<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, 1999
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 AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 75-2644120
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1122 CAPITAL OF TEXAS HIGHWAY SOUTH,
AUSTIN, TEXAS 78746-6426
- ---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(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. Yes [X] No [ ]
The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the Company outstanding) was 38,215,811 on November 9,
1999.
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<PAGE> 2
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
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,
1999 and December 31, 1998................................ 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1999 and 1998... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998.................. 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
Risk...................................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities and Use of Proceeds................... 19
Item 3. Defaults Upon Senior Securities............................. 19
Item 4. Submission of Matters to a Vote of Security Holders......... 19
Item 5. Other Information........................................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 20
SIGNATURES............................................................ 24
</TABLE>
2
<PAGE> 3
IXC COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
ASSETS ------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 147,576 $ 264,826
Accounts and other receivables, net of allowance for
doubtful accounts of $43,780 at September 30, 1999 and
$16,664 at December 31, 1998................................ 86,481 107,558
Current portion of notes receivable......................... -- 63,748
Note receivable from Westel................................. -- 9,421
Other current assets........................................ 17,846 10,965
---------- ----------
Total current assets............................... 251,903 456,518
Property and equipment...................................... 1,733,312 1,193,655
Less: accumulated depreciation.............................. (313,095) (209,979)
---------- ----------
Property and equipment, net........................ 1,420,217 983,676
Non-current marketable securities........................... 372,954 219,880
Investments in unconsolidated subsidiaries.................. 6,071 9,505
Deferred charges and other non-current assets, net.......... 168,386 78,658
---------- ----------
Total assets....................................... $2,219,531 $1,748,237
========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current portion of long-term debt and capital lease
obligations............................................... $ 162,332 $ 13,984
Accounts payable trade...................................... 157,952 33,558
Accrued service cost........................................ 36,131 43,177
Accrued liabilities......................................... 124,424 72,307
Current portion of unearned revenue......................... 52,224 33,640
---------- ----------
Total current liabilities.......................... 533,063 196,666
Long-term debt and capital lease obligations, less current
portion................................................... 813,735 679,016
Unearned revenue -- noncurrent.............................. 557,457 488,395
Other noncurrent liabilities................................ 55,821 8,848
7 1/4% Junior Convertible Preferred Stock; $.01 par value;
3,000,000 shares of all classes of Preferred Stock
authorized; 1,074,500 shares issued and outstanding at
September 30, 1999 and December 31, 1998 (aggregate
liquidation preference of $107,450 at September 30,
1999)..................................................... 103,965 103,623
12 1/2% Junior Exchangeable Preferred Stock; $.01 par value;
3,000,000 shares of all classes of Preferred Stock
authorized; 383,232 and 349,434 shares issued and
outstanding at September 30, 1999 and December 31, 1998
(aggregate liquidation preference of $389,207 at September
30, 1999 including accrued dividends of $5,898)........... 379,308 344,235
Stockholders' deficit:
6 3/4% Cumulative Convertible Preferred Stock, $.01 par
value; 3,000,000 shares of all classes of Preferred
Stock authorized; 155,250 shares issued and outstanding
at September 30, 1999 and December 31, 1998 (aggregate
liquidation preference of $155,250 at September 30,
1999)................................................... 2 2
Common Stock, $.01 par value; 300,000,000 shares
authorized; 37,580,106 and 36,409,709 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively............................................ 376 364
Additional paid-in capital.................................. 238,276 253,429
Unrealized gain on marketable securities.................... 89,351 --
Accumulated deficit......................................... (551,823) (326,341)
---------- ----------
Total stockholders' deficit........................ (223,818) (72,546)
---------- ----------
Total liabilities, redeemable preferred stock and
stockholders' deficit............................ $2,219,531 $1,748,237
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 4
IXC COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net operating revenue:
Private line service............................... $ 76,073 $ 61,908 $ 220,506 $ 154,480
Long distance switched services.................. 77,535 110,741 230,180 330,010
Data and Internet services....................... 5,556 3,631 16,084 5,308
Other............................................ 10,963 8,989 22,607 8,989
--------- -------- --------- ---------
170,127 185,269 489,377 498,787
Operating expenses:
Cost of services................................. 106,360 109,984 319,453 325,526
Operations and administration.................... 66,318 40,094 179,075 99,422
Restructuring charges............................ 6,744 -- 32,570 --
Depreciation and amortization.................... 50,651 34,801 126,494 77,589
Merger and other infrequent costs................ 1,078 444 1,223 8,089
--------- -------- --------- ---------
Operating loss................................ (61,024) (54) (169,438) (11,839)
Interest income.................................... 1,039 2,159 8,702 7,080
Interest expense................................... (10,536) (7,580) (30,645) (22,421)
Equity loss from unconsolidated subsidiaries....... (3,066) (8,307) (19,048) (30,326)
Other income (expense)............................. (4) 181 (12,729) 357
--------- -------- --------- ---------
Loss before provision for income taxes and minority
interest......................................... (73,591) (13,601) (223,158) (57,149)
Benefit (provision) for income taxes............... 4,493 (1,647) (1,818) (8,266)
Minority interest.................................. -- (216) (509) (641)
--------- -------- --------- ---------
Loss before extraordinary item..................... (69,098) (15,464) (225,485) (66,056)
--------- -------- --------- ---------
Extraordinary gain (loss), net..................... -- 163 -- (69,647)
--------- -------- --------- ---------
Net loss........................................... (69,098) (15,301) (225,485) (135,703)
--------- -------- --------- ---------
Dividends applicable to preferred stock............ (16,729) (15,341) (49,119) (42,548)
--------- -------- --------- ---------
Net loss applicable to common stockholders......... (85,827) (30,642) (274,604) (178,251)
--------- -------- --------- ---------
Other comprehensive income:
Change in unrealized gain on marketable securities
net of tax of ($27,860) and $48,112.............. (51,740) -- 89,351 --
--------- -------- --------- ---------
Comprehensive loss................................. $(137,567) $(30,462) $(185,253) $(178,251)
========= ======== ========= =========
Basic and diluted loss per share:
Before extraordinary item........................ $ (2.29) $ (0.86) $ (7.43) $ (3.03)
Extraordinary item............................... -- 0.01 -- (1.95)
--------- -------- --------- ---------
Net loss......................................... $ (2.29) $ (0.85) $ (7.43) $ (4.98)
========= ======== ========= =========
Weighted average shares outstanding................ 37,470 36,014 36,942 35,774
========= ======== ========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
IXC COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Net cash provided by operating activities................... $ 140,165 $ 127,876
--------- ---------
Investing activities:
Capital Expenditures...................................... (449,691) (336,609)
Proceeds from collection of notes receivable.............. 750 2,025
Acquisitions, net of cash acquired and stock issued....... (73,324) (22,699)
Proceeds from sale of property and equipment.............. (264) --
Investments in unconsolidated subsidiaries................ (6,220) (26,885)
--------- ---------
Net cash used in investing activities....................... (528,749) (384,168)
--------- ---------
Financing activities:
Proceeds from sale of 9% Senior Notes..................... -- 450,000
Proceeds from sale of 6 3/4% Cumulative Convertible
Preferred Stock........................................ -- 147,213
Proceeds from issuance of debt and capital lease
obligations............................................ 288,907 14,022
Principal payments on debt and capital lease
obligations............................................ (15,840) (349,361)
Redemption of 10% Junior Series 3 Cumulative Preferred
Stock.................................................. -- (708)
Stock option exercises.................................... 6,731 3,445
Payment of dividends on preferred stock................... (8,464) (6,544)
Other financing activities................................ -- (14,438)
--------- ---------
Net cash provided by financing activities................... 271,334 243,629
--------- ---------
Effect of differing year-ends from merged entities.......... -- (1,502)
--------- ---------
Net decrease in cash and cash equivalents................... (117,250) (14,165)
Cash and cash equivalents at beginning of period............ 264,826 155,855
--------- ---------
Cash and cash equivalents at end of period.................. $ 147,576 $ 141,690
========= =========
Supplemental Disclosure of cash flow information:
Cash paid for:
Interest............................................... $ 5,943 $ ??????
