financing of equipment purchases. Initially, such sources
of capital likely will not be adequate to meet the needs of Marca-Tel, and the
Company anticipates that, until such sources are adequate to enable Marca-Tel to
continue to pursue its business plan, it may be necessary for Progress
International to fund the shortfall. The Company is not obligated to continue to
fund Progress International; however, if the Company does not fund Progress
International, or if Progress International does not fund Marca-Tel's needs, the
Company's interest in Progress International, and thus its indirect interest in
Marca-Tel, may be diluted or lost entirely. No assurance can be given that
adequate funding sources will be available from Progress International or from
third parties to implement Marca-Tel's business plan or, if implemented, that
such business plan will be successful.
The forward-looking statements set forth above with respect to the funding
of Marca-Tel and the successful completion and operation of Marca-Tel's fiber
optic system in Mexico are based on certain assumptions as to future events.
Important factors that could adversely affect Marca-Tel's ability to achieve the
results discussed above include that: (i) there will be no significant delays or
cost overruns with respect to the network expansion; (ii) the Company's
contractors and partners in cost-saving arrangements will perform their
obligations; (iii) rights-of-way can be obtained in a timely, cost-effective
basis; (iv) the routes of the network expansion are substantially completed on
schedule; (v) Marca-Tel can successfully operate its switched services business
on a cost effective basis (including the provision of billing information in an
accurate and timely manner) for volumes that it has not previously handled; and
(vi) Marca-Tel can
17
<PAGE> 18
obtain sufficient funds from the debt or equity offerings, joint venture
arrangements, accounts, additional vendor financing, or otherwise.
Year 2000 Compliance
The Company has reviewed its software for Year 2000 compliance. In
conjunction with that review, the Company has determined that its current
software is either Year 2000 compliant, or there are projects planned to either
upgrade or replace the existing software prior to 2000. The projected costs
associated with the Year 2000 compliance portion of such upgrades have not yet
been identified, because they are part of a general system upgrade. In
accordance with the Emerging Issues Task Force of the Financial Accounting
Standards Board, the costs associated with upgrading or revising the Company's
software to be Year 2000 compliant will be recorded as an expense of the period
rather than capitalized. The Company currently estimates that the costs
associated with such upgrade projects will not be material to its operating
results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not Applicable.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 4, 1997 Tel-Central Communications, Inc. ("Tel-Central") filed a
complaint against IXC Long Distance, Inc., one of the Company's subsidiaries, in
the United States District Court in the Western District of Missouri, after the
Company terminated service to Tel-Central for failure to pay for services. On
May 23, 1997, Tel-Central file a voluntary Chapter 11 petition in bankruptcy.
The Tel-Central action was stayed as a result of the Tel-Central's Chapter 11
bankruptcy proceeding until August 1997, when Tel-Central dismissed the action
against IXC Long Distance, Inc.
From time to time the Company is involved in various legal proceedings
arising in the ordinary course of business, some of which are covered by
insurance. In the opinion of the Company's management, none of the claims
relating to such proceedings will have a material effect on the financial
condition or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES
On August 20, 1997, the Company issued and sold 300,000 shares of the
Exchangeable Preferred Stock in a private placement at a purchase price of
$1,000 per share to three initial purchasers who subsequently sold the shares to
"qualified institutional buyers" (as defined in the Securities Act of 1933, as
amended (the "Act"). Dividends on the Exchangeable Preferred Stock accrue from
the date of issuance and are payable quarterly in arrears on February 15, May
15, August 15 and November 15 of each year (each a "Dividend Payment Date"), at
a rate per annum of 12 1/2% of the liquidation preference of $1,000 per share.
Dividends payable on or prior to February 15, 2001 may be paid, at the Company's
option, in cash or by the issuance of additional shares of Exchangeable
Preferred Stock (including fractional shares) having an aggregate liquidation
preference equal to the amount of such dividends. On any scheduled Dividend
Payment Date, the Company may, at its option, exchange all, but not less than
all, of the shares of Exchangeable Preferred Stock then outstanding for the
Company's 12 1/2% Subordinated Exchange Debentures Due 2009 (the "Exchange
Debentures"). The Exchange Debentures will bear interest at a rate of 12 1/2%
per annum, payable semiannually on February 15 and August 15 of each year.
The registration rights agreement entered into between the Company and the
initial purchasers of the Exchangeable Preferred Stock requires that the Company
file an exchange offer registration statement (the "Exchange Offer Registration
Statement") with the Securities and Exchange Commission (the "Commission") for
the benefit of the holders of the Exchangeable Preferred Stock, with respect to
a registered offer (the "Registered Exchange Offer") to exchange the
Exchangeable Preferred Stock, or if the Exchangeable Preferred Stock has been
exchanged for Exchange Debentures, the Exchange Debentures, for a new series of
Exchangeable Preferred Stock or new Exchange Debentures, as the case may be, of
the Company. Under certain conditions, the Company is required to file a shelf
registration statement covering resales of the Exchangeable Preferred Stock or
Exchange Debentures, as the case may be. The Company filed the Exchange Offer
Registration Statement with the Commission on October 3, 1997. If by January 19,
1998, the Registered Exchange Offer has not been consummated, and/or a shelf
registration statement has not been declared effective with respect to the
Exchangeable Preferred Stock, additional dividends or interest, as the case may
be, will accrue at the rate of 0.50% per annum pursuant to the terms of the
registration rights agreement. Payment of cash dividends on the Exchangeable
Preferred Stock is not currently permitted under the Company's 12 1/2% Senior
Notes due 2005 until certain financial conditions have been met. The
Exchangeable Preferred Stock ranks junior to the Series 3 Preferred Stock,
senior to the Common Stock and, subject to certain conditions, on a parity with
the Company's 7 1/4% Junior Convertible Preferred Stock Due 2007, with respect
to payment of dividends and rights upon liquidation, winding-up and dissolution.
In October 1997, the Company consummated its offer to exchange shares of
its Common Stock for the 12,550 the outstanding shares of its Series 3 Preferred
Stock. Each holder that tendered shares of Series 3 Preferred Stock prior to the
expiration date of the tender offer (October 31, 1997) received approximately
49.85 shares of Common Stock for each share of Series 3 Preferred Stock. The
number of shares of Common
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<PAGE> 20
Stock issued for each share of Series 3 Preferred Stock was calculated by
dividing the aggregate per share liquidation preference, including accrued and
unpaid dividends, of one share of Series 3 Preferred Stock as of October 31,
1997 by $33.00, the last reported sale price of the Company's Common Stock on
the Nasdaq National Market at that date. The aggregate liquidation preference,
including accrued and unpaid dividends, of the Series 3 Preferred Stock at the
tender date was approximately $20.6 million ($1,645 per share for the 12,550
shares outstanding). Over 95% of the shares of Series 3 Preferred Stock were
tendered prior to the expiration of the exchange offer.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company furnished an Information Statement (the "EPS Information
Statement") to stockholders of the Company pursuant to Rule 14c-2 under the
Securities Exchange Act of 1934 (the "Exchange Act"), in connection with an
amendment (the "Amendment") to the Restated Certificate of Incorporation, as
amended (the "Certificate of Incorporation") of the Company to permit payment of
dividends on the Exchangeable Preferred Stock with additional shares of
Exchangeable Preferred Stock. The Amendment was approved by the Board. As
required by the Delaware General Corporation Law (the "DGCL") and the
Certificate of Incorporation, the Amendment was approved by the holders of a
majority of the outstanding shares of Common Stock and Series 3 Preferred Stock,
voting as a class, and three-quarters (3/4ths) of the outstanding shares of
Series 3 Preferred Stock, voting as a class, by written consent in lieu of a
meeting pursuant to Section 228(a) of the DGCL. The Amendment became effective
upon the filing of a Certificate of Amendment of the Certificate of
Incorporation with the Secretary of State of Delaware which, pursuant to Rule
14c-2 under the Exchange Act, did not take place until a date at least 20 days
following the date on which the EPS Information Statement was mailed to the
stockholders of the Company. The EPS Information Statement also served as notice
to stockholders of an action taken by less than unanimous written consent as
required by Section 228(d) of the DGCL. The EPS Information Statement was mailed
on or about October 1, 1997 to persons who were stockholders of record on
September 19, 1997.
The Company also furnished an Information Statement (the "1997 Plan
Information Statement") to stockholders of the Company pursuant to Rule 14c-2
under the Exchange Act in connection with the adoption and approval of the
Company's 1997 Special Executive Stock Plan (the "1997 Plan"). The 1997 Plan was
approved by the Board and was approved by the holders of a majority of the
outstanding shares of Common Stock and Series 3 Preferred Stock, voting as a
class, by written consent in lieu of a meeting pursuant to Section 228(a) of the
DGCL. The adoption and approval by the stockholders will become effective
November 17, 1997, which, pursuant to Rule 14c-2 under the Exchange Act, cannot
take place until a date at least 20 days following the date on which the 1997
Plan Information Statement was mailed to the Stockholders of the Company. The
1997 Plan Information Statement also served as notice to stockholders of an
action taken by less than unanimous written consent as required by Section
228(d) of the DGCL. The 1997 Plan Information Statement was mailed on or about
October 24, 1997 to persons who were stockholders of record on September 19,
1997.
ITEM 5. OTHER INFORMATION
In September 1997, the Company entered into an agreement with LCI
International, Inc. to sell dark fiber installed on the Company's 729-mile route
from Cleveland to New York for approximately $20 million.
In July 1997, the Company consummated its acquisition of Telecom One, Inc.,
a switchless reseller serving commercial and residential customers in 32 states.
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<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
3.1* Restated Certificate of Incorporation of IXC Communications, Inc., as amended.
3.2* Bylaws of IXC Communications, Inc., as amended.
4.1 Specimen certificate representing shares of Common Stock of IXC Communications,
Inc. (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.
Registration Statement on Form S-1 filed with the Commission on May 20, 1996, as
amended (File No. 333-4061) (the "S-1")).
4.2 Indenture dated as of October 5, 1995 by and among IXC Communications, Inc., on its
behalf and as successor-in-interest to I-Link Holdings, Inc. and IXC Carrier Group,
Inc., each of IXC Carrier, Inc., on its behalf and as successor-in-interest to
I-Link, Inc., CTI Investments, Inc., Texas Microwave, Inc. and WTM Microwave, Inc.,
Atlantic States Microwave Transmission Company, Central States Microwave
Transmission Company, Telcom Engineering, Inc., on its behalf and as
successor-in-interest to SWTT Company and Microwave Network, Inc., Tower
Communication Systems Corp., West Texas Microwave Company, Western States Microwave
Transmission Company, Rio Grande Transmission, Inc., IXC Long Distance, Inc., Link
Net International, Inc. (collectively, the "Guarantors") and IBJ Schroder Bank &
Trust Company, as Trustee, with respect to the 12 1/2% Series A and Series B Senior
Notes due 2005 (incorporated by reference to Exhibit 4.1 of IXC Communications,
Inc.'s and each of the Guarantor's Registration Statement on Form S-4 filed with
the Commission on April 1, 1996, as amended (File No. 333-2936) (the "S-4")).
4.3 Purchase Agreement dated October 5, 1995 by and among IXC Communications, Inc., and
the Purchasers named therein (incorporated by reference to Exhibit 4.2 of the S-4).
4.4 A/B Exchange Registration Rights Agreement dated as of October 5, 1995 by and among
IXC Communications, Inc., the Guarantors and the Purchasers named therein
(incorporated by reference to Exhibit 4.3 of the S-4).
4.5 Escrow Account and Disbursement Agreement dated as of October 5, 1995 by and among
IXC Communications, Inc., IBJ Schroder Bank & Trust Company, as Escrow Holder, and
IBJ Schroder Bank & Trust Company, as Collateral Agent (incorporated by reference
to Exhibit 4.4 of the S-4).
4.6 Escrow Account Security Agreement dated as of October 5, 1995 by and between IXC
Communications, Inc. and IBJ Schroder Bank & Trust Company (incorporated by
reference to Exhibit 4.5 of the S-4).
4.7 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated by reference to
Exhibit 4.6 of the S-4).
4.8 Form of 12 1/2% Series B Senior Notes due 2005 and Subsidiary Guarantee
(incorporated by reference to Exhibit 4.8 of the S-1).
4.9 Amendment No. 1 to Indenture and Subsidiary Guarantee dated as of June 4, 1996 by
and among IXC Communications, Inc., the Guarantors and the Trustee (incorporated by
reference to Exhibit 4.11 of the S-1).
4.10 Stock Exchange Agreement dated as of June 10, 1996 by and between IXC
Communications, Inc., and Trustees of General Electric Pension Trust ("GEPT")
(incorporated by reference to Exhibit 4.12 of the S-1).
4.11 Registration Rights Agreement dated as of June 10, 1996 by and among IXC
Communications, Inc., GEPT and certain stockholders of IXC Communications, Inc.
(incorporated by reference to Exhibit 4.13 of the S-1).
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
4.12 Purchase Agreement dated as of March 25, 1997 by and among IXC Communications,
Inc., Credit Suisse First Boston Corporation ("CS First Boston") and Dillon Read &
Co. Inc. ("Dillon Read") (incorporated by reference to Exhibit 4.12 of IXC
Communications, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31,
1997 (the "March 31, 1997 10-Q")).
4.13 Registration Rights Agreement dated as of March 25, 1997 by and among IXC
Communications, Inc., CS First Boston and Dillon Read (incorporated by reference to
Exhibit 4.13 of the March 31, 1997 10-Q).
4.14 Amendment to Registration Rights Agreement dated as of March 25, 1995 between IXC
Communications, Inc. and GEPT (incorporated by reference to Exhibit 4.14 of the
March 31, 1997 10-Q).
4.15 Registration Rights Agreement dated as of July 8, 1997 among IXC Communications,
Inc. and each of William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier
(incorporated by reference to exhibit 4.15 of IXC Communications, Inc. Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, as amended (the "June 30,
1997 10-Q")).
4.16 Registration Rights Agreement dated as of July 8, 1997 among IXC Communications,
Inc. and each of William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier
(incorporated by reference to Exhibit 4.16 of the June 30, 1997 10-Q).
4.17 Purchase Agreement dated as of August 14, 1997 by and among IXC Communications,
Inc. and the initial purchasers named in Schedule A thereto (incorporated by
reference to Exhibit 4.1 of IXC Communications, Inc. Current Report on Form 8-K
dated August 20, 1997 and filed with the Commission on August 28, 1997 (the
"8-K")).
4.18 Indenture dated as of August 15, 1997 between IXC Communications, Inc. and The Bank
of New York (incorporated by reference to Exhibit 4.2 of the 8-K).
4.19 Registration Rights Agreement dated as of August 14, 1997 by and among IXC
Communications, Inc. and the purchasers named therein (incorporated by reference to
Exhibit 4.3 of the 8-K).
10.1 Office Lease dated June 21, 1989 with USAA Real Estate Company, as amended
(incorporated by reference to Exhibit 10.1 of the S-4).
10.2 Equipment Lease dated as of December 1, 1994 by and between DSC Finance Corporation
and Switched Services Communications, L.L.C.; Assignment Agreement dated as of
December 1, 1994 by and between Switched Services Communications, L.L.C. and DSC
Finance Corporation; and Guaranty dated December 1, 1994 made in favor of DSC
Finance Corporation by IXC Communications, Inc. (incorporated by reference to
Exhibit 10.2 of the S-4).
10.3 Amended and Restated 1994 Stock Plan of IXC Communications, Inc., as amended
(incorporated by reference to Exhibit 10.3 of the June 30, 1997 10-Q).
10.4 Form of Non-Qualified Stock Option Agreement under the 1994 Stock Plan of IXC
Communications, Inc. (incorporated by reference to Exhibit 10.4 of the S-4).
10.5 Form of IXC Communications, Inc. Restricted Stock Agreement (incorporated by
reference to Exhibit 10.5 of the S-4).
10.6 Form of IXC Communications, Inc. Restricted Stock Agreement (incorporated by
reference to Exhibit 10.6 of the S-4).
10.7 Amended and Restated Development Agreement by and between Intertech Management
Group, Inc. and IXC Long Distance, Inc. (incorporated by reference to Exhibit 10.7
of the S-4).
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
10.8 Second Amended and Restated Service Agreement dated as of January 1, 1996 by and
between Switched Services Communications, L.L.C. and Excel Telecommunications, Inc.
(incorporated by reference to Exhibit 10.8 of the S-4).
10.9 Equipment Purchase Agreement dated as of January 16, 1996 by and between Siecor
Corporation and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.9 of the
S-4).
10.10 1996 Stock Plan of IXC Communications, Inc., as amended (incorporated by reference
to Exhibit 10.10 of IXC Communications, Inc. Annual Report on Form 10-K for the
year ended December 31, 1996 (the "10-K")).
10.11 IRU Agreement dated as of November 1995 between WorldCom, Inc. and IXC Carrier,
Inc. (incorporated by reference to Exhibit 10.11 of the S-4).
10.12 Outside Directors' Phantom Stock Plan of IXC Communications, Inc., as amended
(incorporated by reference to Exhibit 10.12 of the 10-K).
10.13 Business Consultant and Management Agreement dated as of March 1, 1997 by and
between IXC Communications, Inc. and Culp Communications Associates (incorporated
by reference to Exhibit 10.13 of IXC Communications, Inc. Registration Statement on
Form S-4 filed with the Commission on October 3, 1997 (File No. 333-37157) (the
"EPS S-4").
10.14 Employment Agreement dated December 28, 1995 by and between IXC Communications,
Inc. and James F. Guthrie (incorporated by reference to Exhibit 10.14 of the S-1).
10.15 Employment Agreement dated August 28, 1995, by and between IXC Communications, Inc.
and David J. Thomas (incorporated by reference to Exhibit 10.15 of the S-1).
10.16 Special Stock Plan of IXC Communications, Inc. (incorporated by reference to
Exhibit 10.16 of the 10-K).
10.17 Lease dated as of June 4, 1997 between IXC Communications, Inc. and Carramerica
Realty, L.P. (incorporated by reference to Exhibit 10.17 of the June 30, 1997
10-Q).
10.18 Loan and Security Agreement dated as of July 18, 1997 among IXC Communications,
Inc., IXC Carrier, Inc. and NTFC Capital Corporation (incorporated by reference to
Exhibit 10.18 of the June 30, 1997 10-Q).
10.19 IRU and Stock Purchase Agreement dated as of July 22, 1997 between IXC Internet
Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.19 of the
June 30, 1997 10-Q).
10.20 Joint Marketing and Services Agreement dated on July 22, 1997 between IXC Internet
Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.20 of the
June 30, 1997 10-Q).
10.21 Employment Agreement dated as of September 9, 1997 between Benjamin L. Scott and
IXC Communications, Inc. (incorporated by reference to Exhibit 10.21 of the EPS
S-4).
10.22 IXC Communication, Inc. 1997 Special Executive Stock Plan (incorporated by
reference to Exhibit 10.22 of the EPS S-4).
11.1* Statement of Computation of Earnings per Share.
27.1* Financial Data Schedule.
</TABLE>
* Filed herewith.
23
<PAGE> 24
(b) Reports on Form 8-K.
1. Form 8-K dated July 3, 1997 and filed with the Commission on July 22,
1997 with respect to a press release reporting on the status of the Company's
private line business and its switched service business.
2. Form 8-K dated July 23, 1997 and filed with the Commission on July 29,
1997 with respect to a press release announcing agreements between the Company
and PSINet.
3. Form 8-K dated August 5, 1997 and filed with the Commission on August 6,
1997 pursuant to Rule 135(c)d of the Act with respect to the Company's notice of
offering of unregistered securities.
4. Form 8-K dated August 18, 1997 and filed with the Commission on August
18, 1997 pursuant to Rule 135c(d) of the Act with respect to the Company's
notice of pricing of its offering of unregistered securities.
5. Form 8-K dated August 20, 1997 and filed with the Commission on August
21, 1997 pursuant to Rule 135c(d) of the Act with respect to the Company's
notice of offering of unregistered securities with respect to the sale of the
Exchangeable Preferred Stock, which occurred on August 20, 1997.
6. Form 8-K dated August 20, 1997 and filed with the Commission on August
28, 1997 describing the terms and conditions of the Company's Exchangeable
Preferred Stock sold in a private placement on August 20, 1997.
7. Form 8-K dated September 17, 1997 and filed with the Commission on
September 19, 1997 with respect to a press release announcing an agreement with
LCI International, Inc. ("LCI") pursuant to which the Company will sell dark
fiber to LCI.
24
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IXC Communications, Inc.,
a Delaware corporation
November 13, 1997 By: /s/ JAMES F. GUTHRIE
------------------------------------
James F. Guthrie
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
25
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE
OF
INCORPORATION, AS AMENDED
Fiber Optic Communications, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of this corporation is Fiber Optic Communications,
Inc. Fiber Optic Communications, Inc. was originally incorporated under the
same name. The original Certificate of Incorporation of this corporation was
filed with the Secretary of State of the State of Delaware on July 27, 1992.
2. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, this Restated Certificate of Incorporation has
been duly adopted and restates, integrates and further amends the provisions of
the Certificate of Incorporation of this corporation.
3. This Restated Certificate of Incorporation was duly consented
to, and adopted by, the holders of (i) a majority of the outstanding shares of
common stock, par value $.01 per share, of the Corporation and 10% Senior
Series 1 Cumulative Redeemable Preferred Stock, par value $.01 per share, of
this corporation ("Series 1 Preferred Stock"), consenting together as a class
and by (ii) over three-fourths (3/4s) of the outstanding shares of Series 1
Preferred Stock, acting without a meeting by unanimous written consent pursuant
to Section 228 of the General Corporation Law of the State of Delaware.
4. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
FIRST: The name of this corporation (the "Corporation") is "IXC
Communications, Inc."
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is one hundred and three million (103,000,000)
consisting of (i) one
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<PAGE> 2
hundred million (100,000,000) shares of common stock, par value $.01 per share,
and (ii) three million (3,000,000) shares of preferred stock, par value $.01
per share. The preferred stock may be issued at any time, and from time to
time, in one or more series pursuant hereto or to a resolution or resolutions
providing for such issue duly adopted by the board of directors (the "Board")
of the Corporation (authority to do so being hereby expressly vested in the
Board), and such resolution or resolutions shall also set forth the voting
powers, full or limited, or none, of each such series of preferred stock and
shall fix the designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions of each
such series of preferred stock.
Upon the filing of this Second Amendment to Restated
Certificate of Incorporation which amends Article FOURTH to read as set forth
above, and without any further action on the part of the holders thereof, each
issued and outstanding share of common stock will be reclassified and changed
into 0.8083 shares of common stock.
FIFTH: The business and affairs of the Corporation shall be managed
by and under the direction of the Board. The exact number of directors of the
Corporation shall be fixed by or in the manner provided in the Bylaws of the
Corporation (the "Bylaws").
SIXTH: In furtherance and not in limitation of the powers conferred
by statute, the Board is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any respect the
Bylaws, and to confer in the Bylaws powers and authorities upon the directors
of the Corporation in addition to the powers and authorities expressly
conferred upon them by statute;
(b) from time to time to set apart out of any funds or assets of
the Corporation available for dividends an amount or amounts to be reserved as
working capital or for any other lawful purpose and to abolish any reserve so
created and to determine whether any, and, if any, what part, of the surplus of
the Corporation or its net profits applicable to dividends shall be declared in
dividends and paid to its stockholders, and all rights of the holders of stock
of the Corporation in respect of dividends shall be subject to the power of the
Board so to do;
(c) subject to the laws of the State of Delaware, from time to
time to sell, lease or otherwise dispose of any part or parts of the properties
of the Corporation and to cease to conduct the business connected therewith or
again to resume the same, as it may deem best; and
(d) in addition to the powers and authorities hereinbefore and by
the laws of the State of Delaware conferred upon the Board, to execute all such
powers and to do all acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the express provisions of such laws, of
the Restated Certificate of Incorporation of the Corporation and its Bylaws.
2
<PAGE> 3
SEVENTH: Meetings of stockholders of the Corporation may be held
within or without the State of Delaware, as the Bylaws provide. The books
of the Corporation may be kept (subject to any provision of applicable law)
outside the State of Delaware at such place or places as may be designated
from time to time by the Board or in the Bylaws.
EIGHTH: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Restated
Certificate of Incorporation in the manner now or hereafter prescribed by
applicable laws, and all rights conferred on stockholders herein are granted
subject to this reservation.
NINTH: The Corporation is to have perpetual existence.
TENTH: A director of this Corporation shall not be personally liable
to the Corporation or its stockholder for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware Corporation Law. No amendment to or repeal
of this Article Tenth shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
ELEVENTH:
A. Designation of Two Series of Preferred Stock. There are
hereby provided two series of preferred stock designated and to be known as
"10% Senior Series 1 Cumulative Redeemable Preferred Stock" and "10% Junior
Series 3 Cumulative Redeemable Preferred Stock."
B. Definitions. As used in this Eleventh Article, the following
terms shall have the meanings indicated:
1. "Common Stock" shall mean the common stock, $.01 par
value per share, issued or to be issued by the Corporation.
2. "Original Issue Date" shall mean, with respect to any
share of Series Preferred Stock, the date of the original issuance of such
shares.
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<PAGE> 4
3. "Preferred Stock" shall mean the preferred stock,
$.01 par value per share, issued or to be issued by the Corporation.
4. "Series 1 Preferred Stock" shall mean the 10% Senior
Series 1 Cumulative Redeemable Preferred Stock, $.01 par value per share,
issued or to be issued by the Corporation.
5. "Series 3 Preferred Stock" shall mean the 10% Junior
Series 3 Cumulative Redeemable Preferred Stock, $.01 par value per share,
issued or to be issued by the Corporation.
6. "Series Preferred Stock" shall mean, collectively,
the Series 1 Preferred Stock and the Series 3 Preferred Stock.
C. Number of Shares. The number of shares constituting the
Series 1 Preferred Stock shall be 2,000. The number of shares constituting the
Series 3 Preferred Stock shall be 12,550.
D. Rights, Preferences, Privileges and Restrictions. The voting
powers and relative rights, preferences, restrictions and other mattes relating
to the Series Preferred Stock are as follows:
1. Dividends.
(a) The holders of shares of Series 1 Preferred
Stock then outstanding shall be entitled to receive, prior to the payment of any
dividend on any other Preferred Stock of the Corporation or the Common Stock of
the Corporation, when, as and if declared by the Board, out of funds legally
available for the payment of dividends, cumulative dividends in an annual amount
equal to $100 per share, plus an amount determined by applying a 10% annual
rate, compounded annually, to any accrued but unpaid dividend amount from the
last day of the period when such dividend accrues to the actual date of payment
of such dividend, and no more. The holders of shares of Series 3 Preferred
Stock then outstanding shall be entitled to receive, prior to the payment of any
dividend on any other Preferred Stock of the Corporation (other than the Series
1 Preferred Stock) or the Common Stock of the Corporation, when as and if
declared by the Board, out of funds legally available for the payment of
dividends, cumulative dividends in an annual amount equal to $100 per share,
plus an amount determined by applying a 10% annual rate, compounded annually, to
any accrued but unpaid dividend amount from the last day of the period when such
dividend accrues to the actual date of payment of such dividend, and no more;
provided, however, that (i) the Corporation may pay dividends on the
Corporation's 7-1/4% Junior Convertible Preferred Stock Due 2007 ("Convertible
Preferred Stock") with additional shares of Convertible Preferred Stock and (ii)
the Corporation may pay dividends on the Corporation's 12-1/2% Junior
Exchangeable Preferred Stock Due 2009 (the "Initial Exchangeable Preferred
Stock") and 12-1/2% Series B Junior Exchangeable Preferred Stock Due 2009 (the
"Series B Stock") with additional shares of Initial Exchangeable Preferred Stock
and Series B Stock, respectively. Such dividends on the outstanding shares of
Series Preferred Stock shall be payable on such date as the Board may from time
to time determine (each such date being a "dividend payment date"). The Board
may fix a record date for the determination of holders of shares of Series
Preferred Stock entitled to receive payment of a dividend declared thereon,
which record date shall not be more than sixty (60) days prior to the date fixed
for
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<PAGE> 5
the payment thereof. Each such annual dividend shall be fully cumulative and
shall accrue from day to day (whether or not declared) from the first day of
each period in which such dividend may be payable as herein provided, except
that the first annual dividend with respect to each share of Series Preferred
Stock shall accrue from the Original Issue Date of such share or such other
date as determined by the Board, except that dividends with respect to each
share of Series 3 Preferred Stock shall accrue from August 14, 1992.
Dividends, when, as and if declared, shall be payable in cash.
(b) The holder of each outstanding fractional
share of Series Preferred Stock shall be entitled to a ratably proportionate
amount of all dividends accruing with respect to each outstanding share of
Series Preferred Stock with the same Original Issue Date and all such dividends
with respect to each such outstanding fractional share shall be fully
cumulative and shall accrue (whether or not declared) and shall be payable in
the same manner and at such times as provided for in Section 1(a).
(c) All dividends paid with respect to the
outstanding shares of Series Preferred Stock pursuant to Section 1(a) shall be
paid pro rata to the holders of each class entitled thereto. Each Series 1
Preferred Stock holder's pro rata share of such dividends shall be calculated
by multiplying the total dividends to be paid by the percentage of (i) the
aggregate accrued but unpaid dividends to the date such payment is made on all
issued and outstanding shares of Series 1 Preferred Stock represented by (ii)
the aggregate accrued but unpaid dividends to the date such payment is made on
all shares (including fractional shares) of Series 1 Preferred Stock held by
such holder, and no more. Each Series 3 Preferred Stock holder's pro rata
share of such dividends shall be calculated by multiplying the total dividends
to be paid by the percentage of (i) the aggregate accrued but unpaid dividends
to the date such payment is made on all issued and outstanding shares of Series
3 Preferred Stock represented by (ii) the aggregate accrued but unpaid
dividends to the date such payment is made on all shares (including fractional
shares) of Series 3 Preferred Stock held by such holder, and no more.
2. Liquidation Rights of Series Preferred Stock:
(a) In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the holders
of outstanding shares of Series Preferred Stock shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders, whether such assets are capital, surplus, or earnings, before any
payment or declaration and setting apart for payment of any amount shall be
made in respect of the outstanding shares of any other Preferred Stock of the
Corporation or Common Stock of the Corporation, an amount equal to $1,000 per
share of Series Preferred Stock then outstanding, plus all accrued but unpaid
dividends thereon to the date such payment is actually made, and no more. If
upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of the
outstanding shares of Series Preferred Stock shall be insufficient to permit
the payment to such stockholders of the full preferential amounts set forth
above, then
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<PAGE> 6
the entire assets of the Corporation to be distributed shall be distributed (i)
first, ratably among the holders of outstanding shares of Series 1 Preferred
Stock based on the full preferential amounts for the number of outstanding
shares of Series 1 Preferred Stock held by each holder and (ii) second, ratably
among the holders of outstanding shares of Series 3 Preferred Stock based on
the full preferential amounts for the number of outstanding shares of Series 3
Preferred Stock held by each holder. The Corporation will mail written notice
of such liquidation, dissolution or winding up, not less than sixty (60) days
prior to the payment date stated therein, to each record holder of Series
Preferred Stock.