========= =========
Taxes.................................................. $ $ ??????
========= =========
</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 of
IXC Communications, Inc. and its subsidiaries ("the Company") 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 and
nine month periods ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1999. The
accompanying unaudited condensed consolidated financial statements have been
restated for 1998 to include the operations of Eclipse Telecommunications, Inc.,
formerly Network Long Distance, Inc. ("Eclipse"), which was acquired on June 3,
1998 in a transaction accounted for as a pooling of interests. The condensed
consolidated balance sheet at December 31, 1998 has been derived from the
Company's audited financial statements 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 Company's audited consolidated financial statements
and notes thereto for the year ended December 31, 1998. Certain amounts shown in
the Company's 1998 financial statements have been reclassified to conform to the
1999 presentation.
2. ACQUISITIONS
On May 10, 1999, the Company acquired Coastal Telecom Limited Company, and
other related companies under common control ("Coastal"). Coastal is a retail
long distance reseller. The acquisition of Coastal was accounted for as a
purchase and was effective as of May 10, 1999. The purchase price amounted to
approximately $110.1 million and was comprised of $73.2 million of cash, $10.0
million of notes payable, $25.0 million of the Company's common stock, and
warrants to purchase 75,000 shares of the Company's common stock. Goodwill from
this acquisition totaled $ 103.3 million and is being amortized over a period of
7 years.
On November 9, 1999 the Company completed a merger with Cincinnati Bell
Inc. ("CBI"), a diversified telecommunications company headquartered in
Cincinnati, Ohio. For further discussion of this matter, see Note 10 of the
condensed consolidated financial statements.
3. MARKETABLE SECURITIES
PSINet Investment
The Company owns approximately 10.2 million shares of common stock of
PSINet, Inc. ("PSINet"). This investment had a fair market value of
approximately $368.0 million as of September 30, 1999. Of the total fair value,
$240.0 million was recorded as unearned revenue because it represented the sale
to PSINet of an agreement for an indefeasible right to use ("IRU") capacity on
the Company's network. The remaining fair value, net of tax, was reported as
unrealized gain on marketable securities because the PSINet investment is
"available-for-sale" as defined in Statement of Financial Accounting Standards
("SFAS") No. 115. The change in the unrealized gain amount, net of tax, is
included in other comprehensive income on the accompanying condensed
consolidated statement of operations.
In June and July, 1999, the Company received approximately $111.8 million
representing amounts from a financial institution in connection with two
prepaid, forward-sale contracts on 3.0 million shares of PSINet common stock.
This amount is accounted for as notes payable and is secured by 3.0 million
shares of PSINet common stock owned by the Company. The forward-sale obligation
for the first 1.5 million shares of PSINet
6
<PAGE> 7
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
stock may be settled at a specified date in the second quarter of 2002 for a
maximum amount of 1.5 million shares of PSINet stock, or, at the Company's
option, the equivalent value in cash.
The forward-sale obligation for the second 1.5 million shares of PSINet
common stock may be settled at a specified date in the first quarter of 2002 for
a maximum of the 1.5 million PSINet shares or, at the Company's option, the
equivalent value of the 1.5 million shares in cash.
DCI Telecommunications
In November 1998 the Company entered into an agreement to acquire common
stock of DCI Telecommunications, Inc. ("DCI"), as consideration for payment of
amounts due from one of the Company's customers that was also a vendor of DCI.
The agreement provided that DCI was to issue additional shares of common stock
to the Company if the market value of the shares the Company owned did not reach
$17.7 million by June 1, 1999. As of June 1, 1999, and subsequent thereto, the
market value of the shares the Company owned was less than the $17.7 million
guaranteed in the November 1998 agreement. DCI has publicly disclosed that it
does not intend to issue additional shares to the Company. The Company intends
to vigorously pursue the remedies to which it is entitled under the November
1998 agreement. As of September 30, 1999, the Company has written down its
investment in DCI by $12.8 million as a result of these uncertainties. This
writedown was recorded in the second quarter 1999 in other income/expense in the
condensed consolidated statement of operations contained in the Company's Form
10-Q for such quarter. As of September 30, 1999, the quoted market price
declined from June 30, 1999. The Company considered the decline temporary and
did not further reduce its investment in DCI. The investment in DCI is included
in non-current marketable securities in the accompanying condensed consolidated
balance sheet.
4. INCOME TAXES
The provision or benefit for income taxes recorded during interim periods
is calculated based on an estimated annual effective tax rate. For 1999, the
effective tax rate includes the impact of IRU transactions anticipated to occur
during the year. During the third quarter the Company reduced its profitability
assumptions for the year resulting in an income tax benefit for the quarter. A
valuation allowance was applied against the deferred tax assets arising during
1999 due to uncertainty regarding their realizability. As of September 30, 1999,
the Company has a total valuation allowance of $213.6 million against deferred
tax assets.
5. COMMITMENTS AND CONTINGENCIES
On July 21, 1999, July 23, 1999 and July 27, 1999, five lawsuits were filed
by the Company's stockholders in the Court of Chancery of the State of Delaware
relating to the Company's merger agreement with CBI. A further discussion of
this and other matters relative to the merger with CBI is contained in Note 10
and in Part II, Item I of the Form 10-Q.
In conjunction with the merger with CBI, potential areas of concern have
arisen regarding the Company's reporting under various Environmental Protection
Agency ("EPA") regulations. By comparing information with CBI, potential EPA
violations have been identified. The Company is in the process of inspecting its
facilities over the next 60 days. If any violations are identified, the related
penalties will be recorded during the fourth quarter of 1999. As the inspection
process is underway, it is not possible at this time to estimate the amount of
penalties, if any, that may be due.