(b) A consolidation or merger of the Corporation
with or into any other corporation or corporations or a sale of all or
substantially all of the assets of the Corporation shall not be deemed to be a
liquidation, dissolution, or winding up of the Corporation as those terms are
used in this Section 2 unless such consolidation, merger or sale shall be in
connection with a dissolution or winding up of the Corporation.
(c) The payment of preferential amounts pursuant
to this Section 2 with respect to each outstanding fractional share of Series 1
Preferred Stock shall be equal to a ratably proportionate amount of the
preferential amount payable with respect to each outstanding share of Series 1
Preferred Stock with the same Original Issue Date. The payment of preferential
amounts pursuant to this Section 2 with respect to each outstanding fractional
share of Series 3 Preferred Stock shall be equal to the ratably proportionate
amount of the preferential amount payable with respect to each outstanding
share of Series 3 Preferred Stock with the same Original Issue Date.
3. Voluntary Redemption by the Corporation.
(a) The Corporation, at the option of the Board,
may at any time or from time to time redeem the outstanding shares of Series 1
Preferred Stock in whole or in part from any source of funds legally available
therefor. The Corporation, at the option of the Board, may at any time or from
time to time redeem the outstanding shares of Series 3 Preferred Stock in whole
or in part from any source of funds legally available therefor, provided that
there shall then be no outstanding shares of Series 1 Preferred Stock.
(b) The redemption price for each outstanding
share of Series Preferred Stock shall be equal to $1,000 plus an amount equal
to any accrued and unpaid dividends on such share through the Redemption Date
(as defined below), whether or not declared (the "Redemption Price").
(c) In the event of a redemption of only a part
of the outstanding shares of a class of Series Preferred Stock, the Corporation
shall effect such redemption pro rata according to the number of shares held by
each holder of outstanding shares of such class of Series Preferred Stock.
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<PAGE> 7
(d) At least ten (10) days and not more than
sixty (60) days prior to the date fixed for any redemption of shares of a class
of Series Preferred Stock (the "Redemption Date"), written notice (the
"Redemption Notice," and the class of Series Preferred Stock referenced in such
Redemption Notice shall be referred to herein as the "Redeemed Stock") shall be
sent, by registered mail, to each holder of record of the outstanding shares of
Redeemed Stock at his or her mailing address last shown on the records of the
Corporation. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the holder
received the notice, and failure duly to give the notice by mail, or any defect
in the notice, to any holder of shares of such class of Series Preferred Stock
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of such class of Series Preferred Stock.
The Redemption Notice shall state:
(i) whether all or less than all of the
outstanding shares of the class of Series Preferred Stock are to be redeemed
and the total number of shares being redeemed;
(ii) the number of outstanding shares of
Redeemed Stock held by the holder which the Corporation intends to redeem;
(iii) the Redemption Date and the
Redemption Price;
(iv) that from and after the Redemption
Date, dividends shall cease to accrue; and
(v) that the holder is to surrender to
the Corporation, in the manner and at the place designated, the certificate or
certificates representing the outstanding shares of Redeemed Stock to be
redeemed.
(e) On or before the Redemption Date, each holder
of outstanding shares of Redeemed Stock shall surrender the certificate or
certificates representing such shares to the Corporation, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price for such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be cancelled and retired. In the event less than
all of the shares represented by any such certificate or certificates are
redeemed, a new certificate or certificates shall be issued representing the
unredeemed shares. All shares of the class of Series Preferred Stock called
for redemption will cease to accrue dividends as of the Redemption Date. After
the Redemption Date, holders of such class of Series Preferred Stock shall no
longer be treated as stockholders of the Corporation with respect to the shares
of Series Preferred Stock being redeemed, except with respect to the right to
receive the Redemption Price, without interest, upon the surrender of their
respective certificates.
7
<PAGE> 8
(f) The Corporation may, at its option, on or
prior to the Redemption Date, deposit with its transfer agent or other
redemption agent selected by the Board of Directors of the Corporation, as a
trust fund, a sum sufficient to redeem the shares called for redemption, with
irrevocable instructions and authority to such transfer agent or other
redemption agent to give or complete the Redemption Notice and to pay to the
respective holders of such shares, as evidenced by a list of such holders
certified by an officer of the Corporation, the Redemption Price upon
surrender of their respective share certificates. Such deposit shall be
deemed to constitute full payment of such shares to their holders. In case
the holders of any shares shall not, within five (5) years after such deposit,
claim the amount deposited for redemption thereof, such transfer agent or
other redemption agent shall, upon demand, pay over to the Corporation the
balance of such amount so deposited and shall thereupon be relieved of all
responsibility to the holders thereof. Any interest accrued on any funds so
deposited shall belong to the Corporation, and shall be paid to it from time
to time on demand.
(g) All shares of Series 1 Preferred Stock which
shall have been redeemed pursuant to this Section 3 shall thereupon be
restored to the status of authorized but unissued shares of Series 1 Preferred
Stock.
(h) All shares of Series 3 Preferred Stock which
shall have been redeemed pursuant to this Section 3 shall thereupon be
restored to the status of authorized but unissued shares of Series 3 Preferred
Stock.
4. Voting Rights. Except as otherwise provided herein or by the
General Corporation Law of the State of Delaware, holders of outstanding shares
of Series 1 Preferred Stock shall have no voting rights. At all meetings of
the stockholders of the Corporation and in the case of any actions of
stockholders in lieu of a meeting, each share of Series 3 Preferred Stock shall
entitle the holder thereof to one vote. Except as otherwise provided herein or
by the General Corporation Law of the State of Delaware, the holders of Common
Stock and Series 3 Preferred Stock shall vote together as a single class, and
neither the Common Stock nor Series 3 Preferred Stock shall be entitled to vote
as a separate class on any matter to be voted on by shareholders of the
Corporation, except that the holders of the Series 3 Preferred Stock shall be
entitled to vote as a separate class to elect one member of the Board of
Directors of the Corporation.
5. Restrictions and Limitations. Except as otherwise provided by
the General Corporation Law of the State of Delaware, no amendment to this
Restated Certificate of Incorporation shall be made by the Corporation which
would change any of the terms, rights, preferences, privileges or restrictions
provided herein so as to affect adversely any shares of Series Preferred Stock
without the prior written consent of the holders of at least a majority of each
of the Series 1 Preferred Stock and the Series 3 Preferred Stock entitled to
vote thereon and outstanding at the time such action is taken; provided that no
amendment will change (i) the rate or times at which or the manner in which
dividends on any series of the Series Preferred Stock accrue or become payable,
(ii) the preferences with
8
<PAGE> 9
respect to dividends and liquidation payments set forth in Section 1 and 2 or
(iii) the percentage of the holders of the Series Preferred Stock required to
approve any changes described in clauses (i) or (ii) above, without the prior
written consent of the holders of at least three-fourths (3/4s) of each of the
Series 1 Preferred Stock and the Series 3 Preferred Stock, as applicable, then
outstanding; and, provided further, that no change in the terms hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation unless the Corporation has obtained the prior written consent of
the holders of the applicable percentages of the Series 1 Preferred Stock and
the Series 3 Preferred Stock then outstanding.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed and attested by its duly authorized
officers this 31st day of January 1994.
/s/ Ralph J. Swett
-------------------------------
Ralph J. Swett, President
Attest:
/s/ John J. Willingham
- -----------------------------
John J. Willingham, Secretary
9
<PAGE> 10
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
IXC CARRIER GROUP, INC.
INTO
IXC COMMUNICATIONS, INC.
(PURSUANT TO SECTION 253 OF THE GENERAL
CORPORATION LAW OF DELAWARE)
IXC Communications, Inc., a Delaware corporation (the "Corporation"),
does hereby certify:
FIRST: That the Corporation is incorporated pursuant to the General
Corporation Law of the State of Delaware.
SECOND: That the Corporation owns all of the outstanding shares of each
class of the capital stock of IXC Carrier Group, Inc., a Delaware corporation
(the "Merging Corporation").
THIRD: That the Corporation, by the following resolutions of its Board
of Directors, duly adopted on the 6th day of October 1995, determined to merge
into itself the Merging Corporation on the conditions set forth in such
resolutions:
"RESOLVED, that the Corporation merge into itself its
subsidiary, IXC Carrier Group, Inc., a Delaware corporation, and assume
all of said subsidiary's liabilities and obligations;
FURTHER RESOLVED, that the President and Secretary of the
Corporation be, and they hereby are, directed to make, execute and
acknowledge a certificate of ownership and merger setting forth a copy
of the resolutions to merge IXC Carrier Group, Inc. into the
Corporation and to assume said subsidiary's liabilities and obligations
and the date of adoption thereof and to file the same in the office of
the Secretary of State of the State of Delaware and a certified copy
thereof in the Office of the Recorder of Deeds of New Castle County;
and
FURTHER RESOLVED, that the effective date of such merger is
November 30, 1995."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed and this certificate to be signed by Ralph J. Swett, its President, and
John J. Willingham, its Secretary, this 28th day of November 1995.
IXC COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ Ralph J. Swett
--------------------------------
Ralph J. Swett, President
ATTEST:
By: /s/ John J. Willingham
---------------------------------
John J. Willingham, Secretary [SEAL]
<PAGE> 11
<PAGE> 12
EXECUTION COPY
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF 7 1/4% JUNIOR
CONVERTIBLE PREFERRED STOCK DUE 2007 AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
- ----------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- ----------------------------------------------------------------------------
IXC Communications, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the board of
directors of the Corporation (the "Board of Directors") by its Restated
Certificate of Incorporation (hereinafter referred to as the "Restated
Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, said Board of
Directors, at a meeting duly called and held on March 28, 1997, duly approved
and adopted the following resolution (the "Resolution"):
RESOLVED that, pursuant to the authority vested in the Board of Directors by
its Certificate of Incorporation, the Board of Directors does hereby create,
authorize and provide for the issuance of 7 1/4% Junior Convertible Preferred
Stock Due 2007, par value $.01 per share, with a stated value initially of
$100 per share, consisting of up to 1,400,000 shares having the designation,
preferences, relative, participating, optional and other special rights and
the qualifications, limitations and restrictions thereof that are set forth
in the Restated Certificate of Incorporation and in this Resolution as
follows:
(a) Designation. There is hereby created out of the authorized and
unissued shares of Preferred Stock of the Company a series of Preferred Stock
designated as the "7 1/4% Junior Convertible Preferred Stock Due 2007" (the
"Convertible Preferred Stock"). The number of shares constituting the
Convertible Preferred Stock shall be 1,400,000. The liquidation preference of
the Convertible Preferred Stock shall be $100 per share (the "Liquidation
Preference").
<PAGE> 13
(b) Rank. The Convertible Preferred Stock will, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, rank (i) senior
to all classes of common stock and to each other class of Capital Stock or
series of Preferred Stock established hereafter by the Board of Directors of
the Company, the terms of which do not expressly provide that it ranks senior
to, or on a parity with, the Convertible Preferred Stock as to dividend rights
and rights on liquidation, winding-up and dissolution of the Company
(collectively referred to, together with all classes of common stock of the
Company, as "Junior Stock"); (ii) on a parity with each other class of Capital
Stock or series of Preferred Stock established hereafter by the Board of
Directors of the Company, the terms of which expressly provide that such class
or series will rank on a parity with the Convertible Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to as "Parity Stock"); and (iii) junior to each share of
Series 3 Preferred Stock now or hereafter outstanding and junior to each class
of Capital Stock or series of Preferred Stock established hereafter by the
Board of Directors of the Company, the terms of which hereafter established
classes or series expressly provide that such class or series will rank senior
to the Convertible Preferred Stock as to dividend rights or rights on
liquidation, winding-up and dissolution of the Company (collectively referred
to as "Senior Stock"). The Company may not authorize, create or increase the
authorized amount of any class or series of Senior Stock without the approval
of the holders of at least two-thirds of the shares of Convertible Preferred
Stock then outstanding, voting or consenting, as the case may be, as one class.
All claims of the holders of the Convertible Preferred Stock, including claims
with respect to dividend payments, redemption payments, mandatory repurchase
payments or rights upon liquidation, winding-up or dissolution, shall rank
junior to the claims of the holders of any debt of the Company and all other
creditors of the Company.
(c) Dividends. (i) Holders of the outstanding shares of Convertible
Preferred Stock will be entitled to receive, when, as and if declared by the
Board of Directors of the Company, out of funds legally available therefor,
dividends on each share of the Convertible Preferred Stock at a rate per annum
equal to 7 1/4% of the Liquidation
2
<PAGE> 14
Preference of such share payable quarterly (each such quarterly period being
herein called a "Dividend Period"). In addition to the dividends described in
the preceding sentence, holders of outstanding shares of Convertible Preferred
Stock which are Transfer Restricted Securities will be entitled to additional
dividends (the "Additional Dividends"), when, as and if declared by the Board
of Directors of the Company, out of funds legally available therefor, with
respect to the shares of Convertible Preferred Stock, which Additional
Dividends shall accrue as follows if any of the following events occur (each
such event in clauses (A) and (B) below being herein called a "Registration
Default"): (A) if by August 31, 1997, the Shelf Registration Statement has not
been declared effective by the Commission; or (B) if after the Shelf
Registration Statement is declared effective (1) the Shelf Registration
Statement thereafter ceases to be effective; or (2) the Shelf Registration
Statement or the related prospectus ceases to be usable (in each case except as
permitted below) in connection with resales of Transfer Restricted Securities
in accordance with and during the periods specified herein because either (I)
any event occurs as a result of which the related prospectus forming part of
such Shelf Registration Statement would include any 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, or (II) it shall be necessary to amend such Shelf Registration
Statement or supplement the related prospectus, to comply with the Securities
Act or the Exchange Act or the respective rules thereunder.
Additional Dividends shall accrue on the shares of Convertible Preferred
Stock which are Transfer Restricted Securities from and including the date on
which any such Registration Default shall occur, to but excluding the date on
which all such Registration Defaults have been cured, at a rate of 7 3/4% per
annum.
A Registration Default referred to in clause (B) of paragraph (c)(i) shall
be deemed not to have occurred and be continuing in relation to the Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to the Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be
3
<PAGE> 15
declared effective to permit Holders to use the related prospectus or (y) other
material events with respect to the Company that would need to be described in
the Shelf Registration Statement or the related prospectus and (ii) in the case
of clause (y), the Company proceeds promptly and in good faith to amend or
supplement the Shelf Registration Statement and related prospectus to describe
such events unless the Company has determined in good faith that there are
material legal or commercial impediments in doing so; provided, however, that
in any case if such Registration Default occurs for a continuous period in
excess of 45 days, Additional Dividends shall be payable in accordance with the
immediately preceding paragraphs of this paragraph (c)(i) from the day such
Registration Default initially occurs until such Registration Default is cured.
Any amounts of Additional Dividends due pursuant to clauses (A) or (B) of
this paragraph (c)(i) or pursuant to the proviso contained in the preceding
sentence will be payable on the regular dividend payment dates with respect to
the Convertible Preferred Stock and on the same terms and conditions and
subject to the same limitations as pertain at such time for the payment of
regular dividends. The amount of Additional Dividends will be determined by
multiplying the applicable Additional Dividends rate by the aggregate
liquidation preference of the outstanding shares of Convertible Preferred
Stock, multiplied by a fraction, the numerator of which is the number of days
such Additional Dividend rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360.
All dividends on the Convertible Preferred Stock, including Additional
Dividends, to the extent accrued, shall be cumulative, whether or not earned or
declared, on a daily basis from the Issue Date or, in the case of additional
shares of Convertible Preferred Stock issued in payment of a dividend, from the
date of issuance of such additional shares of Convertible Preferred Stock, and
shall be payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each a "Dividend Payment Date"), commencing on June
30, 1997 to holders of record on the March 15, June 15, September 15 and
December 15 immediately preceding the relevant Dividend Payment Date. Any
dividend on the Convertible Preferred Stock payable pursuant to this paragraph
(c)(i) on or prior to March 31, 1999 shall be, at the option of the Company,
payable (1) in cash or (2) through the issuance of a number of additional
shares
4
<PAGE> 16
(rounded to the nearest whole share) of Convertible Preferred Stock (the
"Additional Shares") equal to the dividend amount divided by the Liquidation
Preference of such Additional Shares. With respect to dividends accrued after
March 31, 1999, all dividends shall be payable in cash; provided, however, that
to the extent and for so long as the Company is prohibited by the terms of any
of its indebtedness then outstanding or by the terms of the Series 3 Preferred
Stock of the Company or any agreement or instrument to which the Company is
then subject, from paying cash dividends on the Convertible Preferred Stock,
such dividends will accrue on each share at the rate per annum equal to 8 3/4%
of the Liquidation Preference per share (instead of the 7 1/4% rate set forth
in the first paragraph of this paragraph (c)(i)) (together with any Additional
Dividends then payable, which for purposes of this paragraph shall be payable
at a rate of 0.50% over and above the 8 3/4% rate) payable through the issuance
of a number of Additional Shares (rounded to the nearest whole share) equal to
the dividend amount on such share divided by the Liquidation Preference of such
Additional Shares on the relevant Dividend Payment Date. Except as provided
herein, accrued and unpaid dividends, if any, will not bear interest or bear
dividends thereon.
(ii) All dividends paid with respect to shares of the Convertible Preferred
Stock pursuant to paragraph (c)(i) shall be paid pro rata to the holders
entitled thereto.
(iii) No full dividends may be declared or paid or set apart for the
payment of dividends by the Company on any Parity Stock for any period unless
full cumulative dividends in respect of each Dividend Period ending on or
before such period shall have been or contemporaneously are declared and paid
(or are deemed declared and paid) in full or declared and, if payable in cash,
a sum in cash sufficient for such payment set apart for such payment on the
Convertible Preferred Stock. If full dividends are not so paid, the
Convertible Preferred Stock will share dividends pro rata with the Parity
Stock.
(iv) The Company will not (A) declare, pay or set apart funds for the
payment of any dividend or other distribution with respect to any Junior Stock
or (B) redeem, purchase or otherwise acquire for consideration any Junior Stock
through a sinking fund or otherwise, unless (1) all accrued and unpaid
dividends with respect to the Convertible Preferred Stock and any Parity Stock
at the time such
5
<PAGE> 17
dividends are payable have been paid or funds have been set apart for payment
of such dividends and (2) sufficient funds have been paid or set apart for the
payment of the dividend for the current dividend period with respect to the
Convertible Preferred Stock and any Parity Stock. As used herein, the term
"dividend" does not include dividends payable solely in shares of Junior Stock
on Junior Stock or in options, warrants or rights to holders of Junior Stock to
subscribe or purchase any Junior Stock.
(v) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption may be declared and paid
at any time, without reference to any regular Dividend Payment Date, to holders
of record on such date, not more than 45 days prior to the payment thereof, as
may be fixed by the Board of Directors of the Company.
(vi) Dividends payable on the Convertible Preferred Stock for any period
other than a Dividend Period shall be computed on the basis of a 360-day
consisting year of twelve 30-day months and the actual number of days elapsed
in the period for which payable. Dividends payable on the Convertible
Preferred Stock for a full Dividend Period will be computed by dividing the per
annum dividend rate by four.
(vii) Certificates of Common Stock relating to Convertible Preferred Stock
surrendered for conversion by a registered Holder during the period from the
close of business on any regular record date next preceding any Dividend
Payment Date to the opening of business on such Dividend Payment Date (except
Convertible Preferred Shares called for redemption on a Redemption Date within
such period) must be accompanied by payment in cash of an amount equal to the
accrued but unpaid dividends thereon which such registered Holder is to receive
on such Dividend Payment Date with respect to the Convertible Preferred Stock
so surrendered.
(d) Liquidation Preference. (i) Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, holders of Convertible
Preferred Stock will be entitled to be paid, out of the assets of the Company
available for distribution to its stockholders, the Liquidation Preference of
the outstanding shares of Convertible Preferred Stock, plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends
6
<PAGE> 18
(whether or not earned or declared and including Additional Dividends, if any,)
thereon to the date fixed for liquidation, dissolution or winding-up (including
an amount equal to a prorated dividend for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution or winding-up that
would have been payable had the Convertible Preferred Stock been the subject of
an Optional Redemption on such date) before any distribution is made on any
Junior Stock. If, upon any voluntary or involuntary liquidation, dissolution
or winding up of the Company, the amounts payable with respect to the
Convertible Preferred Stock and all Parity Stock are not paid in full, the
Convertible Preferred Stock and the Parity Stock will share equally and ratably
(in proportion to the respective amounts that would be payable on such shares
of Convertible Preferred Stock and the Parity Stock, respectively, if all
amounts payable thereon had been paid in full) in any distribution of assets of
the Company to which each is entitled. After payment of the full amount of the
Liquidation Preference of the outstanding shares of Convertible Preferred Stock
(and, if applicable, an amount equal to a prorated dividend), the holders of
shares of Convertible Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company.
(ii) For the purposes of this paragraph (d), neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
other entities shall be deemed to be a liquidation, dissolution or winding-up
of the Company.
(e) Redemption. (i) Optional Redemption. (A) The Convertible Preferred
Stock shall not be redeemable prior to April 3, 2000. On or after April 3,
2000, each share of the Convertible Preferred Stock may be redeemed (subject to
the legal availability of funds therefor) at any time, in whole or in part, at
the option of the Company, at the redemption prices (expressed as a percentage
of the Liquidation Preference of such share) set forth below, plus, without
duplication, an amount in cash equal to all accrued and unpaid Liquidated
Damages and all accrued and unpaid dividends to the date fixed for redemption
(the "Optional Redemption Date") (including an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the Optional Redemption Date) (the
7
<PAGE> 19
"Optional Redemption Price"). Notwithstanding the foregoing, prior to April 1,
2002, the Company shall only have the option to redeem shares of Convertible
Preferred Stock if, during the period of 30 consecutive Trading Days ending on
the Trading Day immediately preceding the date that the Redemption Notice is
mailed to holders, the Closing Bid Price for the Common Stock exceeded 150% of
the Conversion Price effective on the date of such Redemption Notice for at
least 20 of such Trading Days. If redeemed during the 12-month period
beginning April 1 of each of the years set forth below (or in the case of the
year 2000, April 3), the Optional Redemption Price per share shall be the
applicable percentage of the Liquidation Preference of such share set forth
below plus, without duplication, in each case, an amount in cash equal to all
accrued and unpaid Liquidated Damages and all accrued and unpaid dividends
(including an amount equal to a prorated dividend from the immediately
preceding Dividend Payment Date to the Optional Redemption Date), if any, to
the Optional Redemption Date:
<TABLE>
<CAPTION>
Year in which redemption occurs Percentage
------------------------------- ----------
<S> <C>
2000 . . . . . . . . . . . . . 104.83%
2001 . . . . . . . . . . . . . 104.03%
2002 . . . . . . . . . . . . . 103.22%
2003 . . . . . . . . . . . . . 102.42%
2004 . . . . . . . . . . . . . 101.61%
2005 . . . . . . . . . . . . . 100.81%
2006 . . . . . . . . . . . . . 100.00%
</TABLE>
(B) In the event of a redemption of only a portion of the then outstanding
shares of Convertible Preferred Stock, the Company shall effect such redemption
on a pro rata basis, except that the Company may redeem all of the shares held
by holders of fewer than 100 shares (or all of the shares held by holders who
would hold less than 100 shares as a result of such redemption), as may be
determined by the Company.
(ii) Mandatory Redemption. Each share of the Convertible Preferred Stock
(if not earlier redeemed or converted) shall be subject to mandatory redemption
in whole (to the extent of lawfully available funds therefor) on March 31, 2007
(the "Mandatory Redemption Date") at a price equal to 100% of the Liquidation
Preference of such share, plus, without duplication, all accrued and unpaid
Liquidated Damages and accrued and unpaid dividends thereon (including
8
<PAGE> 20
an amount equal to a prorated dividend thereon from the immediately preceding
Dividend Payment Date to the Mandatory Redemption Date), if any, to the
Mandatory Redemption Date (the "Mandatory Redemption Price").
(iii) Procedure for Redemption. (A) On and after the Optional Redemption
Date or the Mandatory Redemption Date, as the case may be (the "Redemption
Date"), unless the Company defaults in the payment of the applicable redemption
price, dividends will cease to accumulate on shares of Convertible Preferred
Stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be, without interest; provided,
however, that if a notice of redemption shall have been given as provided in
paragraph (iii)(B) and the funds necessary for redemption (including an amount
in respect of all dividends that will accrue to the Redemption Date) shall have
been segregated and irrevocably set apart by the Company, in trust for the
benefit of the holders of the shares called for redemption, then dividends
shall cease to accumulate on the Redemption Date on the shares to be redeemed
and, at the close of business on the day on which such funds are segregated and
set apart, the holders of the shares to be redeemed shall, with respect to the
shares to be redeemed, cease to be stockholders of the Company and shall be
entitled only to receive the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be, for such shares without interest from the
Redemption Date.
(B) With respect to a redemption pursuant to paragraph (e)(i) or (e)(ii),
the Company will send a written notice of redemption by first class mail to
each holder of record of shares of Convertible Preferred Stock, not fewer than
15 days nor more than 60 days prior to the Redemption Date at its registered
address (the "Redemption Notice"); provided, however, that no failure to give
such notice nor any deficiency therein shall affect the validity of the
procedure for the redemption of any shares of Convertible Preferred Stock to be
redeemed except as to the holder or holders to whom the Company has failed to
give said notice or except as to the holder or holders whose notice was
defective. The Redemption Notice shall state:
(1) whether the redemption is pursuant to paragraph (e)(i) or (e)(ii)
hereof;
9
<PAGE> 21
(2) the Optional Redemption Price or the Mandatory Redemption Price, as
the case may be;
(3) whether all or less than all the outstanding shares of the Convertible
Preferred Stock are to be redeemed and the total number of shares of the
Convertible Preferred Stock being redeemed;
(4) the Redemption Date;
(5) that the holder is to surrender to the Company, in the manner, at the
place or places and at the price designated, his certificate or certificates
representing the shares of Convertible Preferred Stock to be redeemed; and
(6) that dividends on the shares of the Convertible Preferred Stock to be
redeemed shall cease to accumulate on such Redemption Date unless the Company
defaults in the payment of the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be.
(C) Each holder of Convertible Preferred Stock shall surrender the
certificate or certificates representing such shares of Convertible Preferred
Stock to the Company, duly endorsed (or otherwise in proper form for transfer,
as determined by the Company), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full Optional Redemption
Price or Mandatory Redemption Price, as the case may be, for such shares shall
be payable in cash to the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired. In the event that less than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(f) Voting Rights. (i) The holders of Convertible Preferred Stock, except
as otherwise required under Delaware law or as set forth in paragraphs (ii) and
(iii) below, shall not be entitled or permitted to vote on any matter required
or permitted to be voted upon by the stockholders of the Company.
(ii) (A) If (1) dividends on the Convertible Preferred Stock are in
arrears and unpaid for six or more Dividend Periods (whether or not
consecutive) (a "Dividend
10
<PAGE> 22
Default"); or (2) the Company fails to redeem the Convertible Preferred Stock on
March 31, 2007, or fails to otherwise discharge any redemption obligation with
respect to the Convertible Preferred Stock, then the number of directors
constituting the Board of Directors of the Company will be increased by two and
the Holders of the then outstanding shares of Convertible Preferred Stock
(together with the holders of Parity Stock upon which like rights have been
conferred and are exercisable), voting separately and as a class, shall have the
right and power to elect such two additional directors. Each such event
described in clauses (1) or (2) above is a "Voting Rights Triggering Event". A
Voting Rights Triggering Event shall not be deemed to have occurred if at the
time of such event there are less than 200,000 shares of Convertible Preferred
Stock then outstanding.
(B) The voting rights set forth in subparagraph (f)(ii)(A) above will
continue until such time as (x) in the case of a Dividend Default, all
dividends in arrears on the Convertible Preferred Stock are paid in full in
cash, (y) in all other cases, any failure, breach or default giving rise to
such Voting Rights Triggering Event is remedied or waived by the Holders of at
least two-thirds of the shares of Convertible Preferred Stock then outstanding
or (z) at any time there are less than 200,000 shares of Convertible Preferred
Stock outstanding, at which time the term of any directors elected pursuant to
the provisions of subparagraph (f)(ii)(A) above shall terminate and the number
of directors constituting the Board of Directors shall be decreased by two
(until the occurrence of any subsequent Voting Rights Triggering Event). At
any time after voting power to elect directors shall have become vested and be
continuing in the holders of Convertible Preferred Stock (together with the
holders of Parity Stock upon which like rights have been conferred and are
exercisable) pursuant to subparagraph (f)(ii)(A) hereof, or if vacancies shall
exist in the offices of directors elected by such holders, a proper officer of
the Company may, and upon the written request of the holders of record of at
least 25% of the shares of Convertible Preferred Stock then outstanding or the
holders of 25% of the shares of Parity Stock then outstanding upon which like
rights have been confirmed and are exercisable addressed to the secretary of
the Company shall, call a special meeting of the Holders of Convertible
Preferred Stock and the holders of such Parity Stock for the purpose of
electing the directors which such holders are entitled to elect pursuant to the
terms hereof;
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provided, however, that no such special meeting shall be called if the next
annual meeting of stockholders of the Company is to be held within 60 days
after the voting power to elect directors shall have become vested, in which
case such meeting shall be deemed to have been called for such next annual
meeting. If such meeting shall not be called by a proper officer of the
Company within 20 days after personal service to the secretary of the Company
at its principal executive offices, then the Holders of record of at least 25%
of the outstanding shares of Convertible Preferred Stock or the holders of 25%
of the shares of Parity Stock upon which like rights have been confirmed and
are exercisable may designate in writing one of their members to call such
meeting at the expense of the Company, and such meeting may be called by the
person so designated upon the notice required for the annual meetings of
stockholders of the Company and shall be held at the place for holding the
annual meetings of stockholders. Any holder of Convertible Preferred Stock or
such Parity Stock so designated shall have, and the Company shall provide,
access to the lists of holders of Convertible Preferred Stock and the holders
of such Parity Stock to be called pursuant to the provisions hereof. If no
special meeting of the Holders of Convertible Preferred Stock and the holders
of such Parity Stock is called as provided in this paragraph (f)(ii), then such
meeting shall be deemed to have been called for the next annual meeting of
stockholders of the Company or special meeting of the holders of any other
capital stock of the Company.