The Company is also involved in other legal proceedings arising in the
ordinary course of business, some of which are covered by insurance. In the
opinion of management, none of the claims relating to such
7
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IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
proceedings will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
6. SEGMENT REPORTING
The Company's financial reporting segments are based on the way the chief
operating decision maker organizes the company for making operating decisions
and assessing performance. These segments are based on the different types of
products the Company offers. The segments consist of the private line segment,
the switched long distance segment, and the data/Internet segment. The segments
are separately evaluated because the products or services sold are subject to
different market forces and sales strategies. Management reviews the gross
profits of each reporting segment, but views the costs of the network and
administrative functions as supporting all business segments. Therefore, assets
(other than accounts receivable), liabilities, general and administrative
expenses, interest expense and income, and other expenses are not identified to
any one segment. Losses from equity method subsidiaries are not identified to
any one segment because those subsidiaries may have operations in multiple
segments. All operating revenue shown is derived from sales to external
customers. Revenue related to the sale of options in fibers that are jointly
owned with other carriers are not reported in any segment. The summarized
segment data is as follows (in thousands):
<TABLE>
<CAPTION>
PRIVATE SWITCHED LONG DATA &
THREE MONTHS ENDED SEPTEMBER 30, 1999 LINE DISTANCE INTERNET UNALLOCATED TOTAL
------------------------------------- -------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net operating revenue.................... $ 76,073 $ 77,535 $ 5,556 $10,963 $ 170,127
Cost of services......................... 26,772 73,897 5,691 -- 106,360
-------- -------- ------- ------- ---------
Gross profit............................. 49,301 3,638 (135) 10,963 63,767
Operations and administration............ 66,318
Restructuring charges.................... 6,744
Depreciation and amortization............ 50,651
Merger and other infrequent costs........ 1,078
---------
Operating loss........................... (61,024)
Interest income.......................... 1,039
Interest expense......................... (10,536)
Equity loss from unconsolidated
Subsidiaries........................... (3,066)
Other, net............................... (4)
---------
Loss before provision for income taxes,
minority interest, and extraordinary
item................................... $ (73,591)
=========
</TABLE>
8
<PAGE> 9
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PRIVATE SWITCHED LONG DATA &
THREE MONTHS ENDED SEPTEMBER 30, 1998 LINE DISTANCE INTERNET UNALLOCATED TOTAL
------------------------------------- -------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net operating revenue.................... $ 61,908 $110,741 $ 3,631 $ 8,989 $ 185,269
Cost of services......................... 19,750 86,337 3,897 -- 109,984
-------- -------- ------- ------- ---------
Gross profit............................. 42,158 24,404 (266) 8,989 75,285
Operations and administration............ 40,094
Depreciation and amortization............ 34,801
Merger and other infrequent costs........ 444
---------
Operating loss........................... (54)
Interest income.......................... 2,159
Interest expense......................... (7,580)
Equity loss from unconsolidated
subsidiaries........................... (8,307)
Other, net............................... 181
---------
Loss before provision for income taxes,
minority interest, and extraordinary
item................................... $ (13,601)
=========
</TABLE>
<TABLE>
<CAPTION>
PRIVATE SWITCHED LONG DATA &
NINE MONTHS ENDED SEPTEMBER 30, 1999 LINE DISTANCE INTERNET UNALLOCATED TOTAL
------------------------------------ -------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net operating revenue.................... $220,506 $230,180 $16,084 $22,607 $ 489,377
Cost of services......................... 79,005 225,536 14,912 -- 319,453
-------- -------- ------- ------- ---------
Gross profit............................. 141,501 4,644 1,172 22,607 169,924
Operations and administration............ 179,075
Restructuring charges.................... 32,570
Depreciation and amortization............ 126,494
Merger and other infrequent costs........ 1,223
---------
Operating loss........................... (169,438)
Interest income.......................... 8,702
Interest expense......................... (30,645)
Equity loss from unconsolidated
subsidiaries........................... (19,048)
Other, net............................... (12,729)
---------
Loss before provision for income taxes,
minority interest, and extraordinary
item................................... $(223,158)
=========
</TABLE>
9
<PAGE> 10
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PRIVATE SWITCHED LONG DATA &
NINE MONTHS ENDED SEPTEMBER 30, 1998 LINE DISTANCE INTERNET UNALLOCATED TOTAL
------------------------------------ -------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net operating revenue.................... $154,480 $330,010 $ 5,308 $ 8,989 $ 498,787
Cost of services......................... 61,387 255,598 8,541 -- 325,526
-------- -------- ------- ------- ---------
Gross profit............................. 93,093 74,412 (3,233) 8,989 173,261
Operations and administration............ 99,422
Depreciation and amortization............ 77,589
Merger and other infrequent costs........ 8,089
---------
Operating loss........................... (11,839)
Interest income.......................... 7,080
Interest expense......................... (22,421)
Equity loss from unconsolidated
subsidiaries........................... (30,326)
Other, net............................... 357
---------
Loss before provision for income taxes,
minority interest, and extraordinary
item................................... $ (57,149)
=========
</TABLE>
7. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
At December 31, 1998, the Company was owed $9.4 million by Westel
International ("Westel"), the Company's partner in Progress International LLC
("Progress"). The note was secured by Westel's ownership in Progress, and
repayment was due on May 31, 1999. Westel failed to make scheduled payments on
the note and thereby transferred their share rights to the Company. As a result
of that forfeiture, the Company now owns 65.4% of Progress.
In February 1999 Marca-Tel S.A. de C.V. ("MarcaTel") and its primary
creditor agreed to allow MarcaTel to defer certain payments to the creditor
until June 1999. The creditor was given the right to acquire up to 10% of
MarcaTel and the creditor acquired additional shares which diluted the Company's
indirect interest from 32.1% (after taking into consideration the additional
share rights forfeited by Westel) to 30.5%. In June 1999 MarcaTel did not pay
the creditor, and a default was declared on the loan. Management of MarcaTel and
the Company have been meeting with the creditor during the third quarter to work
out the default provisions and an operating plan going forward. The Company's
indirect investment in MarcaTel was written down to zero in 1998.
In July 1999, the Company entered into an agreement with Unidial
Communications, Inc. to sell its share of Unidial Communications Services, LLC
("Unidial"). In conjunction with this agreement, the Company is relieved from
making any further capital contributions to Unidial. During the second quarter
of 1999, the Company reported losses totaling approximately $10.9 million
related to its investment in Unidial. As of September 30, 1999, the Company's
investment in Unidial was zero.
The Company is currently in discussions with Telenor Carrier Services AS
its joint venture partner, regarding the Company's exit from the joint venture
in Europe ("Storm"). As those discussions are continuing, and it is probable
that the Company will not recover any of its investment in the Storm joint
venture, the Company has written its investment in Storm down to zero. The total
loss from unconsolidated subsidiaries related to the Storm joint venture
recorded by the Company during the third quarter of 1999 was approximately $1.8
million.
8. RESTRUCTURING CHARGE
In the second quarter of 1999, the Company recorded a charge of
approximately $25.8 million to exit certain operations in the switched wholesale
business. The restructuring charge consists of severance and
10
<PAGE> 11
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
various other costs associated with workforce reduction, network
decommissioning, and various terminations. The workforce reduction of 94 people
included employees contributing to the sales function and employees contributing
to the network operations. These actions resulted from management's plan to
reduce traffic, operations, and administrative headcount by exiting this
under-performing business. The restructuring activities are expected to be
substantially complete by March 31, 2000.
In the third quarter of 1999, the Company recorded a charge of
approximately $8.3 million relating to the restructuring of the organization and
to exit certain foreign operations. The plan was developed by the new Chief
Executive Officer after reviewing the Company's operations. The workforce
reduction included management, administrative and foreign sales personnel. The
employees were notified of this program during July and August of 1999.
Generally, all of the charges are expected to be paid by the first quarter of
2000.
With the merger agreement reached between CBI and the Company during the
third quarter, it was determined that the merged companies would need the
switches that had been marked for decommissioning in the second quarter's
restructuring charge. Additionally, it was determined that the total period
contemplated for lease payments relating to an abandoned office would not be
required. As a result, the second quarter's restructuring charge was reduced by
$1.2 million during the third quarter related to decommissioning the switches
and $0.4 million related to reduction in the lease pay off requirement.
Activity in the accrued restructuring liabilities recorded in the second
and third quarters of 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
PAID OR ACCRUED AT
RESTRUCTURING WRITTEN SEPTEMBER 30,
CHARGE DOWN ADJUSTMENTS 1999
------------- ------- ----------- -------------
<S> <C> <C> <C> <C>
SECOND QUARTER:
Severance.................................. $ 2,864 $1,367 $ -- $ 1,497
Network Decommissioning.................... 3,872 158 1,193 2,521
Asset Write-downs.......................... 12,722 658 -- 12,064
Terminate contractual obligations and exit
facilities............................... 6,368 285 380 5,703
------- ------ ------ -------
Total restructuring costs.................. $25,826 $2,468 $1,573 $21,785
======= ====== ====== =======
THIRD QUARTER:
Severance.................................. $ 7,554 $2,743 $ -- $ 4,811
Terminate contractual obligations and exit
facilities............................... 770 30 -- 740
------- ------ ------ -------
$ 8,324 $2,773 $ $ 5,551
======= ====== ====== =======
</TABLE>
9. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that derivative
instruments be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 was amended by SFAS No. 137 to be
effective for all fiscal years beginning after June 15, 2000. Management has not
yet assessed the impact of SFAS No. 133 on the Company's results of operations,
cash flows and financial position.
In June 1999 the FASB issued Interpretation No. 43 on FASB Statement No.
66. Statement No. 66 deals with accounting for real estate transactions.
Interpretation No. 43 specifies that leases of real property cannot be
considered sales type leases unless title to the property transfers at some
point during the lease term.