(C) At any meeting held for the purposes of electing directors at which the
Holders of Convertible Preferred Stock (together with the holders of Parity
Stock upon which like rights have been conferred and are exercisable) shall
have the right, voting together as a separate class, to elect directors as
aforesaid, the presence in person or by proxy of the holders of at least a
majority in voting power of the outstanding shares of Convertible Preferred
Stock (and such Parity Stock) shall be required to constitute a quorum thereof.
(D) Any vacancy occurring in the office of a director elected by the
Holders of Convertible Preferred Stock (and such Parity Stock) may be filled by
the remaining director elected by the Holders of Convertible Preferred Stock
(and such Parity Stock) unless and until such vacancy shall be filled by the
Holders of Convertible Preferred Stock (and such Parity Stock).
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<PAGE> 24
(iii) (A) So long as any shares of the Convertible Preferred Stock are
outstanding, the Company will not authorize, create or increase the authorized
amount of any class or series of Senior Stock without the affirmative vote or
consent of holders of at least two-thirds of the shares of Convertible
Preferred Stock then outstanding, voting or consenting, as the case may be, as
one class, given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting (except that no such vote or consent
shall be required for the issuance of additional shares of Series 3 Preferred
Stock to be paid as dividends on such Series 3 Preferred Stock pursuant to the
terms of such Series 3 Preferred Stock).
(B) So long as any shares of the Convertible Preferred Stock are
outstanding, the Company will not amend this Certificate of Designation so as
to affect adversely the specified rights, preferences, privileges or voting
rights of Holders of shares of Convertible Preferred Stock or to authorize the
issuance of any additional shares of Convertible Preferred Stock (except to
authorize the issuance of additional shares of Convertible Preferred Stock to
be paid as dividends on the Convertible Preferred Stock, for which no consent
shall be necessary) without the affirmative vote or consent of Holders of at
least two-thirds of the issued and outstanding shares of Convertible Preferred
Stock, voting or consenting, as the case may be, as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting.
(C) Except as set forth in paragraph (f)(iii)(A) or (B) above, (x) the
creation, authorization or issuance of any shares of any Junior Stock, Parity
Stock or Senior Stock, including the designation of a series of Convertible
Preferred Stock, or (y) the increase or decrease in the amount of authorized
Capital Stock of any class, including Preferred Stock, shall not require the
consent of Holders of Convertible Preferred Stock and shall not be deemed to
affect adversely the rights, preferences, privileges or voting rights of shares
of Convertible Preferred Stock.
(iv) In any case in which the Holders of Convertible Preferred Stock shall
be entitled to vote pursuant to this paragraph (f) or pursuant to Delaware law,
each Holder of Convertible Preferred Stock entitled to vote with respect to
such matters shall be entitled to one vote for each share of Convertible
Preferred Stock held.
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<PAGE> 25
(v) Except as required by law, the Holders of the Convertible Preferred
Stock will not be entitled to vote on any merger or consolidation involving the
Company or a sale of all or substantially all the assets of the Company.
(g) Conversion. (i) At any time after 60 days from the Issue Date, at the
option of the Holder thereof, any share of Convertible Preferred Stock may be
converted at the Liquidation Preference thereof into fully paid and
nonassessable Common Stock (calculated as to each conversion to the nearest
1/100 of a share), at the Conversion Price, determined as hereinafter provided,
in effect at the time of conversion. Such conversion right shall expire at the
close of business on the Mandatory Redemption Date. In case a share of
Convertible Preferred Stock is called for optional redemption, such conversion
right in respect of the share of Convertible Preferred Stock so called shall
expire at the close of business on the applicable Optional Redemption Date,
unless the Company defaults in making the payment due upon redemption.
The price at which Common Stock shall be delivered upon conversion (herein
called the "Conversion Price") shall be initially $23.46 per share of Common
Stock. The Conversion Price shall be adjusted in certain instances as provided
in paragraph (g)(iv) and paragraph (g)(v).
(ii) In order to exercise the conversion privilege, the Holder of any share
of Convertible Preferred Stock to be converted shall surrender the certificate
for such share of Convertible Preferred Stock, duly endorsed or assigned to the
Company or in blank, at the office of the Transfer Agent or at any office or
agency of the Company maintained for that purpose, accompanied by written
notice to the Company in the form of Exhibit B that the Holder elects to
convert such share of Convertible Preferred Stock or, if fewer than all of the
shares of Convertible Preferred Stock represented by a single share certificate
are to be converted, the number of shares represented thereby to be converted.
Except as provided in paragraph (c)(viii), no payment or adjustment shall be
made upon any conversion on account of any dividends accrued on the shares of
Convertible Preferred Stock surrendered for conversion or on account of any
dividends on the Common Stock issued upon conversion. Such notice shall also
contain the office or the address to which the Company should deliver shares of
Common Stock issuable upon conversion (and any other payments or certificates
related thereto). Except as
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<PAGE> 26
provided in paragraph (c)(viii), in no event shall the Company be obligated to
pay any converting Holder any unpaid dividend, whether or not in arrears, on
converted shares or any dividends on the shares of Common Stock issued upon
such conversion.
Shares of Convertible Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
shares of Convertible Preferred Stock for conversion in accordance with the
foregoing provisions, and at such time the rights of the Holders of such shares
of Convertible Preferred Stock as Holders shall cease, and the person or
persons entitled to receive the Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such Common Stock
at such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver to such office or agency as the
converting Holder shall have designated in its written notice to the Company a
certificate or certificates for the number of full Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in paragraph (g)(iii) hereof.
In the case of any conversion of fewer than all the shares of Convertible
Preferred Stock evidenced by a certificate, upon such conversion the Company
shall execute and the Transfer Agent shall authenticate and deliver to the
Holder thereof (at the address designated by such Holder), at the expense of
the Company, a new certificate or certificates representing the number of
unconverted shares of Convertible Preferred Stock.
(iii) No fractional Common Stock shall be issued upon the conversion of a
share of Convertible Preferred Stock. If more than one share of Convertible
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares of Common Stock which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate shares of
Convertible Preferred Stock so surrendered. Instead of any fractional share of
Common Stock which would otherwise be issuable upon conversion of any share of
Convertible Preferred Stock, the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the closing price
(as defined in paragraph (g)(iv)(7)) per share of Common Stock at the close of
business on the Business Day prior to the day of conversion.
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<PAGE> 27
(iv) The Conversion Price shall be adjusted from time to time by the
Company as follows:
(1) If the Company shall hereafter pay a dividend or make a distribution in
Common Stock to all holders of any outstanding class or series of Common
Stock of the Company, the Conversion Price in effect at the opening of
business on the date following the date fixed for the determination of
shareholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the Record Date (as defined in paragraph (g)(iv)(7))
fixed for such determination and the denominator shall be the sum of such
number of outstanding shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the Record
Date. If any dividend or distribution of the type described in this
paragraph (g)(iv)(i) is declared but not so paid or made, the Conversion
Price shall again be adjusted to the Conversion Price which would then be in
effect if such dividend or distribution had not been declared.
(2) If the Company shall offer or issue rights or warrants to all holders
of its outstanding Common Stock entitling them to subscribe for or purchase
Common Stock at a price per share less than the Current Market Price (as
defined in paragraph (g)(iv)(7)) on the Record Date fixed for the
determination of shareholders entitled to receive such rights or warrants,
the Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Record Date by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the Record Date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares of
Common Stock subject to such rights or warrants would purchase at such
Current Market Price and of which the denominator shall be the number of
shares of Common Stock outstanding at the close of business on the Record
Date plus the total number of additional shares of Common Stock subject to
such
16
<PAGE> 28
rights or warrants for subscription or purchase. Such adjustment shall
become effective immediately after the opening of business on the day
following the Record Date fixed for determination of shareholders entitled to
purchase or receive such rights or warrants. To the extent that shares of
Common Stock are not delivered pursuant to such rights or warrants, upon the
expiration or termination of such rights or warrants the Conversion Price
shall again be adjusted to be the Conversion Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made on the basis of delivery of only the number of shares of Common
Stock actually delivered. If such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such date fixed for the determination of
shareholders entitled to receive such rights or warrants had not been fixed.
In determining whether any rights or warrants entitle the holders to
subscribe for or purchase Common Stock at less than such Current Market
Price, and in determining the aggregate offering price of such shares of
Common Stock, there shall be taken into account any consideration received
for such rights or warrants, with the value of such consideration, if other
than cash, to be determined by the Board of Directors.
(3) If the outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the Conversion Price in effect at
the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, if the outstanding shares of Common Stock shall be combined into
a smaller number of shares of Common Stock, the Conversion Price in effect at
the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(4) If the Company shall, by dividend or otherwise, distribute to all
holders of its shares of Common Stock shares of any class of capital stock of
the Company (other than any dividends or distributions
17
<PAGE> 29
to which paragraph (g)(iv)(1) applies) or evidences of its indebtedness, cash
or other assets (including securities, but excluding any rights or warrants
of a type referred to in paragraph (g)(iv)(2) and excluding dividends and
distributions paid exclusively in cash and excluding any capital stock,
evidences of indebtedness, cash or assets distributed upon a merger or
consolidation to which paragraph (g)(v) applies) (the foregoing hereinafter
in this paragraph (g)(iv)(4) called the "Distributed Securities"), then, in
each such case, the Conversion Price shall be reduced so that the same shall
be equal to the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the Record Date (as
defined in paragraph (g)(iv)(7)) with respect to such distribution by a
fraction of which the numerator shall be the Current Market Price (determined
as provided in paragraph (g)(iv)(7)) of the Common Stock on such date less
the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board
of Directors) on such date of the portion of the Distributed Securities so
distributed applicable to one share of Common Stock and the denominator shall
be such Current Market Price, such reduction to become effective immediately
prior to the opening of business on the day following the Record Date;
provided, however, that, in the event the then fair market value (as so
determined) of the portion of the Distributed Securities so distributed
applicable to one share of Common Stock is equal to or greater than the
Current Market Price on the Record Date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of Convertible Preferred
Stock shall have the right to receive upon conversion of a share of
Convertible Preferred Stock (or any portion thereof) the amount of
Distributed Securities such holder would have received had such holder
converted such share of Convertible Preferred Stock (or portion thereof)
immediately prior to such Record Date. If such dividend or distribution is
not so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors determines the
fair market value of any distribution for purposes of this paragraph
(g)(iv)(4) by reference to the actual or when issued trading market for any
securities comprising all
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<PAGE> 30
or part of such distribution, it must in doing so consider the prices in such
market over the same period used in computing the Current Market Price
pursuant to paragraph (g)(iv)(7) to the extent possible.
Rights or warrants distributed by the Company to all holders of Common Stock
entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances),
which rights or warrants, until the occurrence of a specified event or events
("Dilution Trigger Event"): (i) are deemed to be transferred with such
Common Stock; (ii) are not exercisable; and (iii) are also issued in respect
of future issuances of Common Stock, shall be deemed not to have been
distributed for purposes of this paragraph (g)(iv)(4) (and no adjustment to
the Conversion Price under this paragraph (g)(iv)(4) shall be required) until
the occurrence of the earliest Dilution Trigger Event, whereupon such rights
and warrants shall be deemed to have been distributed and an appropriate
adjustment to the Conversion Price under this paragraph (g)(iv)(4) shall be
made. If any such rights or warrants, including any such existing rights or
warrants distributed prior to the date hereof, are subject to subsequent
events, upon the occurrence of each of which such rights or warrants shall
become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the occurrence of each such event shall be
deemed to be such date of issuance and record date with respect to new rights
or warrants (and a termination or expiration of the existing rights or
warrants without exercise by the holder thereof). In addition, in the event
of any distribution (or deemed distribution) of rights or warrants, or any
Dilution Trigger Event with respect thereto, that was counted for purposes of
calculating a distribution amount for which an adjustment to the Conversion
Price under this paragraph (g)(iv)(4) was made, (1) in the case of any such
rights or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted
upon such final redemption or repurchase to give effect to such distribution
or Dilution Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price received
by a holder or holders of Common Stock with respect to such rights or
19
<PAGE> 31
warrants (assuming such holder had retained such rights or warrants), made to
all holders of Common Stock as of the date of such redemption or repurchase,
and (2) in the case of such rights or warrants which shall have expired or
been terminated without exercise by any holders thereof, the Conversion Price
shall be readjusted as if such rights and warrants had not been issued.
Notwithstanding any other provision of this paragraph (g)(iv)(4) to the
contrary, capital stock, rights, warrants, evidences of indebtedness, other
securities, cash or other assets (including, without limitation, any rights
distributed pursuant to any shareholder rights plan) shall be deemed not to
have been distributed for purposes of this paragraph (g)(iv)(4) if the
Company makes proper provision so that each holder of shares of Convertible
Preferred Stock who converts a share of Convertible Preferred Stock (or any
portion thereof) after the date fixed for determination of shareholders
entitled to receive such distribution shall be entitled to receive upon such
conversion, in addition to the Common Stock issuable upon such conversion,
the amount and kind of such distributions that such holder would have been
entitled to receive if such holder had, immediately prior to such
determination date, converted such share of Convertible Preferred Stock into
Common Stock.
For purposes of this paragraph (g)(iv)(4) and paragraphs (g)(iv)(1) and (2),
any dividend or distribution to which this paragraph (g)(iv)(4) is
applicable that also includes Common Stock, or rights or warrants to
subscribe for or purchase Common Stock to which paragraph (g)(iv)(2) applies
(or both), shall be deemed instead to be (1) a dividend or distribution of
the evidences of indebtedness, cash, assets, shares of capital stock, rights
or warrants other than (A) such shares of Common Stock or (B) rights or
warrants to which paragraph (g)(iv)(2) applies (and any Conversion Price
reduction required by this paragraph (g)(iv)(4) with respect to such dividend
or distribution shall then be made) immediately followed by (2) a dividend or
distribution of such Common Stock or such rights or warrants (and any further
Conversion Price reduction required by paragraph (g)(iv)(1) and (2) with
respect to such dividend or distribution shall then be made), except that (1)
the Record Date of such
20
<PAGE> 32
dividend or distribution shall be substituted as "the Record Date fixed for
the determination of stockholders entitled to receive such dividend or other
distribution", "Record Date fixed for such determination" and "Record Date"
within the meaning of paragraph (g)(iv)(1) and as "the Record Date fixed for
the determination of shareholders entitled to receive such rights or
warrants", "the date fixed for the determination of the shareholders entitled
to receive such rights or warrants" and "such Record Date" within the meaning
of paragraph (g)(iv)(2), and (2) any share of Common Stock included in such
dividend or distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" within the meaning of
paragraph (g)(iv)(1).
(5) If the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding any cash that is distributed upon
a merger or consolidation to which paragraph (g)(v) applies or as part of a
distribution referred to in paragraph (g)(iv)) in an aggregate amount that,
combined together with (1) the aggregate amount of any other such
distributions to all holders of its Common Stock made exclusively in cash
within the 12 months preceding the date of payment of such distribution, and
in respect of which no adjustment pursuant to this paragraph (g)(iv)(5) has
been made, and (2) the aggregate of any cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors) of consideration
payable in respect of any tender offer by the Company or a Subsidiary of the
Company for all or any portion of the Common Stock concluded within the 12
months preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to paragraph (g)(iv)(4) has been made, exceeds
12.5% of the product of the Current Market Price (determined as provided in
paragraph (g)(iv)(7)) on the Record Date with respect to such distribution
times the number of shares of Common Stock outstanding on such date, then,
and in each such case, immediately after the close of business on such date,
the Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on
21
<PAGE> 33
such Record Date by a fraction (i) the numerator of which shall be equal to
the Current Market Price on the Record Date less an amount equal to the
quotient of (x) the excess of such combined amount over such 12.5% amount
divided by (y) the number of shares of Common Stock outstanding on the Record
Date and (ii) the denominator of which shall be equal to the Current Market
Price on such Record Date; provided, however, that, if the portion of the
cash so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record Date,
in lieu of the foregoing adjustment, adequate provision shall be made so that
each holder of Convertible Preferred Stock shall have the right to receive
upon conversion of a share of Convertible Preferred Stock (or any portion
thereof) the amount of cash such holder would have received had such holder
converted such share of Convertible Preferred Stock (or portion thereof)
immediately prior to such Record Date. If such dividend or distribution is
not so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared.
(6) If a tender or exchange offer made by the Company or any of its
Subsidiaries for all or any portion of the Common Stock expires and such
tender or exchange offer (as amended upon the expiration thereof) requires
the payment to shareholders (based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares (as defined
below)) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors) that, combined
together with (1) the aggregate of the cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors), as of the
expiration of such tender offer, of consideration payable in respect of any
other tender offers, by the Company or any of its Subsidiaries for all or any
portion of the Common Stock expiring within the 12 months preceding the
expiration of such tender offer and in respect of which no adjustment
pursuant to this paragraph (g)(iv)(6) has been made and (2) the aggregate
amount of any distributions to all holders of
22
<PAGE> 34
the Common Stock made exclusively in cash within 12 months preceding the
expiration of such tender offer and in respect of which no adjustment
pursuant to paragraph (g)(iv)(5) has been made, exceeds 12.5% of the product
of the Current Market Price (determined as provided in paragraph (g)(iv)(7))
as of the last time (the "Expiration Time") tenders could have been made
pursuant to such tender offer (as it may be amended) times the number of
shares of Common Stock outstanding (including any tendered shares) at the
Expiration Time, then, and in each such case, immediately prior to the
opening of business on the day after the date of the Expiration Time, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on the date of the Expiration Time by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
(including any tendered shares) at the Expiration Time multiplied by the
Current Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time and the denominator shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate consideration payable
to shareholders based on the acceptance (up to any maximum specified in the
terms of the tender offer) of all shares validly tendered and not withdrawn
as of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the product of
the number of shares of Common Stock outstanding (less any Purchased Shares)
at the Expiration Time and the Current Market Price of the Common Stock on
the Trading Day next succeeding the Expiration Time, such reduction (if any)
to become effective immediately prior to the opening of business on the day
following the Expiration Time. If the Company is obligated to purchase
shares pursuant to any such tender offer, but the Company is permanently
prevented by applicable law from effecting any such purchases or all such
purchases are rescinded, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such tender offer had
not been made. If the application of this paragraph (g)(iv)(6) to any tender
offer would result in an increase in the Conversion Price, no adjustment
shall be made for such tender offer under this paragraph (g)(iv)(6).
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<PAGE> 35
(7) For purposes of this paragraph (g)(iv), the following terms shall have
the meaning indicated:
"closing price" with respect to any securities on any day means the closing
price on such day or, if no such sale takes place on such day, the average of
the reported high and low prices on such day, in each case on The Nasdaq
National Market or the New York Stock Exchange, as applicable, or, if such
security is not listed or admitted to trading on such national market or
exchange, on the principal national securities exchange or quotation system
on which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange
or quotation system, the average of the high and low prices of such security
on the over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated or a similar generally accepted
reporting service, or, if not so available, in such manner as furnished by
any New York Stock Exchange member firm selected from time to time by the
Board of Directors for that purpose, or a price determined in good faith by
the Board of Directors, whose determination shall be conclusive and described
in a resolution of the Board of Directors.
"Current Market Price" means the average of the daily closing prices per
share of Common Stock for the 10 consecutive trading days immediately prior
to the date in question; provided, however, that (A) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to paragraphs (g)(iv)(1), (2), (3), (4), (5) or (6) occurs
during such 10 consecutive trading days, the closing price for each trading
day prior to the "ex" date for such other event shall be adjusted by
multiplying such closing price by the same fraction by which the Conversion
Price is so required to be adjusted as a result of such other event, (B) if
the "ex" date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to paragraphs (g)(iv)(1), (2), (3), (4), (5) or (6) occurs on
or after the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the closing price for each
trading day on and after the
24
<PAGE> 36
"ex" date for such other event shall be adjusted by multiplying such closing
price by the reciprocal of the fraction by which the Conversion Price is so
required to be adjusted as a result of such other event and (C) if the "ex"
date for the issuance or distribution requiring such computation is prior to
the day in question, after taking into account any adjustment required
pursuant to clause (A) or (B) of this proviso, the closing price for each
trading day on or after such "ex" date shall be adjusted by adding thereto
the amount of any cash and the fair market value (as determined by the Board
of Directors in a manner consistent with any determination of such value for
purposes of paragraphs (g)(iv)(4) or (5), whose determination shall be
conclusive and described in a resolution of the Board of Directors) of the
evidence of indebtedness, shares of capital stock or assets being distributed
applicable to one Common Stock as of the close of business on the day before
such "ex" date. For purposes of any computation under paragraph (g)(vi), the
Current Market Price on any date shall be deemed to be the average of the
daily closing prices per share of Common Stock for such day and the next two
succeeding trading days; provided, however, that, if the "ex" date for any
event (other than the tender offer requiring such computation) that requires
an adjustment to the Conversion Price pursuant to paragraph (g)(iv)(1), (2),
(3), (4), (5) or (6) occurs on or after the Expiration Time for the tender or
exchange offer requiring such computation and prior to the day in question,
the closing price for each trading day on and after the "ex" date for such
other event shall be adjusted by multiplying such closing price by the
reciprocal of the fraction by which the Conversion Price is so required to be
adjusted as a result of such other event. For purposes of this paragraph,
the term "ex" date (I) when used with respect to any issuance or
distribution, means the first date on which the Common Stock trades regular
way on the relevant exchange or in the relevant market from which the closing
price was obtained without the right to receive such issuance or
distribution, (II) when used with respect to any subdivision or combination
of Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which such
subdivision or combination becomes effective and (III) when used with respect
to any tender or exchange offer means the first date on which the Common
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<PAGE> 37
Stock trades regular way on such exchange or in such market after the
Expiration Time of such offer. Notwithstanding the foregoing, whenever
successive adjustments to the Conversion Price are called for pursuant to this
paragraph (g)(iv), such adjustments shall be made to the Current Market Price
as may be necessary or appropriate to effectuate the intent of this paragraph
(g)(iv) and to avoid unjust or inequitable results, as determined in good
faith by the Board of Directors.
"fair market value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Record Date" shall mean, with respect to any dividend, distribution or other
transaction or event in which the holders of Common Stock have the right to
receive any cash, securities or other property or in which the Common Stock
(or other applicable security) is exchanged for or converted into any
combination of cash, securities or other property, the date fixed for
determination of shareholders entitled to receive such cash, securities or
other property (whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(8) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which by reason of this
paragraph (g)(iv)(8) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
paragraph (g)(iv)(8) shall be made by the Company and shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
No adjustment need be made for a change in the par value or no par value of
the Common Stock.
(9) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file with the Transfer Agent an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Promptly after
delivery of such certificate, the Company shall prepare a notice of such
adjustment of the Conversion Price setting forth the
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<PAGE> 38
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion
Price to each holder of Convertible Preferred Stock at such holder's last
address appearing on the register of holders maintained for that purpose
within 20 days of the effective date of such adjustment. Failure to deliver
such notice shall not affect the legality or validity of any such adjustment.
(10) In any case in which this paragraph (g)(iv) provides that an
adjustment shall become effective immediately after a Record Date for an
event, the Company may defer until the occurrence of such event issuing to
the holder of any share of Convertible Preferred Stock converted after such
Record Date and before the occurrence of such event the additional Common
Stock issuable upon such conversion by reason of the adjustment required by
such event over and above the Common Stock issuable upon such conversion
before giving effect to such adjustment.
(11) For purposes of this paragraph (g)(iv), the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury
of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of Common Stock. The Company shall
not pay any dividend or make any distribution on Common Stock held in the
treasury of the Company.
(v) In case of any consolidation of the Company with, or merger of the
Company into, any other corporation, or in case of any merger of another
corporation into the Company (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the Company), or in case of any conveyance or
transfer of the properties and assets of the Company substantially as an
entirety, the holder of each share of Convertible Preferred Stock then
outstanding shall have the right thereafter, during the period such
Convertible Preferred Stock shall be convertible as specified in paragraph
(g)(i), to convert such share of Convertible Preferred Stock only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer by a holder of the number of
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<PAGE> 39
shares of Common Stock of the Company into which such share of Convertible
Preferred Stock might have been converted immediately prior to such
consolidation, merger, conveyance or transfer, assuming such holder of Common
Stock of the Company failed to exercise his rights of election, if any, as to
the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, conveyance or transfer (provided that, if the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer is not the same for each share
of Common Stock of the Company in respect of which such rights of election
shall not have been exercised ("nonelecting share"), then for the purpose of
this paragraph (g)(v) the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance or transfer
by each nonelecting share shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting shares). Such
securities shall provide for adjustments which, for events subsequent to the
effective date of the triggering event, shall be as nearly equivalent as may
be practicable to the adjustments provided for in this paragraph (g)(v). The
above provisions of this Section shall similarly apply to successive
consolidations, mergers, conveyances or transfers.
(vi) In case:
(1) the Company shall declare a dividend (or any other distribution) on its
Common Stock payable otherwise than in cash out of its earned surplus; or
(2) the Company shall authorize the granting to all holders of its Common
Stock of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(3) of any reclassification of the Common Stock of the Company (other than a
subdivision or combination of its outstanding Common Stock), or of any
consolidation or merger to which the Company is a party and for which approval
of any shareholders of the Company is required, or the sale or transfer of all
or substantially all the assets of the Company; or
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<PAGE> 40
(4) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company;
then the Company shall cause to be filed with the Transfer Agent and at each
office or agency maintained for the purpose of conversion of the Convertible
Preferred Stock, and shall cause to be mailed to all holders at their last
addresses as they shall appear in the Convertible Preferred Stock Register, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, rights or warrants are to be determined or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. Failure to give the notice requested
by this Section or any defect therein shall not affect the legality or validity
of any dividend, distribution, right, warrant, reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up, or the vote
upon any such action.
(vii) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued shares of Common Stock
(or out of its authorized shares of Common Stock held in the treasury of the
Company), for the purpose of effecting the conversion of the Convertible
Preferred Stock, the full number of Common Stock then issuable upon the
conversion of all outstanding shares of Convertible Preferred Stock.
(viii) The Company will pay any and all document, stamp or similar issue or
transfer taxes that may be payable in respect of the issue or delivery of
Common Stock on conversion of the Convertible Preferred Stock pursuant hereto.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that of the holder of the share of
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<PAGE> 41
Convertible Preferred Stock or the shares of Convertible Preferred Stock to be
converted, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Company the amount of any such
tax, or has established to the satisfaction of the Company that such tax has
been paid.
(ix) (1) Notwithstanding any other provision in the preceding paragraphs
to the contrary, if any Change in Control occurs then, if the Company does not
elect to make a Change in Control Offer, the Conversion Price in effect shall
be adjusted immediately after such Change in Control as described below. In
addition, in the event of a Common Stock Change in Control (as defined in this
paragraph (g)(ix)), each share of the Convertible Preferred Stock shall be
convertible solely into common stock of the kind received by holders of Common
Stock as the result of such Common Stock Change in Control. For purposes of
calculating any adjustment to be made pursuant to this paragraph in the event
of a Change in Control, immediately after such Change in Control:
(A) in the case of a Non-Stock Change in Control (as defined in this
paragraph (g)(ix)), the Conversion Price shall thereupon become the lower of
(x) the Conversion Price in effect immediately prior to such Non-Stock Change
in Control, but after giving effect to any other prior adjustments, and (y)
the result obtained by multiplying the greater of the Applicable Price (as
defined in this paragraph (g)(ix)) or the then applicable Reference Market
Price (as defined in this paragraph (g)(ix)) by a fraction of which the
numerator shall be $100.00 and the denominator shall be the then current
Optional Redemption Price per share; and
(B) in the case of a Common Stock Change in Control, the Conversion Price in
effect immediately prior to such Common Stock Change in Control, but after
giving effect to any prior adjustments, shall thereupon be adjusted by
multiplying such Conversion Price by a fraction, of which the numerator shall
be the Purchaser Stock Price (as defined in this paragraph (g)(ix)) and the
denominator shall be the Applicable Price; provided, however, that in the
event of a Common Stock Change in Control in which (x) 100% of the value of
the consideration received by a holder of Common Stock is common stock of the
successor, acquiror, or other third
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<PAGE> 42
party (and cash, if any, is paid with respect to any fractional interests in
such common stock resulting from such Common Stock Change in Control) and (y)
all of the Common Stock will have been exchanged for, converted into, or
acquired for, common stock (and cash with respect to fractional interests) of
the successor, acquiror or other third party, the Conversion Price in effect
immediately prior to such Common Stock Change in Control shall thereupon be
adjusted by multiplying such Conversion Price by a fraction, of which the
numerator shall be one (1) and the denominator shall be the number of shares
of common stock of the successor, acquiror, or other third party received by
a holder of one share of Common Stock as a result of such Common Stock Change
in Control.
(3) For purposes of this paragraph (ix), the following terms shall have the
meanings indicated:
"Applicable Price" means (i) in the event of a Non-Stock Change in Control
in which the holders of the Common Stock receive only cash, the amount of
cash received by the holder of one share of Common Stock and (ii) in the
event of any other Non-Stock Change in Control or any Common Stock Change in
Control, the average of the Closing Bid Prices for the Common Stock during
the ten Trading Days prior to and including the record date for the
determination of the holders of Common Stock entitled to receive cash,
securities, property or other assets in connection with such Non-Stock Change
in Control or Common Stock Change in Control or, if there is no such record
date, the date upon which the holders of the Common Stock shall have the
right to receive such cash, securities, property or other assets, in each
case, as adjusted in good faith by the Board of Directors to appropriately
reflect any of the events referred to in paragraph (g)(iv)(1) through (6).
"Common Stock Change in Control" means any Change in Control in which more
than 50% of the value (as determined in good faith by the Board of Directors
of the Company) of the consideration received by holders of Common Stock
consists of common stock that for each of the ten consecutive Trading Days
referred to in the preceding paragraph has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on The Nasdaq
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<PAGE> 43
National Market; provided, however, that a Change in Control shall not be a
Common Stock Change in Control unless either (i) the Company continues to
exist after the occurrence of such Change in Control and the outstanding
shares of Convertible Preferred Stock continue to exist as outstanding shares
of Convertible Preferred Stock, or (ii) not later than the occurrence of such
Change in Control, the outstanding shares of Convertible Preferred Stock are
converted into or exchanged for shares of convertible preferred stock of a
corporation succeeding to the business of the Company, which convertible
preferred stock has powers, preferences and relative, participating, optional
or other rights, and qualifications, limitations and restrictions,
substantially similar to those of the Convertible Preferred Stock.
"Non-Stock Change in Control" means any Change in Control other than a
Common Stock Change in Control.
"Purchaser Stock Price" means, with respect to any Common Stock Change in
Control, the product of (i) the number of shares of common stock received in
such Common Stock Change of Control for each share of Common Stock, and (ii)
the average of the per share Closing Prices for the common stock received in
such Common Stock Change in Control for the ten consecutive Trading Days
prior to and including the record date for the determination of the holders
of Common Stock entitled to receive such common stock, or if there is no such
record date, the date upon which the holders of the Common Stock shall have
the right to receive such common stock, in each case, as adjusted in good
faith by the Board of Directors to appropriately reflect any of the events
referred to in paragraph (g)(iv)(1) through (6); provided, however, that if
no such Closing Prices exist, then the Purchaser Stock Price shall be set at
a price determined in good faith by the Board of Directors of the Company.
"Reference Market Price" shall initially mean $13.50 (which is an amount
equal to 66-2/3% of the reported last sale price for the Common Stock on The
Nasdaq National Market on March 25, 1997), and in the event of any adjustment
to the conversion prices other than as a result of a Change in Control, the
Reference Market Price shall also be adjusted so that the ratio of the
Reference Market Price to the Conversion Price
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after giving effect to any such adjustment shall always be the same as the
ratio of $13.50 to the initial Conversion Price set forth in paragraph
(g)(i).
(h) Change in Control. (i) Upon the occurrence of a Change of Control
(the date of such occurrence being the "Change in Control Date"), the Company
shall be obligated to (1) purchase all or a portion of each holder's
Convertible Preferred Stock in cash pursuant to the offer described in
paragraph (h)(iii) (the "Change of Control Offer") at a purchase price equal to
100% of the Liquidation Preference, plus, without duplication, all accrued and
unpaid Liquidated Damages and all accrued and unpaid dividends, if any, to the
Change of Control Payment Date, including an amount in cash equal to a prorated
dividend for the period from the Dividend Payment Date immediately prior to the
Change of Control Payment Date to the Change of Control Payment Date or (2)
adjust the conversion price as provided under paragraph (g)(ix).
Notwithstanding the foregoing, the Company shall, prior to electing to make a
Change of Control Offer, make an offer to redeem all outstanding shares of
Series 3 Preferred Stock.
(ii) Prior to the mailing of the notice referred to in paragraph (h)(iii),
but in any event within 15 days following the date on which the Company knows
or reasonably should have known that a Change in Control has occurred, the
Company covenants that it shall promptly determine if the purchase of the
Convertible Preferred Stock would violate or constitute a default under the
Indenture or other indebtedness of the Company.
(iii) Within 15 days following the date on which the Company knows or
reasonably should have known that a Change in Control has occurred, the Company
must send, by first-class mail, postage prepaid, a notice to each holder of
Convertible Preferred Stock. Such notice shall state whether the Change of
Control Offer would be permitted under the Indenture or other indebtedness of
the Company, and if permitted, such notice shall contain all instructions and
materials necessary to enable such holders to tender Convertible Preferred
Stock pursuant to the Change of Control Offer. If the Change of Control Offer
would be permitted under the Indenture or other indebtedness of the Company,
such notice shall state:
(A) that a Change of Control has occurred, that the Change of Control Offer
is being made pursuant to
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this paragraph (h) and that all Convertible Preferred Stock validly tendered
and not withdrawn will be accepted for payment;
(B) the purchase price (including the amount of accrued dividends, if any)
and the purchase date (which must be no earlier than 30 days nor later than
75 days from the date such notice is mailed, other than as may be required by
law) (the "Change of Control Payment Date");
(C) that any shares of Convertible Preferred Stock not tendered will
continue to accrue dividends;
(D) that, unless the Company defaults in making payment therefor, any share
of Convertible Preferred Stock accepted for payment pursuant to the Change of
Control Offer shall cease to accrue dividends after the Change of Control
Payment Date;
(E) that holders electing to have any shares of Convertible Preferred Stock
purchased pursuant to a Change of Control Offer will be required to surrender
such shares of Convertible Preferred Stock, properly endorsed for transfer,
together with such other customary documents as the Company and the Transfer
Agent may reasonably request to the Transfer Agent and registrar for the
Convertible Preferred Stock at the address specified in the notice prior to
the close of business on the Business Day prior to the Change of Control
Payment Date;
(F) that holders will be entitled to withdraw their election if the Company
receives, not later than five Business Days prior to the Change of Control
Payment Date, a telegram, a telex, facsimile transmission or letter setting
forth the name of the holder, the number of shares of Convertible Preferred
Stock the holder delivered for purchase and a statement that such holder is
withdrawing his election to have such shares of Convertible Preferred Stock
purchased;
(G) that holders whose shares of Convertible Preferred Stock are purchased
only in part will be issued a new certificate representing the unpurchased
shares of Convertible Preferred Stock; and
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<PAGE> 46
(H) the circumstances and relevant facts regarding such Change of Control.
If the Change of Control Offer would not be permitted under the Indenture
or other indebtedness of the Company, such notice shall state the Conversion
Price as adjusted pursuant to paragraph (g)(ix).
(iv) The Company will comply with any tender offer rules under the Exchange
Act which then may be applicable, including Rules 13e-4 and 14e-1, in
connection with any offer required to be made by the Company to repurchase the
shares of Convertible Preferred Stock as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of this Certificate of Designation, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Certificate of Designation by virtue
thereof.
(v) On the Change of Control Payment Date the Company shall (A) accept for
payment the shares of Convertible Preferred Stock validly tendered pursuant to
the Change of Control Offer, (B) pay to the holders of shares so accepted the
purchase price therefor in cash and (C) cancel and retire each surrendered
certificate. Unless the Company defaults in the payment for the shares of
Convertible Preferred Stock tendered pursuant to the Change of Control Offer,
dividends will cease to accrue with respect to the shares of Convertible
Preferred Stock tendered and all rights of holders of such tendered shares will
terminate, except for the right to receive payment therefor, on the Change of
Control Payment Date.
(vi) To accept the Change of Control Offer, the holder of a share of
Convertible Preferred Stock shall deliver, on or before the 10th day prior to
the Change of Control Payment Date, written notice to the Company (or an agent
designated by the Company for such purpose) of such holder's acceptance,
together with certificates evidencing the shares of Convertible Preferred Stock
with respect to which the Change of Control Offer is being accepted, duly
endorsed for transfer.
(i) Reissuance of Convertible Preferred Stock. Shares of Convertible
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall not be reissued as shares of
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<PAGE> 47
Convertible Preferred Stock and shall (upon compliance with any applicable
provisions of the laws of Delaware) have the status of authorized and
unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock; provided,
however, that so long as any shares of Convertible Preferred Stock are
outstanding, any issuance of such shares must be in compliance with the terms
hereof.
(j) Business Day. If any payment, redemption or exchange shall be required
by the terms hereof to be made on a day that is not a Business Day, such
payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(k) Limitation on Mergers and Asset Sales. The Company may not consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all its assets to, any person unless: (1) the successor, transferee or lessee
(if not the Company) is organized and existing under the laws of the United
States of America or any State thereof or the District of Columbia and the
Convertible Preferred Stock shall be converted into or exchanged for and shall
become shares of such successor, transferee or lessee, having in respect of
such successor, transferee or lessee substantially the same powers, preference
and relative participating, optional or other special rights and the
qualifications, limitations or restrictions thereon, that the Convertible
Preferred Stock had immediately prior to such transaction; and (2) the Company
delivers to the Transfer Agent an Officers' Certificate and an Opinion of
Counsel stating that such consolidation, merger or transfer complies with this
Certificate of Designation. The successor, transferee or lessee will be the
successor company.
(l) Certificates. (i) Form and Dating. The Convertible Preferred Stock
and the Transfer Agent's certificate of authentication shall be substantially
in the form of Exhibit A, which is hereby incorporated in and expressly made a
part of this Certificate of Designation. The Convertible Preferred Stock
certificate may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Convertible Preferred Stock certificate shall be dated
the date of its authentication. The terms of the Convertible
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<PAGE> 48
Preferred Stock certificate set forth in Exhibit A are part of the terms of
this Certificate of Designation.
(A) Global Convertible Preferred Stock. The Convertible Preferred Stock
sold in reliance on Rule 144A shall be issued initially in the form of one or
more fully registered global certificates with the global securities legend and
restricted securities legend set forth in Exhibit A hereto (the "Global
Convertible Preferred Stock"), which shall be deposited on behalf of the
purchasers represented thereby with the Transfer Agent, at its New York office,
as custodian for DTC (or with such other custodian as DTC may direct), and
registered in the name of DTC or a nominee of DTC, duly executed by the Company
and authenticated by the Transfer Agent as hereinafter provided. The number of
shares of Convertible Preferred Stock represented by Global Convertible
Preferred Stock may from time to time be increased or decreased by adjustments
made on the records of the Transfer Agent and DTC or its nominee as hereinafter
provided.
(B) Book-Entry Provisions. In the event Global Convertible Preferred Stock
is deposited with or on behalf of DTC, the Company shall execute and the
Transfer Agent shall authenticate and deliver initially one or more Global
Convertible Preferred Stock certificates that (a) shall be registered in the
name of DTC for such Global Convertible Preferred Stock or the nominee of DTC
and (b) shall be delivered by the Transfer Agent to DTC or pursuant to DTC's
instructions or held by the Transfer Agent as custodian for DTC.
Members of, or participants in, DTC ("Agent Members") shall have no rights
under this Certificate of Designation with respect to any Global Convertible
Preferred Stock held on their behalf by DTC or by the Transfer Agent as the
custodian of DTC or under such Global Convertible Preferred Stock, and DTC may
be treated by the Company, the Transfer Agent and any agent of the Company or
the Transfer Agent as the absolute owner of such Global Convertible Preferred
Stock for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Transfer Agent or any agent of the
Company or the Transfer Agent from giving effect to any written certification,
proxy or other authorization furnished by DTC or impair, as between DTC and its
Agent Members, the operation of customary practices of DTC governing the
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exercise of the rights of a holder of a beneficial interest in any Global
Convertible Preferred Stock.
(C) Certificated Convertible Preferred Stock. Convertible Preferred Stock
initially sold to certain "accredited investors" (as defined in Rule 501(a)(1),
(2), (3), (4), (5), (6) or (7) under the Securities Act) or sold in offshore
transactions pursuant to Regulation S under the Securities Act will be issued
in fully registered certificated form ("Certificated Convertible Preferred
Stock").
Except as provided in this paragraph (l)(i) or in paragraph (l)(iii), owners
of beneficial interests in Global Convertible Preferred Stock will not be
entitled to receive physical delivery of Certificated Convertible Preferred
Stock.
After a transfer of any Convertible Preferred Stock during the period of the
effectiveness of a Shelf Registration Statement with respect to such
Convertible Preferred Stock, all requirements pertaining to legends on such
Convertible Preferred Stock will cease to apply, the requirements requiring
that any such Convertible Preferred Stock issued to Holders be issued in global
form will cease to apply, and Certificated Convertible Preferred Stock without
legends will be available to the transferee of the Holder of such Convertible
Preferred Stock upon exchange of such transferring Holder's Convertible
Preferred Stock or directions to transfer such Holder's interest in the Global
Convertible Preferred Stock, as applicable.
(ii) Execution and Authentication. Two Officers shall sign the Convertible
Preferred Stock for the Company by manual or facsimile signature. The
Company's seal shall be impressed, affixed, imprinted or reproduced on the
Convertible Preferred Stock and may be in facsimile form.
If an Officer whose signature is on Convertible Preferred Stock no longer
holds that office at the time the Transfer Agent authenticates the Convertible
Preferred Stock, the Convertible Preferred Stock shall be valid nevertheless.
A Convertible Preferred Stock shall not be valid until an authorized
signatory of the Transfer Agent manually signs the certificate of
authentication on the Convertible Preferred Stock. The signature shall be
conclusive evidence
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that the Convertible Preferred Stock has been authenticated under this
Certificate of Designation.
The Transfer Agent shall authenticate and deliver 1,000,000 shares of
Convertible Preferred Stock for original issue upon a written order of the
Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. In addition, the Transfer
Agent shall authenticate and deliver, from time to time, Additional Shares for
original issue upon order of the Company signed by two Officers or by an
Officer or either an Assistant Treasurer or Assistant Secretary of the Company.
Such orders shall specify the number of shares of Convertible Preferred Stock
to be authenticated and the date on which the original issue of Convertible
Preferred Stock is to be authenticated.
The Transfer Agent may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Convertible Preferred Stock. Unless limited
by the terms of such appointment, an authenticating agent may authenticate
Convertible Preferred Stock whenever the Transfer Agent may do so. Each
reference in this Certificate of Designation to authentication by the Transfer
Agent includes authentication by such agent. An authenticating agent has the
same rights as the Transfer Agent or agent for service of notices and demands.
(iii) Transfer and Exchange. (A) Transfer and Exchange of Certificated
Convertible Preferred Stock. When Certificated Convertible Preferred Stock is
presented to the Transfer Agent with a request to register the transfer of such
Certificated Convertible Preferred Stock or to exchange such Certificated
Convertible Preferred Stock for an equal number of shares of Certificated
Convertible Preferred Stock of other authorized denominations, the Transfer
Agent shall register the transfer or make the exchange as requested if its
reasonable requirements for such transaction are met; provided, however, that
the Certificated Convertible Preferred Stock surrendered for transfer or
exchange:
(1) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Transfer
Agent, duly executed by the Holder thereof or its attorney duly authorized in
writing; and
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(2) in the case of Transfer Restricted Securities that are Certificated
Convertible Preferred Stock, are being transferred or exchanged pursuant to
an effective registration statement under the Securities Act or pursuant to
clause (I), (II) or (III) below, and are accompanied by the following
additional information and documents, as applicable:
(I) if such Transfer Restricted Securities are being delivered to the
Transfer 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 C hereto; or
(II) if such Transfer Restricted Securities are being transferred to the
Company or to a "qualified institutional buyer" ("QIB") in accordance with
Rule 144A under the Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 or Regulation S under the
Securities Act, a certification to that effect (in substantially the form of
Exhibit C hereto); or
(III) if such Transfer Restricted Securities are being transferred to an
"accredited investor" as described in Rule 501(a)(1), (2), (3), (4), (5),
(6) or (7) under the Securities Act that is acquiring the Securities for its
own account, or for the account of such an accredited investor, in each case
in a minimum principal amount of $100,000 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 in reliance on another exemption from
the registration requirements of the Securities Act: a certification to that
effect in substantially the form of Exhibit C hereto, and if the Company or
the Transfer Agent so requests, evidence reasonably satisfactory to them as
to the compliance with the restrictions set forth in the legend set forth in
paragraph (l)(iii)(G)(1) below.
(B) Restrictions on Transfer of Certificated Convertible Preferred Stock
for a Beneficial Interest in Global Convertible Preferred Stock. Certificated
Convertible Preferred Stock may not be exchanged for a
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<PAGE> 52
beneficial interest in Global Convertible Preferred Stock except upon
satisfaction of the requirements set forth below. Upon receipt by the
Transfer Agent of Certificated Convertible Preferred Stock, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to
the Transfer Agent, together with:
(1) if such Certificated Convertible Preferred Stock is a Transfer
Restricted Security, certification that such Certificated Convertible
Preferred Stock is being transferred to a QIB in accordance with Rule 144A
under the Securities Act; and
(2) whether or not such Certificated Convertible Preferred Stock is a
Transfer Restricted Security, written instructions directing the Transfer
Agent to make, or to direct DTC to make, an adjustment on its books and
records with respect to such Global Convertible Preferred Stock to reflect an
increase in the number of shares of Convertible Preferred Stock represented
by the Global Convertible Preferred Stock,
then the Transfer Agent shall cancel such Certificated Convertible Preferred
Stock and cause, or direct DTC to cause, in accordance with the standing
instructions and procedures existing between DTC and the Transfer Agent, the
number of shares of Convertible Preferred Stock represented by the Global
Convertible Preferred Stock to be increased accordingly. If no Global
Convertible Preferred Stock is then outstanding, the Company shall issue and
the Transfer Agent shall authenticate, upon written order of the Company in the
form of an Officers' Certificate, a new Global Convertible Preferred Stock
representing the appropriate number of shares.
(C) Transfer and Exchange of Global Convertible Preferred Stock. The
transfer and exchange of Global Convertible Preferred Stock or beneficial
interests therein shall be effected through DTC, in accordance with this
Certificate of Designation (including applicable restrictions on transfer set
forth herein, if any) and the procedures of DTC therefor.
(D) Transfer of a Beneficial Interest in Global Convertible Preferred Stock
for a Certificated Convertible Preferred Stock.
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<PAGE> 53
(1) Any person having a beneficial interest in Convertible Preferred
Stock that is being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or pursuant to clause (I),
(II) or (III) below may upon request, and if accompanied by the information
specified below, exchange such beneficial interest for Certificated
Convertible Preferred Stock representing the same number of shares of
Convertible Preferred Stock. Upon receipt by the Transfer Agent of written
instructions or such other form of instructions as is customary for DTC from
DTC or its nominee on behalf of any person having a beneficial interest in
Global Convertible Preferred Stock and upon receipt by the Transfer Agent of
a written order or such other form of instructions as is customary for DTC
or the person designated by DTC as having such a beneficial interest in a
Transfer Restricted Security only, and upon the following additional
information and documents (all of which may be submitted by facsimile):
(I) if such beneficial interest is being transferred to the person
designated by DTC as being the owner of a beneficial interest in Global
Convertible Preferred Stock, a certification from such person to that
effect (in substantially the form of Exhibit C hereto);
(II) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 or Regulation S
under the Securities Act, a certification to that effect (in substantially
the form of Exhibit C hereto); or
(III) if such beneficial interest is being transferred to an "accredited
investor" as described in Rule 501(a)(1), (2), (3), (4), (5), (6) or (7)
under the Securities Act that is acquiring the security for its own
account, or for the account of such an accredited investor, in each case in
a minimum principal amount of $100,000 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 in reliance on another exemption from
the registration requirements of the Securities Act, a
42
<PAGE> 54
certification to that effect from the transferor (in substantially the form
of Exhibit C hereto), and if the Company or the Transfer Agent so requests,
evidence reasonably satisfactory to them as to the compliance with the
restrictions set forth in the legend set forth in paragraph (l)(iii)(G)(1)
below;
then, the Transfer Agent or DTC, at the direction of the Transfer Agent, will
cause, in accordance with the standing instructions and procedures existing
between DTC and the Transfer Agent, the number of shares of Convertible
Preferred Stock represented by Global Convertible Preferred Stock to be reduced
on its books and records and, following such reduction, the Company will
execute and the Transfer Agent will authenticate and deliver to the transferee
Certificated Convertible Preferred Stock.
(2) Certificated Convertible Preferred Stock issued in exchange for a
beneficial interest in a Global Convertible Preferred Stock pursuant to this
paragraph (l)(iii)(D) shall be registered in such names and in such
authorized denominations as DTC, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Transfer Agent. The
Transfer Agent shall deliver such Certificated Convertible Preferred Stock to
the persons in whose names such Convertible Preferred Stock are so registered
in accordance with the instructions of DTC.
(E) Restrictions on Transfer and Exchange of Global Convertible Preferred
Stock. Notwithstanding any other provisions of this Certificate of Designation
(other than the provisions set forth in paragraph (l)(iii)(F)), Global
Convertible Preferred Stock may not be transferred as a whole except by DTC to
a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by
DTC or any such nominee to a successor depository or a nominee of such
successor depository.
(F) Authentication of Certificated Convertible Preferred Stock. If at any
time:
(1) DTC notifies the Company that DTC is unwilling or unable to continue as
depository for the Global Convertible Preferred Stock and a successor
depository for the Global Convertible Preferred Stock is not appointed by the
Company within 90 days after delivery of such notice;
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<PAGE> 55
(2) DTC ceases to be a clearing agency registered under the Exchange Act;
(3) there shall have occurred and be continuing a Voting Rights Triggering
Event; or
(4) the Company, in its sole discretion, notifies the Transfer Agent in
writing that it elects to cause the issuance of Certificated Convertible
Preferred Stock under this Certificate of Designation,
then the Company will execute, and the Transfer Agent, upon receipt of a
written order of the Company signed by two Officers or by an Officer and either
an Assistant Treasurer or an Assistant Secretary of the Company requesting the
authentication and delivery of Certificated Convertible Preferred Stock to the
persons designated by the Company, will authenticate and deliver Certificated
Convertible Preferred Stock equal to the number of shares of Convertible
Preferred Stock represented by the Global Convertible Preferred Stock, in
exchange for such Global Convertible Preferred Stock.
(G) Legend. (1) Except as permitted by the following paragraph (2), each
certificate evidencing the Global Convertible Preferred Stock and the
Certificated Convertible Preferred Stock (and all Convertible Preferred Stock
issued in exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND THE COMMON STOCK
INTO WHICH THIS SECURITY IS CONVERTIBLE) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED
HEREBY (OR THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) 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 (AND OF THE COMMON
STOCK INTO WHICH THIS SECURITY IN CONVERTIBLE) AGREES FOR THE
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<PAGE> 56
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND THE COMMON STOCK INTO
WHICH THIS SECURITY IS CONVERTIBLE) MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (4) TO THE COMPANY OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES."
(2) Upon any sale or transfer of a Transfer Restricted Security (including
any Transfer Restricted Security represented by Global Convertible Preferred
Stock) pursuant to Rule 144 under the Securities Act or an effective
registration statement under the Securities Act:
(I) in the case of any Transfer Restricted Security that is a Certificated
Convertible Preferred Stock, the Transfer Agent shall permit the Holder
thereof to exchange such Transfer Restricted Security for a Certificated
Convertible Preferred Stock that does not bear the legend set forth above
and rescind any restriction on the transfer of such Transfer Restricted
Security; and
(II) in the case of any Transfer Restricted Security that is represented
by a Global Convertible Preferred Stock, the Transfer Agent shall permit the
Holder thereof to exchange such Transfer Restricted Security for a
Certificated Convertible Preferred Stock Security that does not bear the
legend set forth above and rescind any restriction on the transfer of such
Transfer Restricted Security, if the Holder's request for such exchange was
made in reliance on Rule 144 and the Holder certifies to that effect in
writing to the Transfer Agent (such certification to be in the form set
forth on the reverse of the Transfer Restricted Security).
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<PAGE> 57
(H) Cancellation or Adjustment of Global Convertible Preferred Stock. At
such time as all beneficial interests in Global Convertible Preferred Stock
have either been exchanged for Certificated Convertible Preferred Stock,
redeemed, repurchased or canceled, such Global Convertible Preferred Stock
shall be returned to DTC for cancellation or retained and canceled by the
Transfer Agent. At any time prior to such cancellation, if any beneficial
interest in Global Convertible Preferred Stock is exchanged for Certificated
Convertible Preferred Stock, redeemed, repurchased or canceled, the number of
shares of Convertible Preferred Stock represented by such Global Convertible
Preferred Stock shall be reduced and an adjustment shall be made on the books
and records of the Transfer Agent with respect to such Global Convertible
Preferred Stock, by the Transfer Agent or DTC, to reflect such reduction.
(I) Obligations with Respect to Transfers and Exchanges of Convertible
Preferred Stock. (1) To permit registrations of transfers and exchanges, the
Company shall execute and the Transfer Agent shall authenticate Certificated
Convertible Preferred Stock and Global Convertible Preferred Stock as required
pursuant to the provisions of this paragraph (iii).
(2) All Certificated Convertible Preferred Stock and Global Convertible
Preferred Stock issued upon any registration of transfer or exchange of
Certificated Convertible Preferred Stock or Global Convertible Preferred
Stock shall be the valid obligations of the Company, entitled to the same
benefits under this Certificate of Designation as the Certificated
Convertible Preferred Stock or Global Convertible Preferred Stock surrendered
upon such registration of transfer or exchange.
(3) Prior to due presentment for registration of transfer of any shares of
Convertible Preferred Stock, the Transfer Agent and the Company may deem and
treat the person in whose name such shares of Convertible Preferred Stock are
registered as the absolute owner of such Convertible Preferred Stock and
neither the Transfer Agent nor the Company shall be affected by notice to the
contrary.
(4) No service charge shall be made to a Holder for any registration of
transfer or exchange upon surrender of any Convertible Preferred Stock
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<PAGE> 58
Certificate at the office of the Transfer Agent maintained for that purpose.
However, 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 of transfer or exchange of Convertible Preferred Stock
Certificates.
(5) Upon any sale or transfer of shares of Convertible Preferred Stock
(including any Convertible Preferred Stock represented by a Global
Convertible Preferred Stock Certificate) pursuant to an effective
registration statement under the Securities Act, pursuant to Rule 144 under
the Securities Act or pursuant to an opinion of counsel reasonably
satisfactory to the Company that no legend is required:
(A) in the case of any Certificated Convertible Preferred Stock, the
Transfer Agent shall permit the holder thereof to exchange such
Convertible Preferred Stock for Certificated Convertible Preferred
Stock that does not bear the legend set forth in paragraph (iii)(G)
above and rescind any restriction on the transfer of such Convertible
Preferred Stock; and
(B) in the case of any Global Convertible Preferred Stock, such
Convertible Preferred Stock shall not be required to bear the legend
set forth in paragraph (iii)(G) above but shall continue to be subject
to the provisions of paragraph (iii)(D) hereof; provided, however,
that with respect to any request for an exchange of Convertible
Preferred Stock that is represented by Global Convertible Preferred
Stock for Certificated Convertible Preferred Stock that does not bear
the legend set forth in paragraph (iii)(G) above in connection with a
sale or transfer thereof pursuant to Rule 144 (and based upon an
opinion of counsel if the Company so requests), the Holder thereof
shall certify in writing to the Transfer Agent that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit C hereto).
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<PAGE> 59
(iv) Replacement Certificates. If a mutilated Convertible Preferred
Stock certificate is surrendered to the Transfer Agent or if the Holder of a
Convertible Preferred Stock certificate claims that the Convertible Preferred
Stock certificate has been lost, destroyed or wrongfully taken, the Company
shall issue and the Transfer Agent shall countersign a replacement
Convertible Preferred Stock certificate if the reasonable requirements of the
Transfer Agent and of Section 8-405 of the Uniform Commercial Code as in
effect in the State of New York are met. If required by the Transfer Agent
or the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Transfer Agent to protect the Company and the
Transfer Agent from any loss which either of them may suffer if a Convertible
Preferred Stock certificate is replaced. The Company and the Transfer Agent
may charge the Holder for their expenses in replacing a Convertible Preferred
Stock certificate.
(v) Temporary Certificates. Until definitive Convertible Preferred Stock
certificates are ready for delivery, the Company may prepare and the Transfer
Agent shall countersign temporary Convertible Preferred Stock certificates.
Temporary Convertible Preferred Stock certificates shall be substantially in
the form of definitive Convertible Preferred Stock certificates but may have
variations that the Company considers appropriate for temporary Convertible
Preferred Stock certificates. Without unreasonable delay, the Company shall
prepare and the Transfer Agent shall countersign definitive Convertible
Preferred Stock certificates and deliver them in exchange for temporary
Convertible Preferred Stock certificates.
(vi) Cancellation. (A) In the event the Company shall purchase or
otherwise acquire Certificated Convertible Preferred Stock, the same shall
thereupon be delivered to the Transfer Agent for cancellation.
(B) At such time as all beneficial interests in Global Convertible
Preferred Stock have either been exchanged for Certificated Convertible
Preferred Stock, redeemed, repurchased or canceled, such Global Convertible
Preferred Stock shall thereupon be delivered to the Transfer Agent for
cancellation.
(C) The Transfer Agent and no one else shall cancel and destroy all
Convertible Preferred Stock certificates surrendered for transfer, exchange,
replacement
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<PAGE> 60
or cancellation and deliver a certificate of such destruction to the Company
unless the Company directs the Transfer Agent to deliver canceled Convertible
Preferred Stock certificates to the Company. The Company may not issue new
Convertible Preferred Stock certificates to replace Convertible Preferred Stock
certificates to the extent they evidence Convertible Preferred Stock which the
Company has purchased or otherwise acquired.
(m) Additional Rights of Holders. In addition to the rights provided to
Holders under this Certificate of Designation, Holders shall have the rights
set forth in the Registration Rights Agreement.
(o) Certain Definitions. As used in this Certificate of Designation, the
following terms shall have the following meanings (and (1) terms defined in the
singular have comparable meanings when used in the plural and vice versa, (2)
"including" means including without limitation, (3) "or" is not exclusive and
(4) an accounting term not otherwise defined has the meaning assigned to it in
accordance with United States generally accepted accounting principles as in
effect on the Issue Date and all accounting calculations will be determined in
accordance with such principles), unless the content otherwise requires:
"Business Day" means each day which is not a Legal Holiday.
"capital stock" of any person means any and all shares, interests, rights to
purchase, warrants, options, participation or other equivalents of or interests
in (however designated) equity of such person, including any Preferred Stock,
but excluding any debt securities convertible into or exchangeable for such
equity.
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<PAGE> 61
"Change in Control" or "Change of Control" means: (i) the sale, lease,
transfer, conveyance other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), (other than officers, directors and stockholders
of the Company and their affiliates on the date of this Certificate of
Designation), becomes the beneficial owner (as determined in accordance with
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more
than 50% of the voting stock of the Company or (iv) the first day on which a
majority of the members of the board of directors (excluding the directors
elected pursuant to paragraph (f) are not Continuing Directors.
"Closing Bid Price" means on any day the last reported bid price on such
day, or in case no bid takes place on such day, the average of the reported
closing bid and asked prices, in each case on the Nasdaq National Market or, if
the Common Stock is not quoted on such system, on the principal national
securities exchange on which such stock is listed or admitted to trading, or if
not listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices as furnished by any independent
registered broker-dealer firm, selected by the Company for that purpose.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors who (i) was a member of such Board of Directors on the
date of this Certificate of Designation or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election.
"Default" means any event which is, or after notice or passage of time or
both would be, a Voting Rights Triggering Event.
"DTC" means The Depository Trust Company.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holders" means the registered holders from time to time of the Convertible
Preferred Stock.
"Indenture" means the Indenture dated as of October 5, 1995 between the
Company and IBJ Schroder Bank & Trust Company.
"Issue Date" means the date on which the Convertible Preferred Stock is
initially issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Liquidated Damages" means, with respect to any share of Convertible
Preferred Stock, the Additional Dividends then accrued, if any, on such share
pursuant to paragraph (c).
"Officer" means the Chairman of the Board of Directors, the President, any
Vice President, the Treasurer, the Secretary or any Assistant Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Transfer Agent. The counsel may be an employee of or counsel
to the Company or the Transfer Agent.
"person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
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"Registration Rights Agreement" means the Registration Rights Agreement
dated March 25, 1997 among the Company, Credit Suisse First Boston Corporation
and Dillon, Read & Co. Inc. with respect to the Convertible Preferred Stock.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933.