11
<PAGE> 12
IXC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Under this definition, profit relating to IRU agreements for fiber optic wires
or capacity cannot be recorded when the fiber or capacity is delivered unless
title to the fiber changes hands during the term of the IRU agreement. None of
the Company's IRU agreements include title transfer. The Company has always
recognized the profit from IRU agreements over the term of the IRU agreement;
therefore, no change in accounting will be required.
10. MERGER WITH CINCINNATI BELL, INC.
On July 20, 1999, the Company entered into a definitive merger agreement
with CBI, a diversified telecommunications company headquartered in Cincinnati,
Ohio. In accordance with the terms of the merger agreement (which was approved
by the Boards of Directors of both companies), CBI purchased approximately 5
million shares of the Company's common stock for $50 per share, in cash, from
the General Electric Pension Trust ("GEPT").
In July 1999, five purported stockholder class action suits were filed in
the Delaware Court of Chancery (the "Court") against the Company, certain former
members of the Company's board of directors, CBI and Ivory Merger Inc. These
complaints allege, among other things, that the defendants had breached their
fiduciary duties to the Company's stockholders by failing to maximize
stockholder value in connection with entering into the merger agreement. The
complaints seek charges and a court order enjoining completion of the merger. On
August 12, 1999, plaintiffs in the various actions moved for a preliminary
injunction to prevent the completion of the merger pending a full hearing on the
merits. A hearing in connection with that motion was held on October 20, 1999.
In an October 27, 1999 ruling, the Court denied plaintiffs' request for a
pecuniary injunction. However, the Court did not rule on the merits of the class
action suits, and these suits remain subject to further litigation. The Company
believes that the suits are without merit and intends to vigorously defend
against these complaints.
On November 9, 1999 the Company consummated the merger with CBI whereby the
Company's stockholders exchanged each share of common stock for 2.0976 shares of
CBI common stock. The merger was recorded under the purchase method of
accounting by CBI. In conjunction with the merger, CBI refinanced bank loans
totaling approximately $371.1 million plus accrued interest and terminated the
Company's existing credit facilities with the banks. CBI also refinanced other
loans totaling $20.2 million plus accrued interest at the merger date. In
connection with the merger, CBI and IXC entered into a $1.8 billion credit
facility. This credit facility will be utilized to fund the combined company.
The Company's 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "7 1/4%
Preferred Stock") and the 6 3/4% Cumulative Convertible Stock (the "6 3/4%
Preferred Stock") were replaced with similar issues of CBI preferred stock.
Shares of the 12 1/2% Series B Junior Exchangeable Preferred Stock (the "12 1/2%
Preferred Stock") and the $450 million of 9% Senior Subordinated Notes (the "9%
Notes") remain outstanding after the merger.
11. CREDIT FACILITY
In September 1999, the Company completed a $310 million financing through
Bank of America and amended its existing credit facility. The credit facility
was comprised of two secured revolving loans. During the time the loans were
outstanding, they bore interest at the Company's option of the bank's prime rate
or LIBOR. At September 30, 1999 the interest rate was 8.25% and the Company
borrowed $150 million under this credit facility. In September 1999, an
amendment was made to the $600 million credit facility which fixed the maximum
amount of borrowings at $200 million. On November 9, 1999, the date of the
consummation of the merger, IXC repaid all outstanding borrowings under both
credit facilities.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained below, certain matters
discussed in this item are forward-looking statements that involve a number of
risks and uncertainties. Our 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
our actual results, performance or achievements to be materially different from
those expressed or implied by the forward-looking statements, see
"Business -- Risk Factors" in our Form 10-K for the fiscal year ended December
31, 1998. 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.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and segment data. Results for interim periods
may not be indicative of the results for the full years.
CONSOLIDATED OVERVIEW
Net operating revenue for the quarter and nine months ended September 30,
1999 decreased $15.1 million (8.2%) and $9.4 million (1.9%), respectively, from
the 1998 periods. The current year's revenue includes the results of Coastal
beginning on its acquisition date of May 10, 1999. These year-over-year
decreases reflect significant declines in switched service operations that more
than offset increases in private line and data/ Internet service revenue. Other
revenue of $11.0 million for the third quarter of 1999 and $22.6 million for the
nine-month period relates to the sale of an option of usage rights in fibers
that are owned jointly with another carrier.
Cost of services primarily reflects access charges paid to local exchange
carriers ("LEC's") and transmission lease payments (monetary and nonmonetary) to
other carriers. In comparison to the same periods in 1998, cost of services
decreased $3.6 million (3.3%) and $6.1 million (1.9%) for the quarter and nine
months ended September 30, 1999, respectively. During both periods, increases in
transmission lease expense and data/Internet costs were more than offset by
decreases in access costs relating to the reduction in switched service revenue.
Access cost as a percentage of net switched service revenue has increased
year-over-year due to price competition and the impact of the FCC mandated
access reform, which became effective in July 1998. In 1999 access cost was
84.9% and 87.9% of net switched service revenue for the quarter and nine months
respectively, versus 69.6% and 69.3% for the same periods in 1998.
The decline in revenue coupled with the smaller reduction in cost of
services resulted in a decrease in gross margin of $11.5 million and $3.3
million for the quarter and nine months ended September 30, 1999, respectively.
Gross profit margins decreased from 1998 to 1999 from 40.6% to 37.5% for the
quarter and were flat for the nine month periods at 34.7%.
Operating and administrative costs increased $26.2 million and $79.7
million for the quarter and nine months ended September 30, 1999 to $66.3
million and $179.1 million, respectively. These increases were driven by
additional headcount, from 1,449 at September 1998 to 2,121 at September 1999.
Current year headcount includes employees associated with Coastal, which was
acquired by the Company effective May 10, 1999. The focus of these increased
costs is to build the retail channel's infrastructure as well as to upgrade the
level of information technology across the Company. Costs were also incurred to
operate the larger fiber optic network.
A restructuring charge of $8.3 million was recorded during the third
quarter of 1999 associated with the costs of refocusing and streamlining the
Company's operations. This charge was partially offset by a reduction of $1.6
million in the second quarter's restructuring charge. The refocus includes the
decision to cease the Company's operations in Europe. In the second quarter of
1999 the Company recorded a $25.8 million restructuring charge to exit certain
operations in the switched wholesale business. The $6.7 million net
restructuring charge reflects a third quarter charge of $8.3 million and a
reduction of $1.6 million in the restructuring charge recorded during the second
quarter. The third quarter charge included severance costs
13
<PAGE> 14
associated with the termination of employees and costs to terminate the leases
and business in the Company's London office. There was no such restructuring
charge during the comparable periods in 1998. See Note 8 of the condensed
consolidated financial statements for a detailed description of the
restructuring charges.
Depreciation and amortization expense increased $15.9 million and $48.9
million for the quarter and nine months ended September 30, 1999 respectively,
reflecting the Company's increased investment in the fiber optic network and the
amortization of goodwill from the Coastal acquisition.
Merger and other infrequent costs increased $0.6 million for the quarter
and decreased $6.9 million for the nine months ended September 30, 1999. The
current quarter's increase reflects costs associated with the CBI merger versus
a lower level of costs associated with the Eclipse merger in the same quarter in
the prior year. The nine-month decrease is due to the higher amount of costs
incurred for the Eclipse merger than have been incurred to date for the CBI
merger. The Company expects to incur additional costs of approximately $12
million during the fourth quarter of 1999 related to the merger with CBI.
Interest income declined $1.1 million for the quarter and increased $1.6
million for the nine months ended September 30, 1999. The decline between
quarters is due to less cash on hand during the full quarter in 1999. The
year-to-date increase reflects interest received during the first quarter of
1999 from notes receivable related to IRU agreements versus none during the
prior year.
Net interest expense increased $3.0 million and $8.2 million for the
quarter and nine months ended September 30, 1999, respectively, reflecting the
interest expense from the $450 million 9% Senior Subordinated Notes issued in
April 1998, the $200 million borrowed under our $600 million credit facility in
October 1998 and the $150 million borrowed under the $310 million credit
facility in September 1999. The increase in gross interest expense more than
offset a higher amount of capitalized interest, which was due to the increased
rate of network construction between periods.