"Series 3 Preferred Stock" means the 10% Junior Series 3 Preferred Stock of
the Company.
"Shelf Registration Statement" means a shelf registration statement filed
with the SEC to cover resales of Transfer Restricted Securities by holders
thereof, as required by the Registration Rights Agreement.
"Subsidiary" means any corporation, association, partnership, limited
liability company or other business entity of which more than 50% of the total
voting power of shares of capital stock or other interests entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by the Company, the Company and one or more
Subsidiaries or one or more Subsidiaries and any partnership the sole general
partner or the managing partner of which the Company or any Subsidiary or the
only general partners of which are the Company and one or more Subsidiaries or
one or more Subsidiaries.
"Trading Day" means, in respect of any securities exchange or securities
market, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any
day on which securities are not traded on the applicable securities exchange or
in the applicable securities market.
"Transfer Agent" means the transfer agent for the Convertible Preferred
Stock appointed by the Company, which initially shall be ChaseMellon
Shareholder Services, L.L.C.
"Transfer Restricted Securities" means each share of Convertible Preferred
Stock (or the shares of Common Stock into which such share of Convertible
Preferred Stock is convertible) (including additional shares of Convertible
Preferred Stock issued in payment of dividends on the
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<PAGE> 64
Convertible Preferred Stock, if any, as permitted in accordance with the terms
hereof) until (i) the date on which such security has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (ii) the date on which such security is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act (or any successor
rule thereof) or would be saleable pursuant to Rule 144(k) under the Securities
Act had it not been held by, or had it never been held by, an affiliate of the
Company.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
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IN WITNESS WHEREOF, said IXC Communications, Inc., has caused this
Certificate of Designation to be signed by John J. Willingham, its Senior Vice
President and Chief Financial Officer, this 31st day of March, 1997.
IXC COMMUNICATIONS, INC.,
by /s/ John J. Willingham
----------------------------------
Name: John J. Willingham
Title: Senior Vice President
and Chief Financial Officer
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<PAGE> 66
EXHIBIT A
FORM OF CONVERTIBLE PREFERRED STOCK
FACE OF SECURITY
[THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND THE COMMON STOCK
INTO WHICH THIS SECURITY IS CONVERTIBLE) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY (OR THE COMMON
STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) 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 (AND OF THE COMMON STOCK INTO WHICH THIS SECURITY IS
CONVERTIBLE) AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND
THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (4) TO THE COMPANY OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES.]*
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK,
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OF PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT 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
__________________________________
* Subject to removal upon registration under the Securities Act of 1933 or
otherwise when the security shall no longer be a restricted security.
<PAGE> 67
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST
HEREIN.]**
[TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
CERTIFICATE OF DESIGNATION REFERRED TO BELOW.]**
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES
WITH THE FOREGOING RESTRICTIONS.
Number of Shares of Convertible
Certificate Number Preferred Stock
[ ] [ ]
CUSIP NO.: [ ]
7 1/4% Junior Convertible Preferred Stock Due 2007
(par value $0.01) (liquidation preference $100
per share of Convertible Preferred Stock)
of
IXC Communications, Inc.
IXC Communications, Inc., a Delaware corporation (the "Company"), hereby
certifies that [ ] (the "Holder") is the registered owner of fully paid
and non-assessable preferred securities of the Company designated the 7 1/4%
Junior Convertible Preferred Stock Due 2007 (par value $0.01) (liquidation
preference $100 per share of Convertible Preferred Stock) (the "Convertible
Preferred Stock"). The shares of Convertible Preferred Stock are transferable
on the books and records of the Registrar, in person or by a duly authorized
attorney, upon surrender of this certificate duly endorsed and in proper form
for transfer. The designation, rights, privileges,
__________________________________
** Subject to removal if not a global security.
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<PAGE> 68
restrictions, preferences and other terms and provisions of the Convertible
Preferred Stock represented hereby are issued and shall in all respects be
subject to the provisions of the Certificate of Designation dated March [ ],
1997, as the same may be amended from time to time (the "Certificate of
Designation"). Capitalized terms used herein but not defined shall have the
meaning given them in the Certificate of Designation. The Company will provide
a copy of the Certificate of Designation to a Holder without charge upon
written request to the Company at its principal place of business.
Reference is hereby made to select provisions of the Convertible Preferred
Stock set forth on the reverse hereof, and to the Certificate of Designation,
which select provisions and the Certificate of Designation shall for all
purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the Certificate of
Designation and is entitled to the benefits thereunder.
Unless the Transfer Agent's Certificate of Authentication hereon has been
properly executed, these shares of Convertible Preferred Stock shall not be
entitled to any benefit under the Certificate of Designation or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has executed this certificate this [ ] day
of [ ], [ ].
IXC COMMUNICATIONS, INC.,
By:
-------------------------------
Name:
Title:
[Seal]
By:
-------------------------------
Name:
Title:
3
<PAGE> 69
TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Convertible Preferred Stock referred to in the within
mentioned Certificate of Designation.
Dated: [ ], [ ]
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
as Transfer Agent,
By:
---------------------------
Authorized Signatory
4
<PAGE> 70
REVERSE OF SECURITY
Dividends on each share of Convertible Preferred Stock shall be payable at a
rate per annum set forth in the face hereof or as provided in the Certificate
of Designation (including Additional Dividends).
The shares of Convertible Preferred Stock shall be redeemable as provided in
the Certificate of Designation. The shares of Convertible Preferred Stock
shall be convertible into the Company's Common Stock in the manner and
according to the terms set forth in the Certificate of Designation.
As required under Delaware law, the Company shall furnish to any Holder upon
request and without charge, a full summary statement of the designations,
voting rights preferences, limitations and special rights of the shares of each
class or series authorized to be issued by the Company so far as they have been
fixed and determined and the authority of the Board of Directors to fix and
determine the designations, voting rights, preferences, limitations and special
rights of the class and series of shares of the Company.
5
<PAGE> 71
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of
Convertible Preferred Stock evidenced hereby to:
------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
agent to transfer the shares of Convertible Preferred Stock evidenced hereby on
the books of the Transfer Agent and Registrar. The agent may substitute
another to act for him or her.
Date:
------------------------------
Signature:
-------------------------
(Sign exactly as your name appears on the other side of this Convertible
Preferred Stock Certificate)
Signature Guarantee:***
------------------------------------------------------
- ------------------------
*** (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.)
6
<PAGE> 72
EXHIBIT B
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible, Preferred Stock)
The undersigned hereby irrevocably elects to convert (the "Conversion") shares
of 7 1/4% Junior Convertible Preferred Stock (the "Convertible Preferred
Stock"), represented by stock certificate No(s). _______________ (the
"Convertible Preferred Stock Certificates") into shares of common stock
("Common Stock") of IXC Communications, Inc. (the "Company") according to the
conditions of the Certificate of Designations, Preferences and Rights of the
Convertible Preferred Stock (the "Certificate of Designation"), as of the date
written below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates. No fee will be
charged to the holder for any conversion, except for transfer taxes, if any. A
copy of each Convertible Preferred Stock Certificate is attached hereto (or
evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Convertible Preferred Stock shall be made pursuant to
registration of the Common Stock under the Securities Act of 1933 (the "Act"),
or pursuant to any exemption from registration under the Act.
Any holder, upon the exercise of its conversion rights in accordance with the
terms of the Certificate of Designation and the Convertible Preferred Stock,
agrees to be bound by the terms of the Registration Rights Agreement.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Certificate of Designation.
Date of Conversion: ________________________
Applicable Conversion Price: _______________
Number of shares of Convertible
Preferred Stock to be Converted: ____________
<PAGE> 73
Number of shares of
Common Stock to be Issued: _________________
Signature: _________________________________
Name: ______________________________________
Address:** _________________________________
Fax No.: ___________________________________
- -----------------------------
* The Company is not required to issue shares of Common Stock until the
original Convertible Preferred Stock Certificate(s) (or evidence of loss,
theft or destruction thereof) to be converted are received by the Company or
its Transfer Agent. The Company shall issue and deliver shares of Common
Stock to an overnight courier not later than three business days following
receipt of the original Convertible Preferred Stock Certificate(s) to be
converted.
** Address where shares of Common Stock and any other payments or certificates
shall be sent by the Company.
2
<PAGE> 74
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF CONVERTIBLE PREFERRED STOCK
Re: 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "Convertible
Preferred Stock") of IXC Communications, Inc. (the "Company")
This Certificate relates to ____ shares of Convertible Preferred Stock held
in [ ] */ book-entry or [ ] */ definitive form by _______________ (the
"Transferor").
The Transferor*:
[ ] has requested the Transfer Agent by written order to deliver in exchange
for its beneficial interest in the Convertible Preferred Stock held by the
depository shares of Convertible Preferred Stock in definitive, registered form
equal to its beneficial interest in such Convertible Preferred Stock (or the
portion thereof indicated above); or
[ ] has requested the Transfer Agent by written order to exchange or
register the transfer of Convertible Preferred Stock.
In connection with such request and in respect of such Convertible Preferred
Stock, the Transferor does hereby certify that the Transferor is familiar with
the Certificate of Designation relating to the above captioned Convertible
Preferred Stock and that the transfer of this Convertible Preferred Stock does
not require registration under the Securities Act of 1933 (the "Securities
Act") because */:
[ ] Such Convertible Preferred Stock is being acquired for the Transferor's
own account without transfer.
[ ] Such Convertible Preferred Stock is being transferred to the Company.
[ ] Such Convertible Preferred Stock 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 so requests and together
__________________________________
*/Please check applicable box.
<PAGE> 75
with a certification in substantially the form of Exhibit E to the
Certificate of Designation).
[ ] Such Convertible Preferred Stock is being transferred to an accredited
investor within the meaning of Rule 501(a)(1), (2), (3), (4), (5), (6) or (7)
under the Securities Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (together with a certification
in substantially the form of Exhibit D to the Certificate of Designation).
[ ] Such Convertible Preferred Stock 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 so requests).
-------------------------------
[INSERT NAME OF TRANSFEROR]
Date: By
------------------------------- -------------------------------
2
<PAGE> 76
EXHIBIT D
FORM OF CERTIFICATE
TO BE DELIVERED BY ACCREDITED INVESTORS
_____________, _____
ChaseMellon Shareholder Services, L.L.C.
Attention: [ ]
Ladies and Gentlemen:
In connection with our proposed purchase of certain 7 1/4% Junior
Convertible Preferred Stock Due 2007 (the "Convertible Preferred Stock"), of
IXC Communications, Inc., a Delaware corporation (the "Company"), we represent
that:
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1),(2),(3),(4),(5),(6) or (7) under the Securities Act of 1933 (the
"Securities Act") (an "Accredited Investor"), or an entity in which all of
the equity owners are Accredited Investors;
(ii) any purchase of Convertible Preferred Stock will be for our own account
or for the account of one or more other Accredited Investors as to which we
exercise sole investment discretion;
(iii) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of purchasing
Convertible Preferred Stock and we and any accounts for which we are acting
are able to bear the economic risks of our or their investment;
(iv) we are not acquiring Convertible Preferred Stock with a view to any
distribution thereof 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; provided that the disposition of our property and
the property of any accounts for which we are acting as fiduciary shall
remain at all times without our control; and
(v) we acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such questions of
representatives of the Company and receive answers
<PAGE> 77
thereto, as we deem necessary in connection with our decision to purchase
Convertible Preferred Stock.
We understand that the Convertible Preferred Stock has not been registered
under the Securities Act, and we agree, on our own behalf and on behalf of each
account for which we acquire any Convertible Preferred Stock, that such
Convertible Preferred Stock may be offered, resold, pledged or otherwise
transferred only (i) to a person whom we reasonably believe to be a qualified
institutional buyer (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, in a transaction meeting the
requirements of Rule 144 under the Securities Act, outside the United States to
a foreign person in a transaction meeting the requirements of Rule 904 under
the Securities Act (and, unless such transfer occurs in a transaction meeting
the requirements of Rule 144A, based upon an opinion of counsel, if the Company
so requests), (ii) to the Company or (iii) 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. We understand that the registrar will not be required to accept
for registration of transfer any shares of Convertible Preferred Stock, except
upon presentation of evidence satisfactory to the Company that the foregoing
restrictions on transfer have been complied with. We further understand that
the Convertible Preferred Stock purchased by us will bear a legend reflecting
the substance of this paragraph. We further agree to provide to any person
acquiring any of the Convertible Preferred Stock from us a notice advising such
person that resales of the Convertible Preferred Stock are restricted as stated
herein.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgements and agreements set forth herein, and we agree
to notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
2
<PAGE> 78
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
Very truly yours,
-------------------------------
(Name of Transferee)
By:
---------------------------
Name:
Title:
Address:
3
<PAGE> 79
EXHIBIT E
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S
__________, ____
ChaseMellon Shareholder Services, L.L.C.
Attention: [ ]
Ladies and Gentlemen:
In connection with our proposed sale of certain 7 1/4% Junior Convertible
Preferred Stock Due 2007 (the "Convertible Preferred Stock") of IXC
Communications, Inc., a Delaware corporation ("the "Company"), we represent
that:
(i) the offer of the Convertible Preferred Stock was not made to a person
in the United States;
(ii) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(iii) no directed selling efforts have been made by us in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act of 1933 (the "Securities Act"), as
applicable; and
(iv) the transaction is not part of a plan or scheme by us to evade the
registration requirements of the Securities Act.
You and the Company are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with
<PAGE> 80
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
----------------------------------
(Name of Transferor)
By:
-------------------------------
Name:
Title:
Address:
2
<PAGE> 81
IXC COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF 12 1/2% JUNIOR
EXCHANGEABLE PREFERRED STOCK DUE 2009 AND 12 1/2% SERIES B
JUNIOR EXCHANGEABLE PREFERRED STOCK DUE 2009 AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
IXC Communications, Inc. (the "Company"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that (i) pursuant to authority conferred upon the
board of directors of the Company (the "Board of Directors") by its Restated
Certificate of Incorporation (hereinafter referred to as the "Restated
Certificate of Incorporation"), and pursuant to the provisions of Sections
141(c)(2) and 151 of the General Corporation Law of the State of Delaware, said
Board of Directors is authorized to issue Preferred Stock of the Company in one
or more series and has authorized a committee of the Board of Directors (the
"Placement Committee") to adopt the resolution set forth below and (ii) the
Placement Committee duly approved and adopted the following resolution on August
14, 1997 (the "Resolution"):
RESOLVED that, pursuant to the authority vested in the Board
of Directors by its Restated Certificate of Incorporation, and the
authority vested by such Board of Directors in a committee of the Board
(the "Placement Committee"), all the members of which are members of
such Board, the Placement Committee does hereby create, authorize and
provide for the issuance of 12 1/2% Junior Exchangeable Preferred Stock
Due 2009, par value $0.01 per share, with a stated value of $1000 per
share, initially consisting of up to 450,000 shares and 12 1/2% Series
B Junior Exchangeable Preferred Stock Due 2009, par value $0.01 per
share, with a stated value of $1,000
<PAGE> 82
2
per share, initially consisting of up to 450,000 shares (collectively,
the "Exchangeable Preferred Stock") having the designation,
preferences, relative, participating, optional and other special rights
and the qualifications, limitations and restrictions thereof that are
set forth in the Restated Certificate of Incorporation and in this
Resolution as follows:
(a) Designation. There is hereby created out of the authorized
and unissued shares of Preferred Stock of the Company (i) a series of Preferred
Stock designated as the "12 1/2% Junior Exchangeable Preferred Stock Due 2009"
(the "Initial Exchangeable Preferred Stock") and (ii) a series of Preferred
Stock designated as the "12 1/2% Series B Junior Exchangeable Preferred Stock
Due 2009" (the "Series B Stock"). The number of shares constituting the Initial
Exchangeable Preferred Stock shall be 450,000, and the number of shares
constituting the Series B Stock shall be 450,000. The Initial Exchangeable
Preferred Stock and the Series B Stock are referred to as the Exchangeable
Preferred Stock. The liquidation preference of the Exchangeable Preferred Stock
shall be $1000 per share (the "Liquidation Preference").
(b) Rank. The Exchangeable Preferred Stock will, with respect
to dividend rights and rights on liquidation, winding-up and dissolution, rank
(i) senior to all classes of common stock and to each other class of Capital
Stock or series of Preferred Stock established hereafter by the Board of
Directors of the Company, the terms of which do not expressly provide that it
ranks senior to, or on a parity with, the Exchangeable Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution of the
Company (collectively referred to, together with all classes of common stock of
the Company, as "Junior Stock"); (ii) on a parity with each share of Convertible
Preferred Stock now or hereafter outstanding and on a parity with each other
class of Capital Stock or series of Preferred Stock established hereafter by the
Board of Directors of the
<PAGE> 83
3
Company, the terms of which expressly provide that such class or series will
rank on a parity with the Exchangeable Preferred Stock as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively referred to as
"Parity Stock"); and (iii) junior to each share of Series 3 Preferred Stock now
or hereafter outstanding and junior to each class of Capital Stock or series of
Preferred Stock established hereafter by the Board of Directors of the Company,
the terms of which hereafter established classes or series expressly provide
that such class or series will rank senior to the Exchangeable Preferred Stock
as to dividend rights or rights on liquidation, winding-up and dissolution of
the Company (collectively referred to as "Senior Stock"). All claims of the
holders of the Exchangeable Preferred Stock, including claims with respect to
dividend payments, redemption payments, mandatory repurchase payments or rights
upon liquidation, winding-up or dissolution, shall rank junior to the claims of
the holders of any debt of the Company and all other creditors of the Company.
(c) Dividends. (i) Holders of the outstanding shares of
Exchangeable Preferred Stock will be entitled to receive, when, as and if
declared by the Board of Directors of the Company, out of funds legally
available therefor, cumulative preferential dividends on each share of the
Exchangeable Preferred Stock at a rate per annum equal to 12 1/2% of the
Liquidation Preference of such share payable quarterly (each such quarterly
period being herein called a "Dividend Period"). In addition to the dividends
described in the preceding sentence, holders of outstanding shares of
Exchangeable Preferred Stock will be entitled to additional dividends (the
"Additional Dividends"), when, as and if declared by the Board of Directors of
the Company, out of funds legally available therefor, with respect to the shares
of Exchangeable Preferred Stock, which Additional Dividends shall accrue as
follows if any of the following events occur (each such event in clauses (A),
(B) and (C) below being herein called a "Registration Default"): (A) if by
October 6, 1997, neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the SEC; (B) if by January 19, 1998,
neither the Registered Exchange Offer is consummated nor the Shelf
<PAGE> 84
4
Registration Statement declared effective by the SEC; or (C) if after January
19, 1998 and after either the Exchange Offer Registration Statement or the Shelf
Registration Statement is declared effective, such Registration Statement
thereafter ceases to be effective (in each case except as permitted below) in
connection with resales of Exchangeable Preferred Stock in accordance with and
during the periods specified herein.
Additional Dividends shall accrue on the shares of
Exchangeable Preferred Stock from and including the date on which any such
Registration Default shall occur, to but excluding the date on which all such
Registration Defaults have been cured, at a rate of .50% per annum.
A Registration Default referred to in clause (C) of paragraph
(c)(i) shall be deemed not to have occurred and be continuing in relation to a
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to the Registration Statement to incorporate annual audited financial
information with respect to the Company where such post-effective amendment is
not yet effective and needs to be declared effective to permit Holders to use
the related prospectus or (y) other material events with respect to the Company
that would need to be described in the Registration Statement or the related
prospectus and (ii) in the case of clause (y), the Company proceeds promptly and
in good faith to amend or supplement the Registration Statement and related
prospectus to describe such events unless the Company has determined in good
faith that there are material legal or commercial impediments in doing so;
provided, however, that in any case if such Registration Default occurs for a
continuous period in excess of 45 days, Additional Dividends shall be payable in
accordance with the immediately preceding paragraphs of this paragraph (c)(i)
from the day such Registration Default initially occurs until such Registration
Default is cured.
Any amounts of Additional Dividends due pursuant to clauses
(A), (B) or (C) of this paragraph (c)(i) or pursuant to the proviso contained in
the preceding sentence will be payable on the regular dividend payment dates
with
<PAGE> 85
5
respect to the Exchangeable Preferred Stock and on the same terms and
conditions and subject to the same limitations as pertain at such time for the
payment of regular dividends. The amount of Additional Dividends will be
determined by multiplying the applicable Additional Dividends rate by the
aggregate liquidation preference of the outstanding shares of Exchangeable
Preferred Stock, multiplied by a fraction, the numerator of which is the number
of days such Additional Dividend rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months),
and the denominator of which is 360.
All dividends on the Exchangeable Preferred Stock, including
Additional Dividends, to the extent accrued, shall be cumulative, whether or not
earned or declared, on a daily basis from the Issue Date or, in the case of
additional shares of Exchangeable Preferred Stock issued in payment of a
dividend, from the date of issuance of such additional shares of Exchangeable
Preferred Stock, and shall be payable quarterly in arrears on each February 15,
May 15, August 15 and November 15 (each, a "Dividend Payment Date"), commencing
on November 15, 1997, to holders of record on the February 1, May 1, August 1
and November 1 immediately preceding the relevant Dividend Payment Date. Any
dividend on the Exchangeable Preferred Stock payable pursuant to this paragraph
(c)(i) on or prior to February 15, 2001 shall be, at the option of the Company,
payable (1) in cash or (2) through the issuance of a number of additional shares
(including fractional shares) of Exchangeable Preferred Stock (the "Additional
Shares") equal to the dividend amount divided by the Liquidation Preference of
such Additional Shares. With respect to dividends accrued after February 15,
2001, all dividends shall be payable in cash.
Any dividend accruing after February 15, 2001 that is not paid
in cash on the relevant Dividend Payment Date shall accrue interest at a rate
per annum equal to the then applicable dividend rate per annum from such
Dividend Payment Date to the date of payment of such dividend. Such interest, if
any, shall be payable in cash on each Dividend Payment Date. Any accrued
interest not paid on a Dividend Payment Date shall accrue interest on such
interest pursuant to this paragraph. Any references herein to the payment of
<PAGE> 86
6
accrued and unpaid dividends shall be deemed to include any such interest.
(ii) In the event the Company notifies the holders of
Exchangeable Preferred Stock of its election not to make a Change of Control
Offer (as defined in paragraph (h)(i)) pursuant to paragraph (h)(iii), then,
within 60 days of the occurrence of the applicable Change of Control, holders of
a majority of the outstanding shares of the Exchangeable Preferred Stock will
designate an Independent Financial Advisor to determine, within 20 days of such
designation, in the opinion of such firm, the appropriate dividend rate that the
Exchangeable Preferred Stock should bear so that, after such reset, the
Exchangeable Preferred Stock would have a market value of 101% of the
Liquidation Preference; provided, however, that no such reset shall be required
to be made if such Independent Financial Advisor determines that the
Exchangeable Preferred Stock has a market value of 101% or greater. If within 5
days of the designation of an Independent Financial Advisor by the Holders, the
Company determines that such Independent Financial Advisor is reasonably
unacceptable to the Company, the Company shall designate a second Independent
Financial Advisor to determine, within 15 days of such designation, in its
opinion, such an appropriate reset dividend rate for the Exchangeable Preferred
Stock. In the event that the two Independent Financial Advisors cannot agree,
within 25 days of the designation of an Independent Financial Advisor by the
Holders of a majority of the outstanding shares of the Exchangeable Preferred
Stock, on the appropriate reset dividend rate, the two Independent Financial
Advisors shall, within 10 days of such 25th day, designate a third Independent
Financial Advisor, which, within 15 days of designation, will determine, in its
opinion, an appropriate reset dividend rate which is between the two rates
selected by the first two Independent Financial Advisors. Upon the determination
of the reset rate, the Exchangeable Preferred Stock shall accrue and accumulate
dividends at the reset rate as of the date of occurrence of the Change of
Control; provided, however, that the reset rate shall in no event be less than
12 1/2% per annum or greater than 15% per annum. The reasonable fees and
expenses including reasonable fees and expenses of legal counsel, if any, and
customary
<PAGE> 87
7
indemnification of each of the three above-referenced Independent Financial
Advisors, shall be borne by the Company.
(iii) All dividends paid with respect to shares of the
Exchangeable Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata
to the holders entitled thereto.
(iv) No dividend may be declared or paid or set apart for the
payment of dividends by the Company on any Parity Stock for any period unless
full cumulative dividends in respect of each Dividend Period ending on or before
such period shall have been or contemporaneously are declared and paid (or are
deemed declared and paid) in full or declared and, if payable in cash, a sum in
cash sufficient for such payment set apart for such payment on the Exchangeable
Preferred Stock. If full dividends are not so paid, the Exchangeable Preferred
Stock will share dividends pro rata with the Parity Stock.
(v) The Company will not (A) declare, pay or set apart funds
for the payment of any dividend or other distribution with respect to any Junior
Stock or (B) redeem, purchase or otherwise acquire for consideration any Junior
Stock through a sinking fund or otherwise, unless (1) all accrued and unpaid
dividends with respect to the Exchangeable Preferred Stock and any Parity Stock
at the time such dividends are payable have been paid or funds have been set
apart for payment of such dividends and (2) sufficient funds have been paid or
set apart for the payment of the dividend for the current dividend period with
respect to the Exchangeable Preferred Stock and any Parity Stock. As used
herein, the term "dividend" does not include dividends payable solely in shares
of Junior Stock on Junior Stock or in options, warrants or rights to holders of
Junior Stock to subscribe or purchase any Junior Stock.
(vi) Dividends on account of arrears for any past Dividend
Period and dividends in connection with any optional redemption may be declared
and paid at any time, without reference to any regular Dividend Payment Date, to
holders of record on such date, not more than 45 days prior
<PAGE> 88
8
to the payment thereof, as may be fixed by the Board of Directors of the
Company.
(vii) Dividends payable on the Exchangeable Preferred Stock
for any period other than a Dividend Period shall be computed on the basis of a
360-day consisting year of twelve 30-day months and the actual number of days
elapsed in the period for which payable. Dividends payable on the Exchangeable
Preferred Stock for a full Dividend Period will be computed by dividing the per
annum dividend rate by four.
(d) Liquidation Preference. (i) Upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Company, holders of
Exchangeable Preferred Stock will be entitled to be paid, out of the assets of
the Company available for distribution to its stockholders, the Liquidation
Preference of the outstanding shares of Exchangeable Preferred Stock, plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends (whether or not earned or declared and including Additional Dividends,
if any,) thereon to the date fixed for liquidation, dissolution or winding-up
(including an amount equal to a prorated dividend for the period from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up that would have been payable had the Exchangeable Preferred Stock
been the subject of an Optional Redemption on such date) before any distribution
is made on any Junior Stock. If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
the Exchangeable Preferred Stock and all Parity Stock are not paid in full, the
Exchangeable Preferred Stock and the Parity Stock will share equally and ratably
(in proportion to the respective amounts that would be payable on such shares of
Exchangeable Preferred Stock and the Parity Stock, respectively, if all amounts
payable thereon had been paid in full) in any distribution of assets of the
Company to which each is entitled. After payment of the full amount of the
Liquidation Preference of the outstanding shares of Exchangeable Preferred Stock
(and, if applicable, an amount equal to a prorated dividend), the holders of
shares of Exchangeable Preferred Stock will not be entitled to any
<PAGE> 89
9
further participation in any distribution of assets of the Company.
(ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
other entities shall be deemed to be a liquidation, dissolution or winding-up of
the Company.
(e) Redemption. (i) Optional Redemption. (A) Except as set
forth in clause (B) below, the Exchangeable Preferred Stock shall not be
redeemable at the option of the Company prior to August 15, 2002. On or after
August 15, 2002, each share of the Exchangeable Preferred Stock may be redeemed
(subject to the legal availability of funds therefor) at any time, in whole or
in part, at the option of the Company, at the redemption prices (expressed as a
percentage of the Liquidation Preference of such share) set forth below, plus,
without duplication, an amount in cash equal to all accrued and unpaid dividends
to the date fixed for redemption (the "Optional Redemption Date") (including an
amount in cash equal to a prorated dividend for the period from the Dividend
Payment Date immediately prior to the Optional Redemption Date) (the "Optional
Redemption Price"), if redeemed during the 12-month period beginning August 15
of each of the years set forth below:
<TABLE>
<CAPTION>
Year in which redemption
occurs Percentage
------ ----------
<S> <C>
2002.................................. 106.250%
2003.................................. 105.000
2004.................................. 103.750
2005.................................. 102.500
2006.................................. 101.250
2007 and thereafter................... 100.000
</TABLE>
(B) At any time and from time to time prior to August 15,
2000, the Company may redeem in the aggregate up to 35% of the outstanding
shares of Exchangeable Preferred
<PAGE> 90
10
Stock with the proceeds of one or more Public Equity Offerings at a redemption
price (expressed as a percentage of the Liquidation Preference thereof) of
112.500% plus accrued and unpaid dividends, if any, to the redemption date
(including an amount in cash equal to a prorated dividend for any partial
dividend period); provided, however, that at least $195 million aggregate
Liquidation Preference of the Exchangeable Preferred Stock remains outstanding
after each such redemption.
(C) In the event of a redemption of only a portion of the then
outstanding shares of Exchangeable Preferred Stock, the Company shall effect
such redemption on a pro rata basis, except that the Company may redeem all of
the shares held by holders of fewer than 100 shares (or all of the shares held
by holders who would hold less than 100 shares as a result of such redemption),
as may be determined by the Company.
(ii) Mandatory Redemption. Each share of the Exchangeable
Preferred Stock (if not earlier redeemed or converted) shall be subject to
mandatory redemption in whole (to the extent of lawfully available funds
therefor) on August 15, 2009 (the "Mandatory Redemption Date") at a price equal
to 100% of the Liquidation Preference of such share, plus, without duplication,
all accrued and unpaid dividends thereon (including an amount equal to a
prorated dividend thereon from the immediately preceding Dividend Payment Date
to the Mandatory Redemption Date), if any, to the Mandatory Redemption Date (the
"Mandatory Redemption Price").
(iii) Procedure for Redemption. (A) On and after the Optional
Redemption Date or the Mandatory Redemption Date, as the case may be (the
"Redemption Date"), unless the Company defaults in the payment of the applicable
redemption price, dividends will cease to accumulate on shares of Exchangeable
Preferred Stock called for redemption and all rights of holders of such shares
will terminate except for the right to receive the Optional Redemption Price or
the Mandatory Redemption Price, as the case may be, without interest; provided,
however, that if a notice of redemption shall have been given as provided in
subparagraph (iii)(B) and the funds necessary for redemption (including an
amount
<PAGE> 91
11
in respect of all dividends that will accrue to the Redemption Date) shall have
been segregated and irrevocably set apart by the Company, in trust for the
benefit of the holders of the shares called for redemption, then dividends shall
cease to accumulate on the Redemption Date on the shares to be redeemed and, at
the close of business on the day on which such funds are segregated and set
apart, the holders of the shares to be redeemed shall, with respect to the
shares to be redeemed, cease to be stockholders of the Company and shall be
entitled only to receive the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be, for such shares without interest from the
Redemption Date.