Losses from unconsolidated subsidiaries decreased $5.2 million and $11.3
million for the quarter and nine months ended September 30, 1999, respectively.
The quarterly decrease is mainly due to losses in the prior year's from
MarcaTel. No such losses were recorded this year as the Company's investment in
MarcaTel was written down to zero in 1998 and no further significant additional
funding is required. The Company stopped recognizing PSINet losses and began
accounting for this investment using the cost method during the second quarter
of 1998 as its level of ownership and influence over PSINet had diminished. The
year-to-date decrease is due to the reduction in losses recorded for MarcaTel
and PSINet partially offset by the $10.8 million write-off of the Company's
joint venture with Unidial in the second quarter of 1999.
The year-to-date increase in other income/expense of $13.1 million is
mainly due to the $12.8 million reduction of the investment in DCI during the
current year as described in Note 2 to the condensed consolidated financial
statements. For the quarter ended September 30, 1999, other, income/expense was
basically flat in comparison with the same period in the prior year.
Provision for income taxes decreased $6.1 million and $6.4 million for the
quarter and nine months ended September 30, 1999, respectively, reflecting a
lower level of projected fiber sales during the current year along with a higher
operating loss for tax purposes. A valuation allowance is applied against
deferred tax assets arising during the year due to the uncertainty of their
realization.
During the first nine months of 1998 the Company recorded an after-tax
extraordinary charge of $69.6 million relating to the April 1998 redemption of
$284.2 million of the 12 1/2% Senior Notes due 2005. There were no such charges
in 1999.
The Company's net loss applicable to common shareholders increased to $85.8
million and $274.6 million for the quarter and nine months ended September 30,
1999, respectively, from $30.6 million and $178.3 million for the prior year's
comparable periods. These increases are due to the items listed above plus an
increase in the dividends applicable to preferred stock. Dividends applicable to
preferred stock increased $1.4 million and $6.6 million for the quarter and nine
months ended September 30, 1999, respectively. The additional dividends were
primarily from the 6 3/4% Preferred Stock, which was issued in March and April
of 1998, and dividends on the 12 1/2% Preferred Stock, which were paid with
additional shares of 12 1/2% Preferred Stock.
14
<PAGE> 15
SEGMENT INFORMATION
Private Line Services
Net private line revenue increased $14.2 million (22.9%) and $66.0 million
(42.7%) for the quarter and nine months ended September 30, 1999, respectively.
These increases are primarily due to three large contracts, including one with a
significant Internet service provider ("ISP") and the private line agreement
with Excel Communications. The gross profit for this segment improved to $49.3
million and $141.5 million for the quarter and nine months ended September 30,
1999, respectively. The gross margin percentage improved from 64.5% to 64.8%
quarter over quarter and from 60.3% to 64.2% for the nine-month periods. These
improvements reflect an increased use of the Company's network to provide
services.
Switched Service Revenue
Switched long distance revenue declined $33.2 million (30.0%) to $77.5
million during the third quarter of 1999 and $99.8 million (30.3%) to $230.2
million year-to-date. These declines are primarily due to the conversion of the
Company's agreement with Excel Communications, formerly the Company's largest
customer, to a private line contract as it moved traffic to its own network, and
the decision in the second quarter of 1999 to exit a portion of the switched
service business. Cost of services declined $12.4 million (14.4%) and $30.1
million (11.8%) for the quarter and nine months ended September 30, 1999,
respectively, due to the reduction in traffic partially offset by increased
fixed access charges. The switched service segment's gross margin declined $20.8
million for the quarter and $70.0 million year-to-date due mainly to the decline
in net revenue discussed previously.
Data/Internet
Revenue in the data/Internet segment increased $1.9 million and $10.8
million for the quarter and nine months ended September 30, 1999, respectively,
due mainly to the ATM/frame relay and Internet products produced by the Internet
companies the Company acquired during 1998. These products are mainly sold
through the retail distribution channel. The segment's gross margin was
relatively flat quarter-over-quarter and improved from a loss of $3.2 million in
1998 to a profit of $1.2 million for the nine months ended September 30, 1999.
This improvement reflects the increased net revenue being generated by the data/
Internet segment.
Liquidity and Capital Resources
The Company has historically financed the expansion of its network through
the issuance of debt and equity securities, the sale of IRU's in capacity and
fiber, and through borrowing against its investment in PSINet.
During September 1999, the Company completed a $310 million credit facility
which was guaranteed by CBI. The Company's $600 million credit facility was
amended in September 1999 to allow for a maximum capacity of $200 million, the
total amount of borrowings under this credit facility as of September 30, 1999.
The full amount outstanding under both credit facilities was paid off in
conjunction with the consummation of the merger on November 9, 1999. See Note 11
of the condensed consolidated financial statements for further discussion of
this credit facility.
Cash provided by operating activities increased $12.3 million (9.6%) to
$140.2 million for the nine months ended September 30, 1999 primarily due to
increased receipts of cash related to IRU sales.
Cash used in investing activities for the nine months ended September 30,
1999 increased $144.6 million (37.6%) over the prior year to $528.7 million, due
to an increase of $113.1 million in capital expenditures and an increase of
$50.6 million in cash used for the acquisition of businesses. Coastal was
acquired during 1999 versus several small Internet companies acquired during the
prior year. These uses of cash were offset somewhat by a decrease of $20.7
million in investments in unconsolidated subsidiaries between years as the
Company slowed its funding of MarcaTel.
15
<PAGE> 16
Cash provided by financing activities increased $ 27.7 million (11.4%) to
$271.3 million for the nine months ended September 30, 1999. During the same
period in 1998, the Company issued $450 million in 9% Notes and $155.3 million
in 6 3/4% Preferred Stock and redeemed $284.2 million of the 12 1/2% Senior
Notes. During the nine months ended September 30, 1999, the Company entered into
a $310 million credit facility with Bank of America and drew down $150 million
in funds, borrowed $111.8 million against a portion of its PSINet stock and drew
down $27.0 million from the line of credit used in the Coastal acquisition.
At September 30, 1999 the Company had $147.6 million in cash. At November
9, 1999, the date of the consummation of the merger, CBI and IXC obtained a $1.8
billion credit facility which will be used to fund the combined company. A
portion of these funds was used to repay approximately $391.2 million of the
Company's debt.
The Company expects the primary sources of cash over the next 12 months
will be cash on hand, cash generated by operations, proceeds of IRU sales and
proceeds from the CBI credit facility. The Company seeks to obtain sufficient
funding from these sources for the following major uses of cash:
- Network expansion and other capital expenditures;
- Debt service;
- Lease payments;
- Working capital, and;
- Dividends on preferred stock.
Capital spending in 1999 is projected to be approximately $600 million.
After 1999, capital expenditures are expected to continue to be substantial as
the Company intends to continue expanding its fiber-optic network.
The Company is required to make payments under the debt and capital lease
arrangements remaining after the merger with CBI of $1.4 million, $5.9 million,
$13.6 million, and $134.0 million for the remainder of 1999, 2000, 2001, and
2002, respectively. In addition, the Company is required to make semi-annual
interest payments on its 9% Notes and the remaining 12 1/2% Senior Notes.
Dividend payments on the 12 1/2% Preferred Stock are also required. The Company
has the option of paying dividends in additional shares of 12 1/2% Preferred
Stock through February 15, 2001. The Company anticipates that the debt service
will be paid from cash.
The Company is required to make minimum annual lease payments for
facilities, equipment and transmission capacity used in operating the business.
In 1999, 2000, 2001 and 2002, these payments are expected to amount to
approximately $12.7 million, $34.0 million, $24.7 million and $13.6 million,
respectively, on existing operating leases. The Company expects to incur
additional operating lease costs in connection with the expansion of the network
and the retail and Internet operations. Additionally, in connection with the
network expansion from time to time the Company enters into various construction
and installation agreements with contractors.
The forward-looking statements set forth above with respect to the
estimated cash requirements relating to capital expenditures, the Company's
ability to meet such cash requirements and its ability to service debt are based
on certain assumptions as to future events. Important assumptions which if not
met, could adversely affect the Company's ability to achieve satisfactory
results include that: (a) there will be no significant delays with respect to
our network expansion; (b) our contractors and partners in cost-saving
arrangements will perform their obligations; (c) rights-of-way can be obtained
on a timely, cost-effective basis; and (d) the Company will increase traffic on
its network.
YEAR 2000 RISKS
The Year 2000 issue is the result of computer software programs being coded
to use two digits rather than four to define the year. It is possible that some
of the Company's existing computer programs that have date-
16
<PAGE> 17
sensitive coding may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations causing
disruption of operations, which could have a material adverse effect on the
Company's ability to conduct business after January 1, 2000, including an
inability to provide telecommunications services to customers or to accurately
invoice customers or collect payments.
Substantially all of the Company's network was built in the last three
years. As a result, management believes that there is not a significant
investment in legacy systems having substantial Year 2000 exposure. However,
management has established a project team to identify, evaluate and address any
existing Year 2000 issues. This Year 2000 effort covers the fiber optic network
and supporting infrastructure related to providing switched, private line and
data telecommunications services, and other operational and financial
information technology ("IT") systems and applications. Also included in this
effort are various other systems such as building operations and individual
personal computers. The project team is reviewing the status of the Year 2000
compliance effort of key suppliers and other business partners, and is
developing business continuity plans related to Year 2000 issues. While the Year
2000 project team is evaluating all potentially non-compliant systems, the Year
2000 effort is structured to give priority to those systems identified as
"mission critical."
The project team has identified the following principal phases of the
project: a) assessment and planning, b) remediation, c) testing, and d)
contingency planning. The assessment and planning phase was substantially
complete at December 31, 1998. Of the applications identified as critical, over
95% have already been remedied and tested as of September 30, 1999. Testing on
these applications is expected to be completed by November 30, 1999. In
addition, all new components being purchased as part of the ongoing network and
IT infrastructure expansion are being evaluated to ensure compliance.
There can be no assurances that third parties, including customers,
suppliers, and other business partners, will convert their critical systems and
processes in a timely manner. Such failure by any of these parties could disrupt
the Company's business. Therefore, in addition to evaluating the internal
systems, the Company is in the process of evaluating and documenting the status
of Year 2000 compliance efforts by key suppliers.
Management currently projects incurring approximately $3.5 million through
the end of 2000 in connection with the Year 2000 remediation project, of which
approximately $2.4 million was incurred and expensed as of September 30, 1999.
Such amounts are exclusive of amounts which were already anticipated to be spent
on new hardware and software purchases resulting from the expansion of the
network and other business operations. Management believes that a portion of the
Year 2000 expenses will not be incremental costs, but rather will represent the
redeployment of existing IT resources. This redeployment may cause delays in
making other network upgrades or IT enhancements; however, the delays are not
expected to have a material adverse effect on the Company's operations.
As part of the Year 2000 initiative, management is evaluating scenarios
that may occur as a result of the century change and are developing contingency
and business continuity plans tailored for Year 2000-related problems. The
Company is in the process of completing an enterprise-wide business contingency
plan. Elements of the plan are already in place, including working disaster
recovery documents, a key supplier/ business partner survey campaign, and a risk
management program.
The above information regarding cost estimates, risks, and estimated
readiness are forward looking statements based on numerous assumptions of future
events, including the availability and future costs of certain technological and
other resources, third party modification actions and other factors. Given the
complexity of these issues and other unidentified risks, actual results may vary
materially from those anticipated and discussed above. Specific factors that
might cause such differences include, among others, the availability and cost of
personnel trained in this area, the ability to locate and correct all affected
computer code, the timing and success of remedial efforts of the Company's third
party suppliers and similar uncertainties.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates
because the interest rate on approximately $225 million of debt at September 30,
1999 is indexed to floating interest rates. Management monitors the risk
associated with interest rates on an ongoing basis, but the Company has not
entered into any interest rate swaps or other financial instruments to actively
hedge the risk of changes in prevailing interest rates.
Significantly all of the Company's revenue is derived from domestic
operations, so management believes the risk related to foreign currency exchange
rates is minimal.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Five lawsuits have been filed in the Court of Chancery of the State of
Delaware relating to the Company's merger agreement with CBI. The first two
suits, each filed on July 21, 1999 by Angie Garone and Dr. Mark Gross,
respectively, each name the Company, Benjamin L. Scott, and the individuals on
the Company's Board of Directors on July 20, 1999. The third suit, filed on July
23, 1999, by Robert Bernard names the same defendants as the first two suits.
The fourth suit, filed on July 23, 1999, by James Intagliata names the same
defendants of the previously filed suits with the addition of CBI. The fifth
lawsuit was filed on July 27, 1999 by John D. Crawford, Carolyn Bagbey, Rick R.
Davis, Donna Raoust, Olivier Raoust and David Glenn Tatum Smith and names the
same defendants as the previous suits with the addition of Ivory Merger Inc., a
wholly owned subsidiary of CBI. Each suit was brought by a purported
stockholder, individually and allegedly as a class action on behalf of all of
the Company's stockholders. The complaints allege, among other things, that the
Company's former directors aided and abetted by CBI and Ivory Merger Inc., have
breached their fiduciary duties to the Company's stockholders by failing to
maximize stockholder value in connection with entering into the merger
agreement. The complaints also allege that the no solicitation and termination
provisions in the merger agreement with Cincinnati Bell improperly discourage
other potential bidders and prevent the Company entertaining higher offers. The
complaints seek, among other things, damages. On August 12, 1999, plaintiffs in
the various actions moved for a preliminary injunction to prevent the completion
of the merger pending a full hearing on the merits. In an October 27, 1999
ruling the court refused to issue a court order enjoining the merger, however,
the court did not rule on the merits of the class actions suits, and these suits
remain subject to further litigation. The merger was consummated on November 9,
1999. The Company and CBI believe that the complaints are without merit and plan
to vigorously defend themselves against these actions. The Company no longer
considers these suits to be material.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 9, 1999 the Company consummated its merger with CBI. Pursuant
to the merger agreement, upon the consummation of the merger each share of the
Company's common stock was converted into the right to receive 2.0976 shares of
common stock of CBI. In addition, each share of the Company's 7 1/4% Preferred
Stock and its 6 3/4% Preferred Stock was converted into the right to receive CBI
preferred securities with the same terms.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
19
<PAGE> 20
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of July 20, 1999,
among Cincinnati Bell Inc., IXC Communications, Inc. and
Ivory Merger Inc. (incorporated by reference to Exhibit 2.1
of Cincinnati Bell Inc.'s Form 8-K dated July 22, 1999 and
filed with the Commission on July 23, 1999).
2.2 Amendment No. 1 dated as of October 13, 1999, among
Cincinnati Bell Inc., IXC Communications, Inc. and Ivory
Merger Inc. (incorporated by reference to Exhibit 2.1 of
Form 8-K dated October 14, 1999 and filed with the
Commission on October 14, 1999).
3.1+ Restated Certificate of Incorporation of IXC Communications,
Inc., as amended.
3.2+ Bylaws of IXC Communications, Inc., as amended.
4.1 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 (the "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 (File No.
333-2936) (the "S-4")).
4.2 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated
by reference to Exhibit 4.6 of the S-4).
4.3 Form of 12 1/2% Series B Senior Notes due 2005 and
Subsidiary Guarantee (incorporated by reference to Exhibit
4.8 of IXC Communications, Inc.'s Amendment No. 1 to
Registration Statement on Form S-1 filed with the Commission
on June 13, 1996 (File No. 333-4061) (the "S-1 Amendment")).
4.4 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 Amendment).