(B) With respect to a redemption pursuant to paragraph (e)(i)
or (e)(ii), the Company will send a written notice of redemption by first class
mail to each holder of record of shares of Exchangeable Preferred Stock, not
fewer than 30 days nor more than 60 days prior to the Redemption Date at its
registered address (the "Redemption Notice"); provided, however, that no failure
to give such notice nor any deficiency therein shall affect the validity of the
procedure for the redemption of any shares of Exchangeable Preferred Stock to be
redeemed except as to the holder or holders to whom the Company has failed to
give said notice or except as to the holder or holders whose notice was
defective. The Redemption Notice shall state:
(1) whether the redemption is pursuant to
paragraph (e)(i) or (e)(ii) hereof;
(2) the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be;
(3) whether all or less than all the outstanding shares of the
Exchangeable Preferred Stock are to be redeemed and the total number of
shares of the Exchangeable Preferred Stock being redeemed;
(4) the Redemption Date;
(5) that the holder is to surrender to the Company, in the
manner, at the place or places and at
<PAGE> 92
12
the price designated, his certificate or certificates representing the
shares of Exchangeable Preferred Stock to be redeemed; and
(6) that dividends on the shares of the Exchangeable Preferred
Stock to be redeemed shall cease to accumulate on such Redemption Date
unless the Company defaults in the payment of the Optional Redemption
Price or the Mandatory Redemption Price, as
the case may be.
(C) Each holder of Exchangeable Preferred Stock shall
surrender the certificate or certificates representing such shares of
Exchangeable Preferred Stock to the Company, duly endorsed (or otherwise in
proper form for transfer, as determined by the Company), in the manner and at
the place designated in the Redemption Notice, and on the Redemption Date the
full Optional Redemption Price or Mandatory Redemption Price, as the case may
be, for such shares shall be payable in cash to the person whose name appears on
such certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(f) Voting Rights. (i) The holders of Exchangeable Preferred
Stock, except as otherwise required under Delaware law or as set forth in
paragraphs (ii) and (iii) below, shall not be entitled to vote on any matter
required or permitted to be voted upon by the stockholders of the Company.
(ii) (A) If (1) dividends on the Exchangeable Preferred Stock
are in arrears and unpaid for six or more Dividend Periods (whether or not
consecutive) (a "Dividend Default"); (2) the Company fails to redeem the
Exchangeable Preferred Stock on August 15, 2009, or fails to otherwise discharge
any redemption obligation with respect to the Exchangeable Preferred Stock; (3)
a breach or violation of any of the provisions set forth under paragraph (l)
(Certain Additional Provisions) occurs and the breach or violation continues for
a period of 30 days or more after the Company
<PAGE> 93
13
receives notice thereof specifying the default from the holders of at least 25%
of the shares of Exchangeable Preferred Stock then outstanding; or (4) the
Company fails to pay at final maturity (giving effect to any applicable grace
period) the principal amount of any Indebtedness of the Company or any
Significant Subsidiary (other than any Permitted PSINet Non-Recourse Debt) or
the final maturity of any such Indebtedness is accelerated because of a default
and the total amount of such Indebtedness unpaid or accelerated exceeds $5
million, then the number of directors constituting the Board of Directors of the
Company will, subject to paragraph (f)(ii)(E), be increased by two and the
Holders of the then outstanding shares of Exchangeable Preferred Stock (together
with the holders of Parity Stock upon which like rights have been conferred and
are exercisable), voting separately and as a class, shall have the right and
power to elect such two additional directors. Each such event described in
clauses (1),(2),(3) or (4) above is a "Voting Rights Triggering Event".
(B) The voting rights set forth in paragraph (f)(ii)(A) above
will continue until such time as (x) in the case of a Dividend Default, all
dividends in arrears on the Exchangeable Preferred Stock are paid in full in
cash or (y) in all other cases, any failure, breach or default giving rise to
such Voting Rights Triggering Event is remedied or waived by the Holders of at
least a majority of the outstanding shares of Exchangeable Preferred Stock then
outstanding, at which time the term of any directors elected pursuant to the
provisions of paragraph (f)(ii)(A) above (subject to the right of holders of any
other preferred stock to elect directors) shall terminate forthwith and the
number of directors constituting the Board of Directors shall be decreased by
two (until the occurrence of any subsequent Voting Rights Triggering Event). At
any time after voting power to elect directors shall have become vested and be
continuing in the holders of Exchangeable Preferred Stock (together with the
holders of Parity Stock upon which like rights have been conferred and are
exercisable) pursuant to paragraph (f)(ii)(A) hereof, or if vacancies shall
exist in the offices of directors elected by such holders, a proper officer of
the Company may, and upon the written request of the holders of record of at
least 25%
<PAGE> 94
14
of the shares of Exchangeable Preferred Stock then outstanding or the holders of
25% of the shares of Parity Stock then outstanding upon which like rights have
been confirmed and are exercisable addressed to the secretary of the Company
shall, call a special meeting of the Holders of Exchangeable Preferred Stock and
the holders of such Parity Stock for the purpose of electing the directors which
such holders are entitled to elect pursuant to the terms hereof; provided,
however, that no such special meeting shall be called if the next annual meeting
of stockholders of the Company is to be held within 60 days after the voting
power to elect directors shall have become vested, in which case such meeting
shall be deemed to have been called for such next annual meeting. If such
meeting shall not be called by a proper officer of the Company within 20 days
after personal service to the secretary of the Company at its principal
executive offices, then the Holders of record of at least 25% of the outstanding
shares of Exchangeable Preferred Stock or the holders of 25% of the shares of
Parity Stock upon which like rights have been confirmed and are exercisable may
designate in writing one of their members to call such meeting at the expense of
the Company, and such meeting may be called by the person so designated upon the
notice required for the annual meetings of stockholders of the Company and shall
be held at the place for holding the annual meetings of stockholders. Any holder
of Exchangeable Preferred Stock or such Parity Stock so designated shall have,
and the Company shall provide, access to the lists of holders of Exchangeable
Preferred Stock and the holders of such Parity Stock to be called pursuant to
the provisions hereof. If no special meeting of the Holders of Exchangeable
Preferred Stock and the holders of such Parity Stock is called as provided in
this paragraph (f)(ii), then such meeting shall be deemed to have been called
for the next annual meeting of stockholders of the Company or special meeting of
the holders of any other capital stock of the Company.
(C) At any meeting held for the purposes of electing directors
at which the Holders of Exchangeable Preferred Stock (together with the holders
of Parity Stock upon which like rights have been conferred and are exercisable)
shall have the right, voting together as a
<PAGE> 95
15
separate class, to elect directors as aforesaid, the presence in person or by
proxy of the holders of at least a majority in voting power of the outstanding
shares of Exchangeable Preferred Stock (and such Parity Stock) shall be required
to constitute a quorum thereof.
(D) Any vacancy occurring in the office of a director elected
by the Holders of Exchangeable Preferred Stock (and such Parity Stock) may be
filled by the remaining director elected by the Holders of Exchangeable
Preferred Stock (and such Parity Stock) unless and until such vacancy shall be
filled by the Holders of Exchangeable Preferred Stock (and such Parity Stock).
(E) In the event that an event occurs at any time which
results in the holders of any Parity Stock having voting rights to elect
directors to the Board of Directors, holders of Exchangeable Preferred Stock
shall, whether or not such event otherwise constitutes a Voting Rights
Triggering Event pursuant to paragraph (f)(ii)(A), have the voting rights set
forth in paragraphs (f)(ii)(A) and (f)(ii)(B), and such event shall be deemed
(for purposes of this paragraph (f) only) to constitute a Voting Rights
Triggering Event. In addition, in the event that during a time in which
directors elected by the holders of Exchangeable Preferred Stock pursuant to
this paragraph (f)(ii) are serving on the Board of Directors ("Previously-
Elected Directors") an event occurs which results in holders of Parity Stock
having voting rights to elect (voting together with the holders of Exchangeable
Preferred Stock) at least two directors to the Board of Directors, the holders
of Exchangeable Preferred Stock shall vote together with the holders of such
Parity Stock to elect such new directors, and upon the election of the new
directors the Previously-Elected Directors shall (unless such Previously-
Elected Directors are elected as new directors) cease to serve on the Board of
Directors.
(iii) (A) So long as any shares of the Exchangeable Preferred
Stock are outstanding, the Company will not authorize, create or increase the
authorized amount of any class or series of Senior Stock without the affirmative
vote or consent of holders of at least
<PAGE> 96
16
two-thirds of the shares of Exchangeable Preferred Stock then outstanding,
voting or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting (except that no such vote or consent shall be required for the issuance
of additional shares of Series 3 Preferred Stock to be paid as dividends on such
Series 3 Preferred Stock pursuant to the terms of such Series 3 Preferred
Stock).
(B) So long as any shares of the Exchangeable Preferred Stock
are outstanding, the Company will not amend this Certificate of Designation so
as to affect adversely the specified rights, preferences, privileges or voting
rights of Holders of shares of Exchangeable Preferred Stock or to authorize the
issuance of any additional shares of Exchangeable Preferred Stock (except to
authorize the issuance of additional shares of Exchangeable Preferred Stock to
be paid as dividends on the Exchangeable Preferred Stock, for which no consent
shall be necessary) without the affirmative vote or consent of Holders of at
least a majority of the issued and outstanding shares of Exchangeable Preferred
Stock, voting or consenting, as the case may be, as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting.
(C) Except as set forth in paragraph (f)(iii)(A) or (B) above,
(x) the creation, authorization or issuance of any shares of any Junior Stock,
Parity Stock or Senior Stock, including the designation of a series of
Exchangeable Preferred Stock, or (y) the increase or decrease in the amount of
authorized Capital Stock of any class, including Preferred Stock, shall not
require the consent of Holders of Exchangeable Preferred Stock and shall not be
deemed to affect adversely the rights, preferences, privileges or voting rights
of shares of Exchangeable Preferred Stock.
(D) Prior to the exchange of Exchangeable Preferred Stock for
Exchange Debentures, the Company shall not amend or modify the Exchange
Indenture (except as expressly provided therein in respect of amendments without
the consent of holders of Exchange Debentures) without
<PAGE> 97
17
the affirmative vote or consent of holders of at least a majority of the shares
of Exchangeable Preferred Stock then outstanding, voting or consenting, as the
case may be, as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting.
(iv) In any case in which the Holders of Exchangeable
Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or
pursuant to Delaware law, each Holder of Exchangeable Preferred Stock entitled
to vote with respect to such matters shall be entitled to one vote for each
share of Exchangeable Preferred Stock held.
(g) Exchange. (i) Exchange for Debentures. (A) The Company
may, at its option, on any scheduled Dividend Payment Date, exchange the
Exchangeable Preferred Stock, in whole but not in part, for the Exchange
Debentures; provided however, that (1) on the date of such exchange there are no
accumulated and unpaid dividends on the Exchangeable Preferred Stock (including
the dividends payable on such date) or other contractual impediment to such
exchange; (2) there shall be funds legally available sufficient therefor; (3)
immediately after giving effect to such exchange, no Default (as defined in the
Exchange Indenture) shall have occurred and be continuing, and (iv) the Company
shall have delivered to the Trustee under the Exchange Indenture an opinion of
counsel with respect to the due authorization and issuance of the Exchange
Debentures.
(B) Upon any exchange pursuant to this paragraph (g)(i),
holders of outstanding shares of Exchangeable Preferred Stock will be entitled
to receive $1.00 principal amount of Exchange Debentures for each $1.00 of
liquidation preference of Exchangeable Preferred Stock held by them. Exchange
Debentures issued in exchange for Exchangeable Preferred Stock will be issued in
principal amounts of $1,000 and integral multiples thereof to the extent
possible, and will also be issued in principal amounts less than $1,000 so that
each holder of Exchangeable Preferred Stock will receive certificates
representing the entire amount of Exchange Debentures to which such holder's
shares of Exchangeable Preferred Stock entitle such holder;
<PAGE> 98
18
provided, however, that the Company may pay cash in lieu of issuing an Exchange
Debenture in a principal amount less than $1,000.
(ii) Procedures. (A) The Company will send a written notice of
exchange (the "Exchange Notice") by mail to each holder of record of shares of
Exchangeable Preferred Stock not fewer than 30 days nor more than 60 days before
the date fixed for such exchange (the "Exchange Date"); provided, however, that
no failure to give such notice nor any deficiency therein shall affect the
validity of the procedure for the exchange of any shares of Exchangeable
Preferred Stock to be exchanged except as to the holder or holders to whom the
Company has failed to give said notice or except as to the holder or holders
whose notice was defective. The Exchange Notice shall state:
(1) the Exchange Date;
(2) that the holder is to surrender to the Company, in the
manner and at the place or places designated, his certificate or
certificates representing the shares of Exchangeable Preferred Stock to
be exchanged;
(3) that dividends on the shares of Exchangeable Preferred
Stock to be exchanged shall cease to accrue on such Exchange Date
whether or not certificates for shares of Exchangeable Preferred Stock
are surrendered for exchange on such Exchange Date unless the Company
shall default in the delivery of Exchange Debentures; and
(4) that interest on the Exchange Debentures shall accrue from
the Exchange Date whether or not certificates for shares of
Exchangeable Preferred Stock are surrendered for exchange on such
Exchange Date.
(B) On and after the Exchange Date, dividends will cease to
accrue on the outstanding shares of Exchangeable Preferred Stock, and all rights
of the holders of Exchangeable Preferred Stock (except the right to receive
Exchange Debentures, an amount in cash, to the extent
<PAGE> 99
19
applicable, equal to the accumulated and unpaid dividends to the Exchange Date
and, if the Company so elects, cash in lieu of any Exchange Debenture that is in
a principal amount that is not an integral multiple of $1,000) will terminate.
The person entitled to receive the Exchange Debentures issuable upon such
exchange will be treated for all purposes as the registered holder of such
Exchange Debentures.
(C) On or before the Exchange Date, each holder of
Exchangeable Preferred Stock shall surrender the certificate or certificates
representing such shares of Exchangeable Preferred Stock, in the manner and at
the place designated in the Exchange Notice. The Company shall cause the
Exchange Debentures to be executed on the Exchange Date and, upon surrender in
accordance with the Exchange Notice of the certificates for any shares of
Exchangeable Preferred Stock so exchanged, duly endorsed (or otherwise in proper
form for transfer, as determined by the Company), such shares shall be exchanged
by the Company into Exchange Debentures. The Company shall pay interest on the
Exchange Debentures at the rate and on the dates specified therein from the
Exchange Date.
(iii) No Exchange in Certain Cases. Notwithstanding the
foregoing provisions of this paragraph (g), the Company shall not be entitled to
exchange the Exchangeable Preferred Stock for Exchange Debentures if such
exchange, or any term or provision of the Exchange Indenture or the Exchange
Debentures, or the performance of the Company's obligations under the Exchange
Indenture or the Exchange Debentures, shall materially violate or conflict with
any applicable law or agreement or instrument then binding on the Company or if,
at the time of such exchange, the Company is insolvent or if it would be
rendered insolvent by such exchange.
(iv) Exchange of Initial Exchangeable Preferred Stock for
Series B Stock. The Series B Stock will be issued by the Company only in
connection with an exchange offer, on a share for share basis, for the Initial
Exchangeable Preferred Stock as required pursuant to the Registration Rights
Agreement. Each share of Series B Stock issued in exchange for a share of
Initial Exchangeable Preferred Stock
<PAGE> 100
20
will be deemed to have the same liquidation preference and accrued and unpaid
dividends as the share of Initial Exchangeable Preferred Stock so exchanged.
(h) Change of Control. (i) Upon the occurrence of a Change of
Control (the date of such occurrence being the "Change of Control Date"), the
Company shall either (1) offer to purchase each holder's Exchangeable Preferred
Stock in cash pursuant to the offer described in paragraph (h)(iii) (the "Change
of Control Offer") at a purchase price equal to 101% of the Liquidation
Preference thereof, plus, without duplication, all accrued and unpaid dividends,
if any, to the Change of Control Payment Date, including an amount in cash equal
to a prorated dividend for the period from the Dividend Payment Date immediately
prior to the Change of Control Payment Date to the Change of Control Payment
Date or (2) notify each holder of the Company's election not to make an offer as
described in clause (1) above, in which case the dividend rate on the
Exchangeable Preferred Stock shall be subject to reset pursuant to paragraph
(c)(ii).
(ii) Prior to the mailing of the notice referred to in
paragraph (h)(iii), but in any event within 30 days following the date on which
the Company knows or reasonably should have known that a Change in Control has
occurred, the Company covenants that it shall promptly determine if the purchase
of the Exchangeable Preferred Stock would violate or constitute a default under
the indebtedness of the Company.
(iii) Within 30 days following the date on which the Company
knows or reasonably should have known that a Change in Control has occurred, the
Company must send, by first-class mail, postage prepaid, a notice to each holder
of Exchangeable Preferred Stock. Such notice shall state whether the Company has
elected to make an offer to purchase shares of Exchangeable Preferred Stock and
if it has so elected, such notice shall contain all instructions and materials
necessary to enable such holders to tender Exchangeable Preferred Stock pursuant
to the Change of
<PAGE> 101
21
Control Offer. If the Company has elected to make a Change of Control Offer,
such notice shall state:
(A) that a Change of Control has occurred, that a Change of
Control Offer is being made pursuant to this paragraph (h) and that all
Exchangeable Preferred Stock validly tendered and not withdrawn will be
accepted for payment;
(B) the purchase price (including the amount of accrued
dividends, if any) and the purchase date (which must be no earlier than
30 days nor later than 60 days from the date such notice is mailed,
other than as may be required by law) (the "Change of Control Payment
Date");
(C) that any shares of Exchangeable Preferred Stock not
tendered will continue to accrue dividends;
(D) that, unless the Company defaults in making payment
therefor, any share of Exchangeable Preferred Stock accepted for
payment pursuant to the Change of Control Offer shall cease to accrue
dividends after the Change of Control Payment Date;
(E) that holders electing to have any shares of Exchangeable
Preferred Stock purchased pursuant to a Change of Control Offer will be
required to surrender stock certificates representing such shares of
Exchangeable Preferred Stock, properly endorsed for transfer, together
with such other customary documents as the Company and the Transfer
Agent may reasonably request to the Transfer Agent and registrar for
the Exchangeable Preferred Stock at the address specified in the notice
prior to the close of business on the Business Day prior to the Change
of Control Payment Date;
(F) that holders will be entitled to withdraw their election
if the Company receives, not later than five Business Days prior to the
Change of Control Payment Date, a telegram, a telex, facsimile
transmission or letter setting forth the name of the
<PAGE> 102
22
holder, the number of shares of Exchangeable Preferred Stock the holder
delivered for purchase and a statement that such holder is withdrawing
his election to have such shares of Exchangeable Preferred Stock
purchased;
(G) that holders whose shares of Exchangeable Preferred Stock
are purchased only in part will be issued a new certificate
representing the unpurchased shares of Exchangeable Preferred Stock;
and
(H) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization after giving effect to such Change
of Control).
If the Company elects not to make a Change of Control Offer,
such notice shall state that the dividend rate on the Exchangeable Preferred
Stock is subject to adjustment pursuant to paragraph (c)(ii).
(iv) The Company will comply with any tender offer rules under
the Exchange Act which then may be applicable, including Rules 13e-4 and 14e-1,
in connection with any offer made by the Company to repurchase the shares of
Exchangeable Preferred Stock as a result of a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this Certificate of Designation, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Certificate of Designation by virtue
thereof.
(v) On the Change of Control Payment Date the Company shall
(A) accept for payment the shares of Exchangeable Preferred Stock validly
tendered pursuant to the Change of Control Offer, (B) pay to the holders of
shares so accepted the purchase price therefor in cash and (C) cancel each
surrendered certificate and retire the shares represented thereby. Unless the
Company defaults in the payment for the shares of Exchangeable Preferred Stock
tendered pursuant to the Change of Control Offer, dividends will cease to accrue
with respect to the shares of
<PAGE> 103
23
Exchangeable Preferred Stock tendered and all rights of holders of such tendered
shares will terminate, except for the right to receive payment therefor, on the
Change of Control Payment Date.
(vi) To accept the Change of Control Offer, the holder of a
share of Exchangeable Preferred Stock shall deliver, on or before the 10th day
prior to the Change of Control Payment Date, written notice to the Company (or
an agent designated by the Company for such purpose) of such holder's
acceptance, together with certificates evidencing the shares of Exchangeable
Preferred Stock with respect to which the Change of Control Offer is being
accepted, duly endorsed for transfer.
(i) Conversion or Exchange. Except as otherwise provided
herein, the holders of shares of Exchangeable Preferred Stock shall not have any
rights hereunder to convert such shares into or exchange such shares for shares
of any other class or classes or of any other series of any class or classes of
Capital Stock of the Company.
(j) Reissuance of Exchangeable Preferred Stock. Shares of
Exchangeable Preferred Stock that have been issued and reacquired in any manner,
including shares purchased or redeemed or exchanged, shall not be reissued as
shares of Exchangeable Preferred Stock and shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized and
unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock; provided,
however, that so long as any shares of Exchangeable Preferred Stock are
outstanding, any issuance of such shares must be in compliance with the terms
hereof.
(k) Business Day. If any payment, redemption or exchange shall
be required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
<PAGE> 104
24
(l) Certain Additional Provisions. The Company covenants and
agrees for the benefit of the Holders as follows:
(i) SEC Reports. The Company shall file with the Trustee and
provide Holders, within 15 days after it files them with the SEC, copies of its
annual report and the information, documents and other reports which the Company
is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall continue to file with the SEC and provide the Trustee and Holders
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a
U.S. corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections.
(ii) Limitation on Indebtedness. (A) The Company shall not
Incur, and shall not permit any Restricted Subsidiary to Incur, directly or
indirectly, any Indebtedness unless, on the date of such Incurrence and after
giving pro forma effect thereto (including pro forma application of the net
proceeds therefrom) and to any other Indebtedness Incurred or repaid since the
end of the period referred to below and the receipt and application of the
proceeds thereof, either (i) the Indebtedness to Operating Cash Flow Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
Indebtedness is Incurred would have been not more than 5.0 to 1.0, or (ii) the
Company's Consolidated Capital Ratio as of the end of the most recent fiscal
quarter for which internal financial statements are available immediately
preceding the date on which such Indebtedness is Incurred is less than 2.0 to
1.0.
<PAGE> 105
25
(B) Notwithstanding the foregoing paragraph (a), the Company
and its Restricted Subsidiaries may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to one or more Credit
Agreements; provided, however, that, after giving effect to any such
Incurrence, the aggregate principal amount of such Indebtedness then
outstanding does not exceed the greater of (A) $150,000,000 and (B) 85%
of the book value of the Accounts Receivables of the Company and its
Restricted Subsidiaries;
(2) Indebtedness owed to and held by the Company or a
Restricted Subsidiary; provided, however, that any subsequent issuance
or transfer of any Capital Stock which results in any Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or another
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(3) the Exchange Debentures (including Exchange Debentures
issued in lieu of cash interest payments with respect to Exchange
Debentures);
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2) or (3) of this paragraph
(l)(ii)(B));
(5) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to paragraph (l)(ii)(A) pursuant to clause (3) or (4)
of this paragraph (l)(ii)(B) or this clause (5);
(6) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the
Company and its Restricted Subsidiaries pursuant to this Certificate of
Designation.
(7) Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money
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26
obligations, in each case Incurred for the purpose of financing all or
any part of the purchase price or cost of construction or improvement
of property used in the business of the Company or such Restricted
Subsidiary;
(8) In the event that the PSINet Shares are held by the
Company or a Restricted Subsidiary, the Incurrence by the Company or
such Restricted Subsidiary of Permitted PSINet Non-Recourse Debt; and
(9) Indebtedness in an aggregate principal amount at any time
outstanding which, together with the amount of all other Indebtedness
of the Company and its Restricted Subsidiaries outstanding on the date
of such Incurrence (other than Indebtedness permitted by clauses (1)
through (8) of this paragraph (l)(ii)(B) and paragraph (l)(ii)(A)),
does not exceed 5% of Consolidated Tangible Assets.
(C) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to paragraph (l)(ii)(B) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Exchange Debentures to at least the
same extent as such Subordinated Obligations.
(D) For purposes of determining compliance with this paragraph (l)(ii),
(1) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(2) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
(iii) Limitation on Restricted Payments. (A) The Company shall
not, and shall not permit any Restricted
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27
Subsidiary, directly or indirectly, to make a Restricted Payment if at the time
the Company or such Restricted Subsidiary makes such Restricted Payment:
(1) a Voting Rights Triggering Event shall have occurred and
be continuing (or would result therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness under paragraph (l)(ii)(A); or
(3) the aggregate amount of such Restricted Pay ment and all
other Restricted Payments since the Issue Date would exceed the sum of:
(I) an amount equal to the Cumulative Operating Cash
Flor for the period (taken as one accounting period) from the
beginning of the first full fiscal quarter commencing after
the Issue Date to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment less 1.50
times the Company's Cumulative Consolidated Interest Expense
for such period;
(II) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Parity Stock and
Junior Stock (in each case other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale
to a Subsidiary of the Company and other than an issuance or
sale to an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the
benefit of their employees);
(III) the amount by which Indebtedness of the Company
is reduced on the Company's balance sheet upon the conversion
or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of the
Company convertible or exchangeable for Parity Stock or Junior
Stock (in each case other than Disqualified
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28
Stock) of the Company (less the amount of any cash, or the
fair value of any other property, distributed by the Company
upon such conversion or exchange); and
(IV) an amount equal to the sum of (x) the net
reduction in Investments in any Person resulting from
dividends, repayments of loans or advances or other transfers
of assets (but excluding such interest, dividends, repayments,
advances or other transfers of assets to the extent any such
item increases Consolidated Net Income), in each case to the
Company or any Restricted Subsidiary from any Person
(including, without limitation, from Unrestricted
Subsidiaries), and (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary
at the time such Unrestricted Subsidiary is designated a
Restricted Subsidiary; provided, however, that the foregoing
sum shall not exceed, in the case of any Person (including any
Unrestricted Subsidiary), the amount of Investments previously
made (and treated as a Restricted Payment) by the Company or
any Restricted Subsidiary in such Person.
(B) The provisions of paragraph (l)(iii)(A) shall not
prohibit:
(1) any Restricted Payment made out of the proceeds of the
substantially concurrent sale of, or any acquisition of any Parity
Stock or Junior Stock of the Company made by exchange for, other Parity
Stock or Junior Stock, as the case may be, of the Company (in each case
other than Disqualified Stock and other than Parity Stock or Junior
Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of
its Subsidiaries for the benefit of their employees); provided,
however, that (I) such Restricted Payment shall be excluded in the
calculation of the amount of Restricted Payments and (II) the Net Cash
Proceeds from such sale shall be excluded from the
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29
calculation of amounts under paragraph (l)(iii)(A)(3)(II);
(2) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with paragraph (l)(iii); provided, however, that at the
time of payment of such dividend, no other Voting Rights Triggering
Event shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments; or
(3) the repurchase or other acquisition 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 and
other acquisitions shall not exceed $1,000,000 in any calendar year;
provided further, however, that such repurchases and other acquisitions
shall be excluded in the calculation of the amount of Restricted
Payments.
(iv) Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (A) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the
<PAGE> 110
30
Company, (B) make any loans or advances to the Company or (C) transfer any of
its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue
Date;
(2) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant
to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Company) and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (1) or (2) of this paragraph (l)(iv) or
this clause (3) or contained in any amendment to an agreement referred
to in clause (1) or (2) of this paragraph (l)(iv) or this clause (3);
provided, however, that the encumbrances and restrictions with respect
to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no less favorable to the holders of
Exchangeable Preferred Stock than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such predecessor
agreements;
(4) any such encumbrance or restriction consisting of
customary nonassignment provisions in leases governing leasehold
interests to the extent such provisions restrict the transfer of the
lease or the property leased thereunder;
<PAGE> 111
31
(5) in the case of clause (C) above, restrictions contained in
IRU Agreements, security agreements or mortgages securing Indebtedness
or other obligations of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such
security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition; and
(7) any such encumbrance or restriction contained
in the PSINet Agreement.
(v) Limitation on Affiliate Transactions. (A) The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
(1) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (2) the Company delivers to the Transfer
Agent (I) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $1,000,000 a resolution of the Board of Directors set
forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (1) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (II) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $10,000,000, other than transactions with GE Capital
Communication and Excluded PSINet Transactions, an opinion as to the fairness to
the Company or such Restricted Subsidiary of such Affiliate Transaction from a
financial point of view issued by an investment banking firm of national
standing.
<PAGE> 112
32
(B) The provisions of the foregoing paragraph (l)(v)(A) shall
not prohibit (1) any Restricted Payment permitted to be paid pursuant to
paragraph (l)(iii), (2) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by the
Board of Directors, (3) the grant of stock options or similar rights to
employees and directors of the Company pursuant to plans approved by the Board
of Directors, (4) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $500,000 in the aggregate
outstanding at any one time, (5) any employment or consulting arrangement or
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (6) the payment of reasonable fees to
directors of the Company and its Restricted Subsidiaries who are not employees
of the Company or its Restricted Subsidiaries, (7) any Affiliate Transaction
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries, (8) transactions in connection with Permitted Businesses between
the Company and GE Capital Communication, (9) transactions between the Company
or any Restricted Subsidiary specifically contemplated by the PSINet Agreement
and (10) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company. Notwithstanding the foregoing, Affiliate Transactions
shall not include any transaction involving the sale, purchase, repurchase,
redemption, transfer, exchange or other acquisition or disposition of Senior
Notes, Exchangeable Preferred Stock or Convertible Preferred Stock by or from,
or the payment of principal of, premium, if any, and interest on, or liquidation
preference of and dividend on, any Senior Notes, Exchangeable Preferred Stock or
Convertible Preferred Stock, as the case may be, to any Affiliate of the Company
or any Affiliate of a Restricted Subsidiary of the Company; provided, however,
that such transaction is offered substantially concurrently to all other holders
of Senior Notes, Exchangeable Preferred Stock or Convertible Preferred Stock, as
the case may be, on the same terms and conditions;
<PAGE> 113
33
provided further, however, that such transaction is approved by a majority of
the disinterested members of the Board of Directors, other than transactions in
connection with the payment of principal of, premium, if any, and interest on,
or liquidation preference of and dividends on, Senior Notes, Exchangeable
Preferred Stock or Convertible Preferred Stock, as the case may be, pursuant to
the provisions of the indenture or certificate of designation governing the
payment of interest and principal, dividends and liquidation preference,
optional redemption, repurchases from the proceeds of an asset disposition and
repurchases upon a change of control.
(vi) When Company May Merge or Transfer Assets. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of transactions, all or substantially all its
assets to, any Person, unless: (1) the resulting, surviving or transferee Person
(the "Successor Company") shall be a Person organized and existing under the
laws of the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall expressly assume
all the obligations of the Company under the Exchangeable Preferred Stock; (2)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing, (3) immediately after giving
effect to such transaction, the Successor Company would be able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (l)(ii)(A); (4)
immediately after giving effect to such transaction, the Successor Company shall
have Consolidated Net Worth in an amount that is not less than the Consolidated
Net Worth of the Company immediately prior to such transaction; and (5) the
Company shall have delivered to the Trustee an Officers' Certificate, stating
that such consolidation, merger or transfer and such assumption (if any) comply
with this Certificate of Designation.
<PAGE> 114
34
(m) Certificates. (i) Form and Dating. The Exchangeable
Preferred Stock and the Transfer Agent's certificate of authentication shall be
substantially in the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Certificate of Designation. The Exchangeable
Preferred Stock certificate may have notations, legends or endorsements required
by law, stock exchange rule, agreements to which the Company is subject, if any,
or usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Company). Each Exchangeable Preferred Stock certificate shall
be dated the date of its authentication. The terms of the Exchangeable Preferred
Stock certificate set forth in Exhibit A are part of the terms of this
Certificate of Designation.
(A) Global Exchangeable Preferred Stock. The Exchangeable
Preferred Stock sold in reliance on Rule 144A shall be issued initially in the
form of one or more fully registered global certificates with the global
securities legend and restricted securities legend set forth in Exhibit A hereto
(the "Global Exchangeable Preferred Stock"), which shall be deposited on behalf
of the purchasers represented thereby with the Transfer Agent, at its New York
office, as custodian for DTC (or with such other custodian as DTC may direct),
and registered in the name of DTC or a nominee of DTC, duly executed by the
Company and authenticated by the Transfer Agent as hereinafter provided. Subject
to the terms hereof and to the requirements of applicable law, the number of
shares of Exchangeable Preferred Stock represented by Global Exchangeable
Preferred Stock may from time to time be increased or decreased by adjustments
made on the records of the Transfer Agent and DTC or its nominee as hereinafter
provided.
(B) Book-Entry Provisions. In the event Global Exchangeable
Preferred Stock is deposited with or on behalf of DTC, the Company shall execute
and the Transfer Agent shall authenticate and deliver initially one or more
Global Exchangeable Preferred Stock certificates that (a) shall be registered in
the name of DTC for such Global Exchangeable Preferred Stock or the nominee of
DTC and (b) shall be delivered by the Transfer Agent to DTC or pursuant to DTC's
<PAGE> 115
35
instructions or held by the Transfer Agent as custodian for DTC.
Members of, or participants in, DTC ("Agent Members") shall
have no rights under this Certificate of Designation with respect to any Global
Exchangeable Preferred Stock held on their behalf by DTC or by the Transfer
Agent as the custodian of DTC or under such Global Exchangeable Preferred Stock,
and DTC may be treated by the Company, the Transfer Agent and any agent of the
Company or the Transfer Agent as the absolute owner of such Global Exchangeable
Preferred Stock for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Transfer Agent or any agent of the
Company or the Transfer Agent from giving effect to any written certification,
proxy or other authorization furnished by DTC or impair, as between DTC and its
Agent Members, the operation of customary practices of DTC governing the
exercise of the rights of a holder of a beneficial interest in any Global
Exchangeable Preferred Stock.
(C) Certificated Exchangeable Preferred Stock. Exchangeable
Preferred Stock initially sold in offshore transactions pursuant to Regulation S
under the Securities Act will be issued in fully registered certificated form
("Certificated Exchangeable Preferred Stock").
Except as otherwise provided by applicable law or as provided
in this paragraph (m)(i) or in paragraph (m)(iii), owners of beneficial
interests in Global Exchangeable Preferred Stock will not be entitled to receive
physical delivery of Certificated Exchangeable Preferred
Stock.
After a transfer of any Initial Exchangeable Preferred Stock
during the period of the effectiveness of a Shelf Registration Statement with
respect to such Initial Exchangeable Preferred Stock, all requirements
pertaining to legends on such Initial Exchangeable Preferred Stock will cease to
apply, the requirements requiring that any such Initial Exchangeable Preferred
Stock issued to Holders be issued in global form will cease to apply, and
Certificated Exchangeable Preferred Stock without legends will be
<PAGE> 116
36
available to the transferee of the Holder of such Initial Exchangeable Preferred
Stock upon exchange of such transferring Holder's Initial Exchangeable Preferred
Stock or directions to transfer such Holder's interest in the Global
Exchangeable Preferred Stock, as applicable. Upon the consummation of a
Registered Exchange Offer with respect to the Initial Exchangeable Preferred
Stock pursuant to which Holders of such Initial Exchangeable Preferred Stock are
offered Series B Stock in exchange for their Initial Exchangeable Preferred
Stock, all requirements that Initial Exchangeable Preferred Stock be issued in
global form will cease to apply and Certificated Exchangeable Preferred Stock
with the restricted securities legend set forth in Exhibit A hereto will be
available to Holders of such Initial Exchangeable Preferred Stock that do not
exchange their Initial Exchangeable Preferred Stock, and Series B Stock in
certificated form will be available to Holders that exchange such Initial
Exchangeable Preferred Stock in such Registered Exchange Offer.
(ii) Execution and Authentication. Two Officers shall sign the
certificates representing Exchangeable Preferred Stock for the Company by manual
or facsimile signature. The Company's seal shall be impressed, affixed,
imprinted or reproduced on the Exchangeable Preferred Stock and may be in
facsimile form.
If an Officer whose signature is on certificates representing
Exchangeable Preferred Stock no longer holds that office at the time the
Transfer Agent authenticates the Exchangeable Preferred Stock evidenced thereby,
the shares of Exchangeable Preferred Stock evidenced thereby shall be valid
nevertheless.
A certificate representing Exchangeable Preferred Stock shall
not be valid until an authorized signatory of the Transfer Agent manually signs
the certificate of authentication on the Exchangeable Preferred Stock. The
signature shall be conclusive evidence that the Exchangeable Preferred Stock has
been authenticated under this Certificate of Designation.
<PAGE> 117
37
The Transfer Agent shall authenticate and deliver: (1) 300,000
shares of Initial Exchangeable Preferred Stock for original issue and (2)
300,000 shares of Series B Stock for issue only in a Registered Exchange Offer
pursuant to the Registration Rights Agreement, in each case upon a written order
of the Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. In addition, the Transfer
Agent shall authenticate and deliver, from time to time, Additional Shares for
original issue upon order of the Company signed by two Officers or by an Officer
or either an Assistant Treasurer or Assistant Secretary of the Company. Such
orders shall specify the number of shares of Exchangeable Preferred Stock to be
authenticated and the date on which the original issue of Exchangeable Preferred
Stock is to be authenticated and whether the Exchangeable Preferred Stock is to
be Initial Exchangeable Preferred Stock or Series B Stock.
The Transfer Agent may appoint an authenticating agent
reasonably acceptable to the Company to authenticate the Exchangeable Preferred
Stock. Unless limited by the terms of such appointment, an authenticating agent
may authenticate Exchangeable Preferred Stock whenever the Transfer Agent may do
so. Each reference in this Certificate of Designation to authentication by the
Transfer Agent includes authentication by such agent. An authenticating agent
has the same rights as the Transfer Agent or agent for service of notices and
demands.
(iii) Transfer and Exchange. (A) Transfer and Exchange of
Certificated Exchangeable Preferred Stock. When Certificated Exchangeable
Preferred Stock is presented to the Transfer Agent with a request to register
the transfer of such Certificated Exchangeable Preferred Stock or to exchange
such Certificated Exchangeable Preferred Stock for an equal number of shares of
Certificated Exchangeable Preferred Stock of other authorized denominations, the
Transfer Agent shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the
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38
Certificated Exchangeable Preferred Stock surrendered for transfer or exchange:
(1) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company
and the Transfer Agent, duly executed by the Holder thereof or its
attorney duly authorized in writing; and
(2) in the case of Transfer Restricted Securities that are
Certificated Exchangeable Preferred Stock, are being transferred or
exchanged pursuant to an effective registration statement under the
Securities Act or pursuant to clause (I) or (II) below, and are
accompanied by the following additional information and documents, as
applicable:
(I) if such Transfer Restricted Securities are being
delivered to the Transfer Agent by a Holder for registration
in the name of such Holder, without transfer, a certification
from such Holder to that effect in substantially the form of
Exhibit B hereto; or
(II) if such Transfer Restricted Securities are being
transferred to the Company or to a "qualified institutional
buyer" ("QIB") in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from registration
in accordance with Rule 144 or Regulation S under the
Securities Act, a certification to that effect (in
substantially the form of Exhibit B hereto).
(B) Restrictions on Transfer of Certificated Exchangeable
Preferred Stock for a Beneficial Interest in Global Exchangeable Preferred
Stock. Certificated Exchangeable Preferred Stock may not be exchanged for a
beneficial interest in Global Exchangeable Preferred Stock except upon
satisfaction of the requirements set forth below. Upon receipt by the Transfer
Agent of Certificated Exchangeable Preferred Stock, duly endorsed or accompanied
<PAGE> 119
39
by appropriate instruments of transfer, in form satisfactory to the Transfer
Agent, together with:
(1) if such Certificated Exchangeable Preferred Stock is a
Transfer Restricted Security, certification that such Certificated
Exchangeable Preferred Stock is being transferred to a QIB in
accordance with Rule 144A under the Securities Act; and
(2) whether or not such Certificated Exchangeable Preferred
Stock is a Transfer Restricted Security, written instructions directing
the Transfer Agent to make, or to direct DTC to make, an adjustment on
its books and records with respect to such Global Exchangeable
Preferred Stock to reflect an increase in the number of shares of
Exchangeable Preferred Stock represented by the Global Exchangeable
Preferred Stock,
then the Transfer Agent shall cancel such Certificated Exchangeable Preferred
Stock and cause, or direct DTC to cause, in accordance with the standing
instructions and procedures existing between DTC and the Transfer Agent, the
number of shares of Exchangeable Preferred Stock represented by the Global
Exchangeable Preferred Stock to be increased accordingly. If no Global
Exchangeable Preferred Stock is then outstanding, the Company shall issue and
the Transfer Agent shall authenticate, upon written order of the Company in the
form of an Officers' Certificate, a new Global Exchangeable Preferred Stock
representing the appropriate number of shares.
(C) Transfer and Exchange of Global Exchangeable Preferred
Stock. The transfer and exchange of Global Exchangeable Preferred Stock or
beneficial interests therein shall be effected through DTC, in accordance with
this Certificate of Designation (including applicable restrictions on transfer
set forth herein, if any) and the procedures of DTC therefor.
(D) Transfer of a Beneficial Interest in Global Exchangeable
Preferred Stock for a Certificated Exchangeable Preferred Stock.
<PAGE> 120
40
(1) Any person having a beneficial interest in Exchangeable
Preferred Stock that is being transferred or exchanged pursuant to an
effective registration statement under the Securities Act or pursuant
to clause (I) or (II) below may upon request, and if accompanied by the
information specified below, exchange such beneficial interest for
Certificated Exchangeable Preferred Stock representing the same number
of shares of Exchangeable Preferred Stock. Upon receipt by the Transfer
Agent of written instructions or such other form of instructions as is
customary for DTC from DTC or its nominee on behalf of any person
having a beneficial interest in Global Exchangeable Preferred Stock and
upon receipt by the Transfer Agent of a written order or such other
form of instructions as is customary for DTC or the person designated
by DTC as having such a beneficial interest in a Transfer Restricted
Security only, and upon the following additional information and
documents (all of which may be submitted by facsimile):
(I) if such beneficial interest is being transferred
to the person designated by DTC as being the owner of a
beneficial interest in Global Exchangeable Preferred Stock, a
certification from such person to that effect (in
substantially the form of Exhibit B hereto); or
(II) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A under the Securities Act
or pursuant to an exemption from registration in accordance
with Rule 144 or Regulation S under the Securities Act, a
certification to that effect (in substantially the form of
Exhibit B hereto);
then, the Transfer Agent or DTC, at the direction of the Transfer Agent, will
cause, in accordance with the standing instructions and procedures existing
between DTC and the Transfer Agent, the number of shares of Exchangeable
Preferred Stock represented by Global Exchangeable Preferred Stock to be reduced
on its books and records and, following such reduction, the Company will execute
and the Transfer
<PAGE> 121
41
Agent will authenticate and deliver to the transferee Certificated Exchangeable
Preferred Stock.
(2) Certificated Exchangeable Preferred Stock issued in
exchange for a beneficial interest in a Global Exchangeable Preferred
Stock pursuant to this paragraph (m)(iii)(D) shall be registered in
such names and in such authorized denominations as DTC, pursuant to
instructions from its direct or indirect participants or otherwise,
shall instruct the Transfer Agent. The Transfer Agent shall deliver
such Certificated Exchangeable Preferred Stock to the persons in whose
names such Exchangeable Preferred Stock are so registered in accordance
with the instructions of DTC.
(E) Restrictions on Transfer and Exchange of Global
Exchangeable Preferred Stock. Notwithstanding any other provisions of this
Certificate of Designation (other than the provisions set forth in paragraph
(m)(iii)(F)), Global Exchangeable Preferred Stock may not be transferred as a
whole except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any such nominee to a successor depository or a
nominee of such successor depository.
(F) Authentication of Certificated Exchangeable
Preferred Stock. If at any time:
(1) DTC notifies the Company that DTC is unwilling or unable
to continue as depository for the Global Exchangeable Preferred Stock
and a successor depository for the Global Exchangeable Preferred Stock
is not appointed by the Company within 90 days after delivery of such
notice;
(2) DTC ceases to be a clearing agency registered
under the Exchange Act;
(3) there shall have occurred and be continuing a
Voting Rights Triggering Event; or
<PAGE> 122
42
(4) the Company, in its sole discretion, notifies the Transfer
Agent in writing that it elects to cause the issuance of Certificated
Exchangeable Preferred Stock under this Certificate of Designation,
then the Company will execute, and the Transfer Agent, upon receipt of a written
order of the Company signed by two Officers or by an Officer and either an
Assistant Treasurer or an Assistant Secretary of the Company requesting the
authentication and delivery of Certificated Exchangeable Preferred Stock to the
persons designated by the Company, will authenticate and deliver Certificated
Exchangeable Preferred Stock equal to the number of shares of Exchangeable
Preferred Stock represented by the Global Exchangeable Preferred Stock, in
exchange for such Global Exchangeable Preferred Stock.
(G) Legend. (1) Except as permitted by the following paragraph
(2), each certificate evidencing the Global Exchangeable Preferred Stock and the
Certificated Exchangeable Preferred Stock (and all Exchangeable Preferred Stock
issued in exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES
ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY
BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
"THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT
(A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (i) TO A PERSON WHOM 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,
(ii) IN AN
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OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR (v) TO THE COMPANY, IN EACH OF CASES (i) THROUGH (iv) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
"BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT") OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S.
(2) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by Global
Exchangeable Preferred Stock) pursuant to Rule 144 under the Securities Act or
an effective registration statement under the Securities Act:
(I) in the case of any Transfer Restricted Security
that is a Certificated Exchangeable Preferred Stock, the
Transfer Agent shall permit the Holder thereof to exchange
such Transfer Restricted Security for a Certificated
Exchangeable Preferred Stock that does not bear the legend set
forth above and rescind any restriction on the transfer of
such Transfer Restricted Security;
(II) in the case of any Transfer Restricted Security
that is represented by a Global Exchangeable Preferred Stock,
the Transfer Agent shall permit the Holder thereof to exchange
such Transfer Restricted Security for a Certificated
Exchangeable Preferred Stock Security that does not bear the
legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security, if the Holder's
request for
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44
such exchange was made in reliance on Rule 144 and the Holder
certifies to that effect in writing to the Transfer Agent
(such certification to be in the form set forth on the reverse
of the Transfer Restricted Security); and
(III) in the case of any Transfer Restricted Security
that is represented by a Global Exchangeable Preferred Stock,
the Transfer Agent shall permit the Holder thereof to exchange
such Transfer Restricted Security (in connection with the
offer to exchange Series B Stock for Initial Exchangeable
Preferred Stock pursuant to the Registration Rights Agreement)
for another Global Exchangeable Preferred Stock that does not
bear the legend set forth above.
(H) Cancelation or Adjustment of Global Exchangeable Preferred
Stock. At such time as all beneficial interests in Global Exchangeable Preferred
Stock have either been exchanged for Certificated Exchangeable Preferred Stock,
redeemed, repurchased or canceled, such Global Exchangeable Preferred Stock
shall be returned to DTC for cancelation or retained and canceled by the
Transfer Agent. At any time prior to such cancelation, if any beneficial
interest in Global Exchangeable Preferred Stock is exchanged for Certificated
Exchangeable Preferred Stock, redeemed, repurchased or canceled, the number of
shares of Exchangeable Preferred Stock represented by such Global Exchangeable
Preferred Stock shall be reduced and an adjustment shall be made on the books
and records of the Transfer Agent with respect to such Global Exchangeable
Preferred Stock, by the Transfer Agent or DTC, to reflect such reduction.
(I) Obligations with Respect to Transfers and Exchanges of
Exchangeable Preferred Stock. (1) To permit registrations of transfers and
exchanges, the Company shall execute and the Transfer Agent shall authenticate
Certificated Exchangeable Preferred Stock and Global Exchangeable Preferred
Stock as required pursuant to the provisions of this paragraph (iii).
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45
(2) All Certificated Exchangeable Preferred Stock and Global
Exchangeable Preferred Stock issued upon any registration of transfer
or exchange of Certificated Exchangeable Preferred Stock or Global
Exchangeable Preferred Stock shall be the valid obligations of the
Company, entitled to the same benefits under this Certificate of
Designation as the Certificated Exchangeable Preferred Stock or Global
Exchangeable Preferred Stock surrendered upon such registration of
transfer or exchange.
(3) Prior to due presentment for registration of transfer of
any shares of Exchangeable Preferred Stock, the Transfer Agent and the
Company may deem and treat the person in whose name such shares of
Exchangeable Preferred Stock are registered as the absolute owner of
such Exchangeable Preferred Stock and neither the Transfer Agent nor
the Company shall be affected by notice to the contrary.
(4) No service charge shall be made to a Holder for any
registration of transfer or exchange upon surrender of any Exchangeable
Preferred Stock Certificate at the office of the Transfer Agent
maintained for that purpose. However, 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 of transfer or
exchange of Exchangeable Preferred Stock Certificates.
(5) Upon any sale or transfer of shares of Exchangeable
Preferred Stock (including any Exchangeable Preferred Stock represented
by a Global Exchangeable Preferred Stock Certificate) pursuant to an
effective registration statement under the Securities Act, pursuant to
Rule 144 under the Securities Act or pursuant to an opinion of counsel
reasonably satisfactory to the Company that no legend is required:
(A) in the case of any Certificated Exchangeable
Preferred Stock, the Transfer Agent shall
permit the holder thereof to exchange such
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46
Exchangeable Preferred Stock for Certificated
Exchangeable Preferred Stock that does not
bear the legend set forth in
paragraph (iii)(G) above and rescind any
restriction on the transfer of such
Exchangeable Preferred Stock; and
(B) in the case of any Global Exchangeable Preferred
Stock, such Exchangeable Preferred Stock shall not be
required to bear the legend set forth in paragraph
(iii)(G) above but shall continue to be subject to
the provisions of paragraph (iii)(D) hereof;
provided, however, that with respect to any request
for an exchange of Exchangeable Preferred Stock that
is represented by Global Exchangeable Preferred Stock
for Certificated Exchangeable Preferred Stock that
does not bear the legend set forth in paragraph
(iii)(G) above in connection with a sale or transfer
thereof pursuant to Rule 144 (and based upon an
opinion of counsel if the Company so requests), the
Holder thereof shall certify in writing to the
Transfer Agent that such request is being made
pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iv) Replacement Certificates. If a mutilated Exchangeable
Preferred Stock certificate is surrendered to the Transfer Agent or if the
Holder of a Exchangeable Preferred Stock certificate claims that the
Exchangeable Preferred Stock certificate has been lost, destroyed or wrongfully
taken, the Company shall issue and the Transfer Agent shall countersign a
replacement Exchangeable Preferred Stock certificate if the reasonable
requirements of the Transfer Agent and of Section 8-405 of the Uniform
Commercial Code as in effect in the State of New York are met. If required by
the Transfer Agent or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Transfer Agent to protect the
Company and the Transfer Agent from any loss which
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47
either of them may suffer if a Exchangeable Preferred Stock certificate is
replaced. The Company and the Transfer Agent may charge the Holder for their
expenses in replacing a Exchangeable Preferred Stock certificate.
(v) Temporary Certificates. Until definitive Exchangeable
Preferred Stock certificates are ready for delivery, the Company may prepare and
the Transfer Agent shall countersign temporary Exchangeable Preferred Stock
certificates. Temporary Exchangeable Preferred Stock certificates shall be
substantially in the form of definitive Exchangeable Preferred Stock
certificates but may have variations that the Company considers appropriate for
temporary Exchangeable Preferred Stock certificates. Without unreasonable delay,
the Company shall prepare and the Transfer Agent shall countersign definitive
Exchangeable Preferred Stock certificates and deliver them in exchange for
temporary Exchangeable Preferred Stock certificates.
(vi) Cancelation. (A) In the event the Company shall purchase
or otherwise acquire Certificated Exchangeable Preferred Stock, the same shall
thereupon be delivered to the Transfer Agent for cancelation.
(B) At such time as all beneficial interests in Global
Exchangeable Preferred Stock have either been exchanged for Certificated
Exchangeable Preferred Stock, redeemed, repurchased or canceled, such Global
Exchangeable Preferred Stock shall thereupon be delivered to the Transfer
Agent for cancelation.
(C) The Transfer Agent and no one else shall cancel and
destroy all Exchangeable Preferred Stock certificates surrendered for transfer,
exchange, replacement or cancelation and deliver a certificate of such
destruction to the Company unless the Company directs the Transfer Agent to
deliver canceled Exchangeable Preferred Stock certificates to the Company. The
Company may not issue new Exchangeable Preferred Stock certificates to replace
Exchangeable Preferred Stock certificates to the extent they evidence
Exchangeable Preferred Stock which the Company has purchased or otherwise
acquired.
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48
(m) Additional Rights of Holders. In addition to the rights
provided to Holders under this Certificate of Designation, Holders shall have
the rights set forth in the Registration Rights Agreement.
(n) Certain Definitions. As used in this Certificate of
Designation, the following terms shall have the following meanings (and (1)
terms defined in the singular have comparable meanings when used in the plural
and vice versa, (2) "including" means including without limitation, (3) "or" is
not exclusive and (4) an accounting term not otherwise defined has the meaning
assigned to it in accordance with United States generally accepted accounting
principles as in effect on the Issue Date and all accounting calculations will
be determined in accordance with such principles), unless the content otherwise
requires:
"Accounts Receivable" means, with respect to any Person, all
accounts receivable of such Person net of allowances for uncollectible accounts,
discounts, refunds and all other allowances as determined in accordance with
GAAP.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary; or (iii) Capital Stock in any Person that at such time is a
Restricted Subsidiary; provided, however, that any such Restricted Subsidiary
described in clauses (ii) or (iii) above is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings
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49
correlative to the foregoing. For purposes of paragraphs (l)(iii) and (l)(v)
only, "Affiliate" shall also mean any beneficial owner of Capital Stock
representing 10% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of the Company or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Swap" means an exchange of assets by the Company or any
of its Restricted Subsidiaries for one or more Permitted Businesses, assets to
be used in a Permitted Business, or for a controlling equity interest in any
Person whose assets consist primarily of one or more Permitted Businesses.
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
dividend rate borne by the Exchangeable Preferred Stock compounded annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determina tion, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multi plied by the amount of such payment by (ii) the sum of all
such payments.
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
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50
"Capital Lease Obligations" means an obligation that is
required to be classified and accounted for as a capital lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into or exchangeable for
such equity.
"Change of Control" means the occurrence of any of the
following events:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause (i)
such person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time, and
except that any person that is deemed to have beneficial ownership of
shares solely as a result of being part of a group pursuant to Rule
13d-5(b)(1) shall not be deemed to have beneficial ownership of any
shares held by a Permitted Holder forming a part of such group),
directly or indirectly, of more than 50% of the total voting power of
the Voting Stock of the Company (for the purposes of this clause (i),
such other person shall be deemed to beneficially own any Voting Stock
of a specified corporation held by a parent corporation, if such other
person is the beneficial owner (as defined in this clause (i)),
directly or indirectly, of more than 35% of the voting
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51
power of the Voting Stock of such parent corporation and the Permitted
Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of
the board of directors of such parent corporation);
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company 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 the Board of Directors then in office; provided, however, that any
directors elected by holders of Preferred Stock of the Company pursuant
to any voting rights provisions included in the certificate of
designation relating to such Preferred Stock shall be excluded in
making any determination pursuant to this clause (ii); or
(iii) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the
Company, or the sale of all or substantially all the assets of the
Company to another Person (other than a Person that is controlled by
the Permitted Holders), and, in the case of any such merger or
consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of the Company are changed
into or exchanged for cash, securities or property, unless pursuant to
such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at
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52
least a majority of the aggregate voting power of the Voting Stock of
the surviving corporation.
Notwithstanding the foregoing, a Change of Control shall not
be deemed to have occurred if, after such event that otherwise would constitute
a Change of Control, the Securities are rated Investment Grade by Moody's or
Standard & Poor's on the 30th day following the event that otherwise would
constitute a Change of Control (the "Change of Control Determination Date");
provided, however, that to the extent there is a "rating watch" with respect to
the Exchangeable Preferred Stock or other rating agency review on such 30th day,
then the Change of Control Determination Date shall be the first Business Day
thereafter on which the Exchangeable Preferred Stock is not subject to a "rating
watch" or other rating agency review by either Moody's or Standard & Poor's. The
term "Investment Grade", for such purpose, means a rating of Baa3 or higher in
the case of Moody's, or BBB- or higher in the case of Standard & Poor's.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Certificate of
Designation until a successor replaces it and, thereafter, means the successor.
"Consolidated Capital Ratio" of any Person as of any date
means the ratio of (i) the aggregate consolidated principal amount of
Indebtedness of such Person then outstanding to (ii) the greater of either (a)
the aggregate consolidated paid-in capital of such Person as of such date or (b)
the stockholders' equity as of such date as shown on the consolidated balance
sheet of such Person determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its consolidated Restricted
Subsidiaries, plus, to the extent not included in such total interest expense,
and to the extent incurred by the Company or its Restricted Subsidiaries,
without duplication, (i) interest expense attributable to capital leases and the
interest expense
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53
attributable to leases constituting part of a Sale/Leaseback Transaction, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) noncash interest expenses, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) Preferred Stock dividends in respect of all (A)
Preferred Stock of Restricted Subsidiaries and (B) Preferred Stock of the
Company that is Disqualified Stock, in each case held by Persons other than the
Company or a Restricted Subsidiary, (viii) interest incurred in connection with
Investments in discontinued operations, (ix) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by (or secured by the assets of) the Company or any Restricted Subsidiary and
(x) the cash contributions to any employee stock ownership plan or similar trust
to the extent such contributions are used by such plan or trust to pay interest
or fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net
income of the Company and its consolidated Subsidi aries; provided, however,
that there shall not be included in such Consolidated Net Income:
(i) any net income of any Person (other than the Company) if
such Person is not a Restricted Subsidiary, except that subject to the
exclusion contained in clause (iv) below, the net income of any such
Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as
a dividend or other distribution (subject, in the case of a dividend or
other distribution paid to a Restricted Subsidiary, to the limitations
contained in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
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54
(iii) any net income of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions
by such Restricted Subsidiary, directly or indirectly, to the Company,
except that subject to the exclusion contained in clause (iv) below,
the net income of any such Restricted Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause);
(iv) any gain (but not loss) realized upon the sale or other
disposition of any assets of the Company, its consolidated Subsidiaries
or any other Person (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale
or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in account
ing principles.
Notwithstanding the foregoing, for the purpose of paragraph (l)(iii) only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from any Person (including any
Unrestricted Subsidiary) to the Company or a Restricted Subsidiary to the extent
such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under paragraph (l)(iii) (A)(3)(IV) thereof.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of: (i) the consolidated
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55
equity of the common stockholders of such Person and its consolidated
Subsidiaries as of such date plus (ii) the respective amounts reported on such
Person's balance sheet as of such date with respect to any series of preferred
stock (other than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment, but only to
the extent of any cash received by such Person upon issuance of such preferred
stock, less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the Issue Date in the book value of any asset owned by such Person
or a consolidated Subsidiary of such Person, (y) all investments as of such date
in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, as determined in
accordance with GAAP.
"Consolidated Tangible Assets" means, with respect to any
Person as of any date, the sum of the consolidated gross book value as reflected
in accounting books and records of such Person of all its property, both real
and personal, less (i) the net book value of all its licenses, patents, patent
applications, copyrights, trademarks, tradenames, goodwill, non-compete
agreements or organizational expenses and other like intangibles, (ii)
unamortized debt discount and expenses, (iii) all reserves for depreciation,
obsolescence, depletion and amortization of its properties and (iv) all other
proper reserves which should be provided in connection with the business
conducted by such Person, all of the foregoing as determined in accordance with
GAAP.
"Convertible Preferred Stock" means the Company's 7 1/4%
Junior Convertible Preferred Stock Due 2007.
"Credit Agreements" means one or more debt facilities or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit
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56
loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Cumulative Consolidated Interest Expense" means, with respect
to any Person, as of any date of determination, Consolidated Interest Expense
for the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the Issue Date to the end of such Person's most
recently ended fiscal quarter for which internal financial statements are
available at such date of determination.
"Cumulative Operating Cash Flow" means, as of any date of
determination, Operating Cash Flow for the Company and its Restricted
Subsidiaries for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the Issue Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at such date of determination.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement designed
to protect such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage
of time or both would be, a Voting Rights Triggering Event.