4.5 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 IXC Communications, Inc.'s
Current Report on Form 8-K dated August 20, 1997, and filed
with the Commission on August 28, 1997 (the "8-K")).
4.6 First Supplemental Indenture dated as of October 23, 1997,
among IXC Communications, Inc., the Guarantors, IXC
International, Inc. and IBJ Schroder Bank & Trust Company
(incorporated by reference to Exhibit 4.13 of IXC
Communications, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997, and filed with the Commission
on March 16, 1998 (the "1997 10-K")).
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.7 Second Supplemental Indenture dated as of December 22, 1997,
among IXC Communications, Inc., the Guarantors, IXC Internet
Services, Inc., IXC International, Inc. and IBJ Schroder
Bank & Trust Company (incorporated by reference to Exhibit
4.14 of the 1997 10-K).
4.8 Third Supplemental Indenture dated as of January 6, 1998,
among IXC Communications, Inc., the Guarantors, IXC Internet
Services, Inc., IXC International, Inc. and IBJ Schroder
Bank & Trust Company (incorporated by reference to Exhibit
4.15 of the 1997 10-K).
4.9 Fourth Supplemental Indenture dated as of April 3, 1998,
among IXC Communications, Inc., the Guarantors, IXC Internet
Services, Inc., IXC International, Inc., and IBJ Schroder
Bank & Trust Company (incorporated by reference to Exhibit
4.15 of IXC Communications, Inc.'s Registration Statement on
Form S-3 filed with the Commission on May 12, 1998 (File No.
333-52433)).
4.10 Purchase Agreement dated as of April 16, 1998, by and among
IXC Communications, Inc., CS First Boston, Merrill, Morgan
Stanley and Nationsbanc Montgomery Securities LLC
(incorporated by reference to Exhibit 4.1 of IXC
Communications, Inc.'s Current Report on Form 8-K dated
April 21, 1998, and filed with the Commission on April 22,
1998 (the "April 22, 1998 8-K").
4.11 Indenture dated as of April 21, 1998, between IXC
Communications, Inc. and IBJ Schroder Bank & Trust Company,
as Trustee (incorporated by reference to Exhibit 4.3 of the
April 22, 1998 8-K).
10.1 Office Lease dated as of 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 Development Agreement by and between
Intertech Management Group, Inc. and IXC Long Distance, Inc.
(incorporated by reference to Exhibit 10.7 of IXC
Communications, Inc.'s and the Guarantors' Amendment No. 1
to Registration Statement on Form S-4 filed with the
Commission on May 20, 1996 (File No. 333-2936) ("Amendment
No. 1 to S-4")).
10.4 Third Amended and Restated Service Agreement dated as of
April 16, 1998, among IXC Long Distance, Inc., IXC Carrier,
Inc., IXC Broadband, Inc. and Excel Telecommunications, Inc.
(incorporated by reference to Exhibit 10.6 of IXC
Communications, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, filed with the Commission on
May 15, 1998 (the "June 30, 1998 10-Q")).
10.5 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).
10.6 IRU Agreement dated as of November 1995 between WorldCom,
Inc. and IXC Carrier, Inc. (incorporated by reference to
Exhibit 10.11 of Amendment No. 1 to the S-4).
10.7 Lease dated as of June 4, 1997, between IXC Communications,
Inc. and Carramerca Realty, L.P. (incorporated by reference
to Exhibit 10.17 of the June 30, 1997 10-Q).
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8 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 IXC
Communications, Inc.'s Amendment No. 1 to Form 10-Q/A for
the quarter ended September 30, 1997 filed with the
Commission on December 12, 1997 (the "September 30, 1997
10-Q/A")).
10.9 Joint Marketing and Services Agreement dated as of July 22,
1997, between IXC Internet Services, Inc. and PSINet Inc.
(incorporated by reference to Exhibit 10.20 of the September
30, 1997 10-Q/A).
10.10 Employment Agreement dated as of September 9, 1997, between
Benjamin L. Scott and IXC Communications, Inc. (incorporated
by reference to Exhibit 10.21 of IXC Communication Inc.'s
Amendment No. 1 to Registration Statement on S-4 filed with
the Commission on December 15, 1997 (File No. 333-37157)
("Amendment No. 1 to the EPS S-4")).
10.11 Employment Agreement dated April 8, 1999, by and between IXC
Communications, Inc. and Valerie G. Walden (incorporated by
reference to Exhibit 10.24 of IXC Communications, Inc.'s
Form 10-Q dated August 16, 1999 and filed with the
Commission on August 16, 1999).
10.12 Employment Agreement dated April 26, 1999, by and between
IXC Communications, Inc. and James F. Guthrie (incorporated
by reference to Exhibit 10.25 of IXC Communications, Inc.'s
Form 10-Q dated August 16, 1999 and filed with the
Commission on August 16, 1999).
10.13 Employment Agreement dated May 27, 1999, by and between IXC
Communications, Inc. and John M. Zrno (incorporated by
reference to Exhibit 10.26 of IXC Communications, Inc.'s
Form 10-Q dated August 16, 1999 and filed with the
Commission on August 16, 1999).
10.14 Contract for Services dated June 28, 1999, by and between
IXC Communications, Inc. and American Business Development
Corp. (incorporated by reference to Exhibit 10.27 of IXC
Communications, Inc.'s Form 10-Q dated August 16, 1999 and
filed with the Commission on August 16, 1999).
10.15 Joint Reporting Agreement dated June 15, 1999 among the
Filing Persons (incorporated by reference to Exhibit 1 of
IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated
June 15, 1999 and filed with the Commission on June 17,
1999).
10.16 Master Agreement dated as of June 2, 1999 between MLI and
Internet (incorporated by reference to Exhibit 2 of IXC
Communications, Inc.'s Amendment No. 1 to Form 13D dated
June 15, 1999 and filed with the Commission on June 17,
1999).
10.17 Securities Loan Agreement dated as of June 2, 1999 between
MLI and Internet (incorporated by reference to Exhibit 3 of
IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated
June 15, 1999 and filed with the Commission on June 17,
1999).
10.18 Confirmation of OTC Transaction dated as of June 3, 1999
between Merrill Lynch International and IXC Internet
Services, Inc. (incorporated by reference to Exhibit 4 of
IXC Communications, Inc.'s Amendment No. 2 to Form 13D dated
June 25, 1999 and filed with the Commission on June 29,
1999).
10.19 Confirmation of OTC Transaction dated as of July 6, 1999
between Merrill Lynch International and IXC Internet
Services, Inc. (incorporated by reference to Exhibit 1 of
IXC Communications, Inc.'s Amendment No. 4 to Form 13D dated
July 31, 1999 and filed with the Commission on August 5,
1999).
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 Employment Agreement dated as of December 7, 1998, by and
between IXC Communications, Inc. and Michael W. Vent
(incorporated by reference to Exhibit 10.25 to IXC
Communications, Inc.'s Form 10-K dated March 26, 1999 and
filed with the Commission on March 31, 1999).
10.21+ Lease Agreement dated October 1, 1998, between The
Prudential Insurance Company of America (as successor in
interest to Kramer 34 HP, Ltd.), as Landlord, and IXC
Communications Services, Inc., as Tenant, as amended by the
First Amendment to Lease Agreement dated December 29, 1998,
the Second Amendment to Lease Agreement dated May 13, 1999,
the Third Amendment to Lease Agreement dated June 1999, the
Fourth Amendment to Lease Agreement dated August 16, 1999,
and the Fifth Amendment to Lease Agreement dated October 1,
1999, relating to certain space in the building commonly
known as Kramer 3 in Austin, Texas.
10.22+ Lease Agreement dated May 13, 1999, between Kramer 34 HP,
Ltd., as Landlord, and IXC Communications Services, Inc., as
Tenant, as amended by the First Amendment to Lease Agreement
dated June 1999, relating to certain space in the building
commonly known as Kramer 2 in Austin, Texas.
27.1+ Financial Data Schedule.