"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 (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first
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57
anniversary of the Stated Maturity of the Exchangeable Preferred Stock;
provided, however, 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 first anniversary of
the Stated Maturity of the Securities shall not constitute Disqualified Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are not more favorable to the holders of such Capital Stock than the
comparable provisions of the Exchange Indenture; provided further, however, that
the Company's Convertible Preferred Stock outstanding on the Issue Date (and any
shares of Convertible Preferred Stock issued as payment of a dividend on
Convertible Preferred Stock) shall be deemed not to constitute Disqualified
Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Date" means the date on which the Securities are
exchanged for the Exchangeable Preferred Stock.
"Exchange Debentures" means the debentures issuable pursuant
to the Exchange Indenture.
"Exchange Offer Registration Statement" means a registration
statement filed with the SEC with respect to a Registered Exchange Offer.
"Exchange Indenture" means the Indenture dated as of August
15, 1997, by and between the Company and The Bank of New York, as Trustee,
governing the Exchange Debentures.
"Excluded PSINet Transactions" means any transaction between
the Company or any of its Restricted Subsidiaries with PSINet Inc., so long as
at the time of engaging in, or contracting to engage in, such transaction, the
Company and its Subsidiaries have not acquired shares of PSINet Common Stock
other than the PSINet Shares.
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"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those set
forth in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC. All ratios and
computations based on GAAP contained in this Certificate of Designation shall be
computed in conformity with GAAP.
"GE Capital Communications" means GE Capital Communications
Services Corporation.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such Person or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means the Person in whose name a share of
Exchangeable Preferred Stock is registered on the Transfer Agent's books.
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"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of principal
of a non-interest bearing or other discount security shall be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person
on any date of determination (without duplication):
(i) the principal in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable, including, in each case, any
premium on such indebtedness to the extent such premium has become due
and payable;
(ii) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered
into by such Person;
(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, and all obligations of such Person
under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar
credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in
clauses (i) through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on
the letter of credit);
<PAGE> 140
60
(v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, the
liquidation preference with respect to, any Preferred Stock (but
excluding, in each case, any accrued dividends) of such Subsidiary
(which will constitute Indebtedness Incurred by such Subsidiary and not
Indebtedness Incurred by such Person);
(vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including
by means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of
the value of such property or assets or the amount of the obligation so
secured; and
(viii) to the extent not otherwise included in this
definition, Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indebtedness to Operating Cash Flow Ratio" means, as of any
date of determination, the ratio of (a) the aggregate principal amount of all
outstanding Indebtedness of a Person and its Restricted Subsidiaries as of such
date on a consolidated basis, plus the aggregate liquidation preference of all
outstanding Preferred Stock of the Restricted Subsidiaries of such Person as of
such date (excluding any such Preferred Stock held by such Person or a Wholly
Owned Restricted Subsidiary of such Person), plus the
<PAGE> 141
61
aggregate liquidation preference or redemption amount of all Disqualified Stock
of such Person (excluding any Disqualified Stock held by such Person or a Wholly
Owned Restricted Subsidiary of such Person) as of such date to (b) Operating
Cash Flow of such Person and its Restricted Subsidiaries for the most recent
four-quarter period for which internal financial statements are available,
determined on a pro forma basis after giving effect to all acquisitions and
dispositions of assets (notwithstanding clause (ii) of the definition of
"Consolidated Net Income" and including Asset Swaps) made by such Person and its
Restricted Subsidiaries since the beginning of such four-quarter period through
such date as if such acquisitions and dispositions had occurred at the beginning
of such four-quarter period through such date as if such acquisitions and
dispositions had occurred at the beginning of such four-quarter period.
"Independent Financial Advisor" means a United States
investment banking firm of national standing in the United States which does
not, and whose directors, officers and employees or affiliates do not, have a
direct or indirect financial interest in the Company.
"Interest Rate Agreement" means in respect of a Person any
interest rate swap agreement, interest rate cap agreement or other financial
agreement or arrangement designed to protect such Person against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect
advance, loan or any other extensions of credit (other than advances, loans or
other extensions of credit to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of the lender and other
than commission, travel, relocation and similar advances to directors, officers
and employees made in the ordinary course of business) (including by way of
Guarantee or similar arrangement) or capital contribution to any Person (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 such Person), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar
<PAGE> 142
62
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and paragraph
(l)(iii), (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors;
provided further, however, that an acquisition of assets, Capital Stock or other
securities by the Company or any of its Restricted Subsidiaries shall not be
deemed to be an Investment to the extent the consideration for such Capital
Stock or other securities consists of common equity securities of the Company.
"IRU" means an indefeasible right to use fiber or
telecommunications capacity.
"IRU Agreement" means an agreement pursuant to which an
interest in an IRU is sold or leased or otherwise transferred.
"Issue Date" means the date on which the Initial Exchangeable
Preferred Stock is originally issued.
"IXC Internet Capital Contribution" means the contribution by
the Company to IXC Internet, Inc. (so long as IXC Internet, Inc. is a
Subsidiary) of $10 million in cash, an IRU in two excess fibers in the Company's
network (including two fibers in network routes to be built or acquired in the
future) and space in certain points of
<PAGE> 143
63
presence, in each case as contemplated in connection with the transactions
contemplated by the PSINet Agreement.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc. or its
successor.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
"Operating Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period, (A) plus
(i) extraordinary net losses, net losses on sales of assets outside the ordinary
course of business during such period and noncash charges relating to
write-downs of property and equipment, to the extent such losses and charges
were deducted in computing such Consolidated Net Income, plus (ii) provision for
taxes based on income or profits, to the extent such provision for taxes was
included in computing such Consolidated Net Income, and any provision for taxes
utilized in computing the net losses under clause (i) hereof, plus (iii)
Consolidated Interest Expense of such Person and its
<PAGE> 144
64
Restricted Subsidiaries for such period, to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other noncash charges (excluding any such noncash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other noncash charges were
deducted in computing such Consolidated Net Income and (B) less all noncash
income for such period (excluding any such noncash income to the extent it
represents an accrual of cash income in any future period or amortization of
cash income received in a period). Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation and amortization and
other noncash charges of, a Restricted Subsidiary of the referent Person shall
be added to Consolidated Net Income to compute Operating Cash Flow only to the
extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person for such period and only if and to the extent such Restricted Subsidiary
could have paid such amount at the date of determination as a dividend or
similar distribution to the referent Person by such Restricted Subsidiary
without prior governmental approval (that has not been obtained), pursuant to
the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Business" means (i) any communications business and
(ii) any business reasonably related or ancillary thereto.
<PAGE> 145
65
"Permitted Holders" means the officers and directors of the
Company, and Trustees of General Electric Pension Trust, Grumman Hill
Associates, Inc. and Grumman Hill Investments, L.P., and each of their
respective officers and directors and their Related Parties.
"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) the Company, a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Restricted
Subsidiary is a Related Business; (ii) another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Restricted Subsidiary; provided, however, that such Person's primary business is
a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to
the Company or any Restricted Subsidiary if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (v) payroll, travel, commission and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees made in
the ordinary course of business consistent with past practices of the Company or
such Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (viii) the
IXC Internet Capital Contribution; (ix) the Investment in PSINet Inc.
contemplated by the PSINet Agreement, including the Investment in shares of
PSINet Common Stock purchased pursuant to the PSINet Agreement and the $240
million value protection right provided for by the PSINet Agreement; and (x)
other Investments in any Person that in the aggregate do not exceed $30 million
(without regard to increases and decreases in the value of the Investments).
<PAGE> 146
66
"Permitted PSINet Non-Recourse Debt" means Indebtedness where
(i) the holders of such Indebtedness expressly agree that they will look solely
to the shares of PSINet Common Stock held by the issuer of such Indebtedness for
payment on or in respect of such Indebtedness and expressly waive any recourse
they may have on or with respect to such Indebtedness to the Company or any
Restricted Subsidiary, (ii) neither the Company nor any Restricted Subsidiary
(A) provides credit support (whether or not in the form of an undertaking,
agreement or instrument which would constitute Indebtedness), other than the
pledge by the issuer of such Indebtedness of shares of PSINet Common Stock, or
(B) is directly or indirectly liable and (iii) no default with respect to such
Indebtedness (including any rights which the holders thereof may have to take
enforcement action against the shares of PSINet Common Stock securing such
Indebtedness) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any Restricted Subsidiary to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
Person, means 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 shares of Capital Stock of any other class of
such Person.
"principal" of any debt security means the principal of the
Security plus the premium, if any, payable on the Security which is due or
overdue or is to become due at the relevant time.
<PAGE> 147
67
"PSINet Agreement" means the IRU and Stock Purchase Agreement
dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc.
and the related documents executed in connection therewith, in each case as in
effect as of the Issue Date.
"PSINet Common Stock" means the common stock of PSINet, Inc.
"PSINet Shares" means the shares of PSINet Common Stock
acquired by the Company or any Subsidiary pursuant to the terms of the PSINet
Agreement.
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances
any Indebtedness of the Company or any Restricted Subsidiary existing on the
Issue Date or Incurred in compliance with this Certificate of Designation,
including Indebtedness that Refinances Refinancing Indebtedness; provided,
however, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced, (ii) such
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding or committed (plus accrued interest on the principal
amount of Indebtedness Refinanced, and fees and
<PAGE> 148
68
expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness shall
not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company (unless such Subsidiary was obligated under, or a guarantor of, the
Indebtedness being Refinanced) or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Registered Exchange Offer" means the offer by the Company,
pursuant to the Registration Rights Agreement, to holders of Initial
Exchangeable Preferred Stock to issue and deliver to such holders, in exchange
for the Initial Exchangeable Preferred Stock, a like aggregate liquidation
preference of Series B Stock registered under the Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement dated August 14, 1997, among the Company and Credit Suisse First
Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley and Co. Incorporated.
"Related Business" means any Permitted Business, the
businesses conducted by the Company and the Restricted Subsidiaries on the Issue
Date and any business related, ancillary or complementary to such businesses
conducted by the Company and the Restricted Subsidiaries on the Issue Date.
"Related Party" with respect to any Permitted Holder means (i)
any controlling stockholder, 80% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal or (ii)
any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Permitted Holder or such other
Persons referred to in the immediately preceding clause (i).
<PAGE> 149
69
"Representative" means any trustee, agent or representative
(if any) for an issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of, in the case of the Company, any Junior Stock or, in the case of
any Restricted Subsidiary, any Capital Stock (including any payment in
connection with any merger or consolidation involving such Person) or similar
payment to the direct or indirect holders of such Stock (other than dividends or
distributions payable solely in Junior Stock (other than Disqualified Stock) and
dividends or distributions to the extent paid to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Restricted Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)), (ii) the purchase, redemption or
other acquisition or retirement for value of any Junior Stock of the Company or
Capital Stock of any direct or indirect parent of the Company or (iii) the
making of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company
that is not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of
the Company secured by a Lien.
"Senior Notes" means the Company's 12 1/2% Senior
Notes Due 2005.
<PAGE> 150
70
"Series 3 Preferred Stock" means the Company's 10%
Junior Series 3 Cumulative Redeemable Preferred Stock.
"Shelf Registration Statement" means a registration statement
filed with the SEC covering resales of Exchangeable Preferred Stock.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Standard & Poor's" means Standard & Poor's Ratings Group, or
its successor.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Indebtedness" means the Exchange Debentures and
any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Exchange Debentures in right of
payment and is not subordinated by its terms to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness (as defined in the
Exchange Debenture).
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Exchange Debentures pursuant to
a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the
<PAGE> 151
71
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
(i) such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i)
any investment in direct obligations of the United States of America or any
agency thereof or obligations guaranteed by the United States of America or any
agency thereof, (ii) investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$50,000,000 (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized and in existence
under the laws of the United States of America or any foreign country recognized
by the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group, and (v) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard
<PAGE> 152
72
& Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Trustee" means the party named as such in the Exchange
Indenture until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien (excluding Liens incurred to secure obligations in respect of an IRU) on
any property of, the Company or any Restricted Subsidiary; provided, however,
that either (A) the Subsidiary to be so designated has total assets of $1,000 or
less or (B) if such Subsidiary has assets greater than $1,000, the Investment
resulting from such designation would be permitted under paragraph (l)(iii). The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (l)(iii)(A) and (y) no Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
<PAGE> 153
73
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock
or other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Wholly Owned Restricted Subsidiary" means a Restricted
Subsidiary all the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or one or more Wholly Owned Subsidiaries.
<PAGE> 154
IN WITNESS WHEREOF, said IXC Communications, Inc., has caused
this Certificate of Designation to be signed by James F. Guthrie, its
Chief Financial Officer and Executive Vice President, this 19th day of
August, 1997.
IXC COMMUNICATIONS, INC.,
By: /s/ JAMES F. GUTHRIE
----------------------------------
Name: James F. Guthrie
Title: Chief Financial Officer and
Executive Vice President
<PAGE> 155
EXHIBIT A
FORM OF EXCHANGEABLE PREFERRED STOCK
FACE OF SECURITY
[THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF
THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS SECURITY MAY BE
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) TO A PERSON WHOM 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, (II) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (v) TO THE
ISSUER, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY
FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]*
[BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S.]*/
- --------
* Subject to removal upon registration under the Securities Act of 1933 or
otherwise when the security shall no longer be a restricted security.
<PAGE> 156
2
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OF PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.]**
[TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE CERTIFICATE OF DESIGNATION REFERRED TO BELOW.]**
Certificate Number Number of Shares of Convertible
Preferred Stock
[ ] [ ]
CUSIP NO.: [ ]
12 1/2% Junior Exchangeable Preferred Stock Due 2009
(par value $0.01) (liquidation preference $1000
per share)
of
IXC Communications, Inc.
IXC Communications, Inc., a Delaware corporation (the
"Company"), hereby certifies that [ ] (the
- --------
** Subject to removal if not a global security.
<PAGE> 157
3
"Holder") is the registered owner of fully paid and non-assessable preferred
securities of the Company designated the 12 1/2% [Series B] Junior Exchangeable
Preferred Stock Due 2009 (par value $0.01) (liquidation preference $1000 per
share) (the "Exchangeable Preferred Stock"). The shares of Exchangeable
Preferred Stock are transferable on the books and records of the Registrar, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Exchangeable
Preferred Stock represented hereby are issued and shall in all respects be
subject to the provisions of the Certificate of Designation dated August [ ],
1997, as the same may be amended from time to time (the "Certificate of
Designation"). Capitalized terms used herein but not defined shall have the
meaning given them in the Certificate of Designation. The ompany will provide a
copy of the Certificate of Designation to a Holder without charge upon written
request to the Company at its principal place of business.
Reference is hereby made to select provisions of the
Exchangeable Preferred Stock set forth on the reverse hereof, and to the
Certificate of Designation, which select provisions and the Certificate of
Designation shall for all purposes have the same effect as if set forth at this
place.
Upon receipt of this certificate, the Holder is bound by the
Certificate of Designation and is entitled to the benefits thereunder.
Unless the Transfer Agent's Certificate of Authentication
hereon has been properly executed, these shares of Exchangeable Preferred Stock
shall not be entitled to any benefit under the Certificate of Designation or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has executed this certificate
this [ ] day of [ ], [ ].
IXC COMMUNICATIONS, INC.,
<PAGE> 158
4
By:
----------------------------------
Name:
Title:
[Seal]
By:
----------------------------------
Name:
Title:
<PAGE> 159
5
TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Exchangeable Preferred Stock referred to in
the within mentioned Certificate of Designation.
Dated: [ ], [ ]
THE BANK OF NEW YORK
as Transfer Agent,
By:
----------------------------------
Authorized Signatory
<PAGE> 160
6
REVERSE OF SECURITY
Dividends on each share of Exchangeable Preferred Stock shall
be payable at a rate per annum set forth in the face hereof or as provided in
the Certificate of Designation (including Additional Dividends).
The shares of Exchangeable Preferred Stock shall be redeemable
as provided in the Certificate of Designation. The shares of Exchangeable
Preferred Stock shall be exchangeable at the Company's option into the Company's
12-1/2% Subordinated Exchange Debentures Due 2009 in the manner and according to
the terms set forth in the Certificate of Designation.
As required under Delaware law, the Company shall furnish to
any Holder upon request and without charge, a full summary statement of the
designations, voting rights preferences, limitations and special rights of the
shares of each class or series authorized to be issued by the Company so far as
they have been fixed and determined and the authority of the Board of Directors
to fix and determine the designations, voting rights, preferences, limitations
and special rights of the class and series of shares of the Company.
<PAGE> 161
7
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the
shares of Exchangeable Preferred Stock evidenced hereby to:
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer the shares of Exchangeable Preferred Stock evidenced hereby on
the books of the Transfer Agent and Registrar. The agent may substitute another
to act for him or her.
Date:
-----------------------
Signature:
---------------------------------
(Sign exactly as your name appears on the other side of this Exchangeable
Preferred Stock Certificate)
Signature Guarantee:***
--- ---------------------------------------------
- ------------------
*** (Signature must be guaranteed by an "eligible guarantor
institution" that is, a bank, stockbroker, savings and loan association or
credit union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature
<PAGE> 162
8
- ------------
guarantee program" as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended.)
<PAGE> 163
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF EXCHANGEABLE PREFERRED STOCK
Re: 12 1/2% Junior Exchangeable Preferred Stock Due 2009 (the "Exchangeable
Preferred Stock") of IXC Communications, Inc. (the "Company")
This Certificate relates to ____ shares of Exchangeable
Preferred Stock held in [ ] */ book-entry or [ ] */ definitive form by
_______________ (the "Transferor").
The Transferor*:
[ ] has requested the Transfer Agent by written order to deliver in
exchange for its beneficial interest in the Exchangeable Preferred Stock held by
the depository shares of Exchangeable Preferred Stock in definitive, registered
form equal to its beneficial interest in such Exchangeable Preferred Stock (or
the portion thereof indicated above); or
[ ] has requested the Transfer Agent by written order to exchange or
register the transfer of Exchangeable Preferred Stock.
In connection with such request and in respect of such
Exchangeable Preferred Stock, the Transferor does hereby certify that the
Transferor is familiar with the Certificate of Designation relating to the above
captioned Exchangeable Preferred Stock and that the transfer of this
Exchangeable Preferred Stock does not require registration under the Securities
Act of 1933 (the "Securities Act") because */:
[ ] Such Exchangeable Preferred Stock is being acquired for the
Transferor's own account without transfer.
[ ] Such Exchangeable Preferred Stock is being transferred to the
Company.
- -------- * /Please check applicable box.
<PAGE> 164
2
[ ] Such Exchangeable Preferred Stock 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 so requests
and together with a certification in substantially the form of Exhibit C to the
Certificate of Designation).
[ ] Such Exchangeable Preferred Stock 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 so
requests).
[INSERT NAME OF TRANSFEROR]
Date: by
------------------ -----------------------------------
<PAGE> 165
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S
----------, ----
The Bank of New York
Attention: [ ]
Ladies and Gentlemen:
In connection with our proposed sale of certain 12 1/2% Junior
Exchangeable Preferred Stock Due 2009 (the "Exchangeable Preferred Stock") of
IXC Communications, Inc., a Delaware corporation ("the "Company"), we represent
that:
(i) the offer of the Exchangeable Preferred Stock was not made
to a person in the United States;
(ii) at the time the buy order was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(iii) no directed selling efforts have been made by us in the
United States in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S under the Securities Act of 1933 (the
"Securities Act"), as applicable; and
(iv) the transaction is not part of a plan or scheme by us to
evade the registration requirements of the Securities Act.
You and the Company are entitled to rely upon this letter and
you are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with
<PAGE> 166
4
respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
---------------------------------------------
(Name of Transferor)
by
------------------------------------------
Name:
Title:
Address:
<PAGE> 1
EXHIBIT 3.2
IXC COMMUNICATIONS, INC.
BYLAWS
ARTICLE I
OFFICES
-------
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which the stockholders shall elect
directors by a plurality vote, and transact such other business as may properly
be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held,
<PAGE> 2
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if at the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
2.
<PAGE> 3
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
---------
Section 1. The number of directors may be fixed from time to time by
resolution of the Board of Directors, but shall be not less than seven (7) and
not more than nine (9). The number of directors constituting the Board of
Directors shall be seven (7) until changed by a duly adopted resolution of the
Board of Directors or increased or decreased pursuant to the certificate of
incorporation. Except as otherwise provided in the certificate of incorporation
or as provided in Section 2 of this Article, the directors shall be elected at
the annual meeting of the stockholders, and each director shall hold office
until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. Except as otherwise provided in the certificate of
incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. Except as otherwise
provided in the certificate of incorporation, if, at the time of filling any
vacancy of any newly created directorship, the directors then in office shall
constitute less than a majority of the whole Board (as constituted immediately
prior to any such increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time
3.
<PAGE> 4
outstanding have the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its Board of Directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 7. Special meetings of the Board may be called by the president
on one (1) day's notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors unless the
Board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the Board a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
4.
<PAGE> 5
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
-----------------------
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more of the directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors or in these Bylaws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by law to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any Bylaw of the corporation. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 12. Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors may adopt, amend and repeal rules
for the conduct of its
5.
<PAGE> 6
business. In the absence of a provision by the Board of Directors or a provision
in the rules of such committee to the contrary, a majority of the entire
authorized number of members of such committee shall constitute a quorum for the
transaction of business, the vote of a majority of the members present at a
meeting at the time of such vote if a quorum is then present shall be the act of
such committee, and in other respects each committee shall conduct its business
in the same manner as the Board of Directors conducts its business pursuant to
Article III of these Bylaws. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
-------------------------
Section 13. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
--------------------
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
-------
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing and will be deemed to have been
duly given if personally delivered or sent by United States mail (addressed to
such director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid), or by telegram, telex or facsimile
confirmed by letter, and will be deemed given, unless earlier received, if by
mail, at the time when the same shall be deposited in the United States mail,
and if by telegram, telex or facsimile, on the day such confirmation letter
shall be deposited in the United States mail.
6.
<PAGE> 7
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
--------
Section 1. The officers of the corporation shall be a president, a
chief financial officer, one or more vice presidents and a secretary. The
corporation may also have, at the discretion of the Board of Directors, a chief
executive officer, a corporate controller, one or more assistant vice
presidents, one or more assistant secretaries and such other officers as may be
appointed in accordance with the provisions hereof. One person may hold two or
more offices. The salaries of all officers of the corporation shall be fixed by
the Board of Directors.
Section 2. The officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 3 or Section 5 of this
Article V, shall be chosen annually by the Board of Directors, and each shall
hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his or her successor shall be elected and qualified.
Section 3. The Board of Directors may appoint such other officers as
the business of the corporation may require, each of whom shall have such
authority and perform such duties as are provided in these Bylaws or as the
Board of Directors or the president may from time to time specify, and shall
hold office until he or she shall resign or shall be removed or otherwise
disqualified to serve.
Section 4. Any officer may be removed, either with or without cause, by
the Board of Directors at any regular or special meeting of the Board of
Directors or, except in case of an officer chosen by the Board of Directors, by
any officer upon whom such power or removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to the
Board of Directors, the chairman of the Board of Directors, if any, the
president or the secretary of the corporation. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
7.
<PAGE> 8
Section 5. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the Bylaws for the regular appointments to such office.
THE CHIEF EXECUTIVE OFFICER
---------------------------
Section 6. The chief executive officer (if there is such an officer) of
the corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and affairs of the
corporation. He or she shall preside at all meetings of stockholders and the
Board of Directors. He or she shall have the general powers and duties of
management usually vested in the chief executive officer of a corporation, and
shall have such other powers and duties with respect to the administration of
the business and affairs of the corporation as may from time to time be assigned
to him or her by the Board of Directors or as prescribed by these Bylaws. In the
absence or disability of the president, the chief executive officer, in addition
to his or her assigned duties and powers, shall perform all the duties of the
president and when so acting shall have all the powers and be subject to all the
restrictions upon the president.
THE PRESIDENT
-------------
Section 7. The president shall exercise and perform such powers and
duties with respect to the administration of the business and affairs of the
corporation as may from time to time be assigned to him or her by the chief
executive officer (unless the president is also the chief executive officer) or
by the Board of Directors or as is prescribed by these Bylaws. In the absence or
disability of the chief executive officer, the president shall perform all of
the duties of the chief executive officer and when so acting shall have all of
the powers and be subject to all the restrictions upon the chief executive
officer.
THE VICE PRESIDENTS
-------------------
Section 8. The vice presidents shall exercise and perform such powers
and duties with respect to the administration of the business and affairs of the
corporation as may from time to time be assigned to each of them by the chief
executive officer, the president, by the Board of Directors or as is prescribed
by these Bylaws. In the absence or disability of the chief executive officer (if
there is such an officer) and of the president, the vice presidents, in order of
their rank as fixed by the Board of Directors, or if not ranked, the vice
president designated by the Board of Directors, shall perform all of the duties
of the president and when so acting shall have all of the powers of and be
subject to all the restrictions upon the president.
8.
<PAGE> 9
THE SECRETARY AND ASSISTANT SECRETARY
-------------------------------------
Section 9. The secretary shall keep, or cause to be kept, a book of
minutes at the principal office for the transaction of the business of the
corporation, or such other place as the Board of Directors may order, of all
meetings of directors and stockholders, with the time and place of holding,
whether regular or special, and if special, how authorized and the notice
thereof given, the names of those present at directors' meetings, the number of
shares present or represented at stockholders' meetings and the proceedings
thereof.
Section 10. The secretary shall keep, or cause to be kept, at the
principal offices for the transaction of the business of the corporation or at
the office of the corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the stockholders and their addresses, the
number and classes of shares held by each; the number and date of certificates
issued for the same; and the number and date of cancellation of every
certificate surrendered for cancellation.
Section 11. The secretary shall give, or cause to be given, notice of
all the meetings of the stockholders and of the Board of Directors required by
these Bylaws or by law to be given, and he or she shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or these Bylaws. If
for any reason the secretary shall fail to give notice of any special meeting of
the Board of Directors called by one or more of the persons identified in
Section 7 of Article III of these Bylaws, or if he or she shall fail to give
notice of any special meeting of the stockholders called by one or more of the
persons identified in Section 5 of Article II of these Bylaws, then any such
person or persons may give notice of any such special meeting.
THE CHIEF FINANCIAL OFFICER
---------------------------
Section 12. The chief financial officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of capital, shall be classified according to source and
shown in a separate account. The books of account shall at all reasonable times
be open to inspection by any director.
The chief financial officer shall deposit, or cause to be deposited,
all moneys and other valuables in the name and to the credit of the corporation
with such depositories as may be designated by the Board of Directors. He or she
shall disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the chief executive
9.
<PAGE> 10
officer (if there is such an officer), to the president and to the directors,
whenever they request it, an account of all of his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
ARTICLE VI
CERTIFICATE OF STOCK
--------------------
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
chairman or vice chairman of the Board of Directors, or the chief executive
officer, president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by such holder in the corporation.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
-----------------
Section 3. The corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
TRANSFER OF STOCK
-----------------
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
10.
<PAGE> 11
FIXING RECORD DATE
------------------
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 6. In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
Section 7. In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such
11.
<PAGE> 12
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
REGISTERED STOCKHOLDERS
-----------------------
Section 8. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
------------------
DIVIDENDS
---------
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
ANNUAL STATEMENT
----------------
Section 3. The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
12.
<PAGE> 13
CHECKS
------
Section 4. All checks for demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
-----------
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
----
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
WAIVER OF NOTICE
----------------
Section 7. Whenever notice is required to be given by law or under any
provision of the Certificate of Incorporation or these Bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or these Bylaws. Unless either proper notice of a meeting of the Board of
Directors, or any committee thereof, has been given or else the persons entitled
thereto have waived such notice (either in writing or by attendance as set forth
above), any business transacted at such meeting shall be null and void.
INDEMNIFICATION
---------------
Section 8. The corporation shall indemnify its officers, directors,
employees and agents to the fullest extent permitted by the General Corporation
Law of Delaware.
13.
<PAGE> 14
ARTICLE VIII
AMENDMENTS
----------
Section 1. These Bylaws may be altered, amended or repealed, or new
Bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors, if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the
certificate of incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal Bylaws.
14.
<PAGE> 1
EXHIBIT 11.1
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EARNINGS
Net income (loss)............................. $(26,788) $ (5,624) $(75,476) $(29,390)
Less: Dividends applicable to preferred
stock.................................... (6,727) (437) (9,599) (1,302)
-------- ------- -------- --------
Net income (loss) applicable to common
stockholders............................... $(33,515) (6,061) $(85,075) $(30,692)
======== ======= ======== ========
PRIMARY
Weighted average number of shares
outstanding................................ 30,897 30,635 30,832 26,451
Add: Effect, for periods including and prior
to the initial public offering (IPO), of
common stock options issued within one year
of the IPO................................. -- 832 -- 832
Less: Assumed repurchase of shares under the
treasury stock method...................... -- (156) -- (157)
-------- ------- -------- --------
Number of shares used to compute earnings
(loss) applicable to common shareholders... 30,897 31,311 30,832 27,126
======== ======= ======== ========
FULLY DILUTED
Weighted average number of shares
outstanding................................ 30,897 30,635 30,832 26,451
Add: Effect, for periods including and prior
to the IPO, of common stock options issued
within one year of the IPO................. -- 832 -- 832
Less: Assumed repurchase of shares under the
treasury stock method...................... -- (156) -- (157)
-------- ------- -------- --------
Number of shares used to compute earnings
(loss) applicable to common shareholders... 30,897 31,311 30,832 27,126
======== ======= ======== ========
PRIMARY LOSS PER COMMON AND COMMON EQUIVALENT
SHARE...................................... $ (1.08) (0.19) $ (2.76) $ (1.13)
======== ======= ======== ========
FULLY DILUTED LOSS PER COMMON AND COMMON
EQUIVALENT SHARE........................... $ (1.08) $ (0.19) $ (2.76) $ (1.13)
======== ======= ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 283,963,000
<SECURITIES> 0
<RECEIVABLES> 92,064,000
<ALLOWANCES> 12,702,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,978,000
<PP&E> 578,121,000
<DEPRECIATION> 101,429,000
<TOTAL-ASSETS> 889,873,000
<CURRENT-LIABILITIES> 158,045,000
<BONDS> 285,000,000
391,930,000
12,550
<COMMON> 309,000
<OTHER-SE> (17,431,000)
<TOTAL-LIABILITY-AND-EQUITY> 889,873,000
<SALES> 0
<TOTAL-REVENUES> 285,015,000
<CGS> 0
<TOTAL-COSTS> 227,021,000
<OTHER-EXPENSES> 98,502,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,720,000
<INCOME-PRETAX> (75,517,000)
<INCOME-TAX> 41,000
<INCOME-CONTINUING> (75,476,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,476,000)
<EPS-PRIMARY> (2.76)
<EPS-DILUTED> (2.76)
</TABLE>