</TABLE>
- ---------------
+ Filed herewith.
(b) Reports on Form 8-K.
(1) Form 8-K dated July 21, 1999 and filed with the Commission on July
21, 1999 with respect to a press release announcing the agreement between
IXC Communications, Inc. and Cincinnati Bell Inc. to an Agreement and Plan
of Merger and a press release reporting on IXC Communications, Inc.'s
anticipated results of operations for the fiscal quarter ending July 31,
1999.
(2) Form 8-K dated July 26, 1999 and filed with the Commission on July
27, 1999 announcing the Agreement and Plan of Merger dated as of July 20,
1999, among IXC Communications, Inc., Cincinnati Bell Inc. and Ivory Merger
Inc. and the Stockholders Agreements and Stock Option Agreements related
thereto.
(3) Form 8-K dated August 3, 1999 and filed with the Commission on
August 4, 1999 with respect to a press release announcing IXC
Communications, Inc.'s results of operations for the fiscal quarter ended
July 31, 1999.
(4) Form 8-K dated August 6, 1999 and filed with the Commission on
August 9, 1999 with respect to two Schedules 13D filed with the Commission
relating to the common stock of PSINet Inc.
(5) Form 8-K dated September 14, 1999 and filed with the Commission on
September 14, 1999 with respect to a press release announcing the
completion of a $310 million credit facility with Bank of America, N.A.
(6) Form 8-K dated September 19, 1999 and filed with the Commission on
September 21, 1999 reporting the approval by IXC Communications, Inc.'s
board of directors of the purchase by Oak Hill Capital Partners, L.P. of up
to five percent of IXC Communications, Inc.'s common stock in the open
market.
(7) Form 8-K dated September 21, 1999 and filed with the Commission on
September 24, 1999 reporting that IXC Communications, Inc.'s 7 1/4% Junior
Convertible Preferred Stock Due 2007, Depositary Shares representing 1/20
of a share of the 6 3/4% Cumulative Convertible Preferred Stock and 12 1/2%
Series B Junior Exchangeable Preferred Stock Due 2009 began trading on the
New York Stock Exchange.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IXC COMMUNICATIONS, INC.
By: /s/ STANLEY W. KATZ
------------------------------------
Stanley W. Katz
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Dated: November 15, 1999
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of July 20, 1999,
among Cincinnati Bell Inc., IXC Communications, Inc. and
Ivory Merger Inc. (incorporated by reference to Exhibit 2.1
of Cincinnati Bell Inc.'s Form 8-K dated July 22, 1999 and
filed with the Commission on July 23, 1999).
2.2 Amendment No. 1 dated as of October 13, 1999, among
Cincinnati Bell Inc., IXC Communications, Inc. and Ivory
Merger Inc. (incorporated by reference to Exhibit 2.1 of IXC
Communications, Inc.'s Form 8-K dated October 14, 1999 and
filed with the Commission on October 14, 1999).
3.1+ Restated Certificate of Incorporation of IXC Communications,
Inc., as amended.
3.2+ Bylaws of IXC Communications, Inc., as amended.
4.1 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 (the "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 (File No.
333-2936) (the "S-4")).
4.2 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated
by reference to Exhibit 4.6 of the S-4).
4.3 Form of 12 1/2% Series B Senior Notes due 2005 and
Subsidiary Guarantee (incorporated by reference to Exhibit
4.8 of IXC Communications, Inc.'s Amendment No. 1 to
Registration Statement on Form S-1 filed with the Commission
on June 13, 1996 (File No. 333-4061) (the "S-1 Amendment")).
4.4 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 Amendment).
4.5 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 IXC Communications, Inc.'s
Current Report on Form 8-K dated August 20, 1997, and filed
with the Commission on August 28, 1997 (the "8-K")).
4.6 First Supplemental Indenture dated as of October 23, 1997,
among IXC Communications, Inc., the Guarantors, IXC
International, Inc. and IBJ Schroder Bank & Trust Company
(incorporated by reference to Exhibit 4.13 of IXC
Communications, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997, and filed with the Commission
on March 16, 1998 (the "1997 10-K")).
4.7 Second Supplemental Indenture dated as of December 22, 1997,
among IXC Communications, Inc., the Guarantors, IXC Internet
Services, Inc., IXC International, Inc. and IBJ Schroder
Bank & Trust Company (incorporated by reference to Exhibit
4.14 of the 1997 10-K).
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.8 Third Supplemental Indenture dated as of January 6, 1998,
among IXC Communications, Inc., the Guarantors, IXC Internet
Services, Inc., IXC International, Inc. and IBJ Schroder
Bank & Trust Company (incorporated by reference to Exhibit
4.15 of the 1997 10-K).
4.9 Fourth Supplemental Indenture dated as of April 3, 1998,
among IXC Communications, Inc., the Guarantors, IXC Internet
Services, Inc., IXC International, Inc., and IBJ Schroder
Bank & Trust Company (incorporated by reference to Exhibit
4.15 of IXC Communications, Inc.'s Registration Statement on
Form S-3 filed with the Commission on May 12, 1998 (File No.
333-52433)).
4.10 Purchase Agreement dated as of April 16, 1998, by and among
IXC Communications, Inc., CS First Boston, Merrill, Morgan
Stanley and Nationsbanc Montgomery Securities LLC
(incorporated by reference to Exhibit 4.1 of IXC
Communications, Inc.'s Current Report on Form 8-K dated
April 21, 1998, and filed with the Commission on April 22,
1998 (the "April 22, 1998 8-K").
4.11 Indenture dated as of April 21, 1998, between IXC
Communications, Inc. and IBJ Schroder Bank & Trust Company,
as Trustee (incorporated by reference to Exhibit 4.3 of the
April 22, 1998 8-K).
10.1 Office Lease dated as of 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 Development Agreement by and between
Intertech Management Group, Inc. and IXC Long Distance, Inc.
(incorporated by reference to Exhibit 10.7 of IXC
Communications, Inc.'s and the Guarantors' Amendment No. 1
to Registration Statement on Form S-4 filed with the
Commission on May 20, 1996 (File No. 333-2936) ("Amendment
No. 1 to S-4")).
10.4 Third Amended and Restated Service Agreement dated as of
April 16, 1998, among IXC Long Distance, Inc., IXC Carrier,
Inc., IXC Broadband, Inc. and Excel Telecommunications, Inc.
(incorporated by reference to Exhibit 10.6 of IXC
Communications, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, filed with the Commission on
May 15, 1998 (the "June 30, 1998 10-Q")).
10.5 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).
10.6 IRU Agreement dated as of November 1995 between WorldCom,
Inc. and IXC Carrier, Inc. (incorporated by reference to
Exhibit 10.11 of Amendment No. 1 to the S-4).
10.7 Lease dated as of June 4, 1997, between IXC Communications,
Inc. and Carramerca Realty, L.P. (incorporated by reference
to Exhibit 10.17 of the June 30, 1997 10-Q).
10.8 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 IXC
Communications, Inc.'s Amendment No. 1 to Form 10-Q/A for
the quarter ended September 30, 1997 filed with the
Commission on December 12, 1997 (the "September 30, 1997
10-Q/A")).
10.9 Joint Marketing and Services Agreement dated as of July 22,
1997, between IXC Internet Services, Inc. and PSINet Inc.
(incorporated by reference to Exhibit 10.20 of the September
30, 1997 10-Q/A).
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10 Employment Agreement dated as of September 9, 1997, between
Benjamin L. Scott and IXC Communications, Inc. (incorporated
by reference to Exhibit 10.21 of IXC Communication Inc.'s
Amendment No. 1 to Registration Statement on S-4 filed with
the Commission on December 15, 1997 (File No. 333-37157)
("Amendment No. 1 to the EPS S-4")).
10.11 Employment Agreement dated April 8, 1999, by and between IXC
Communications, Inc. and Valerie G. Walden (incorporated by
reference to Exhibit 10.24 of IXC Communications, Inc.'s
Form 10-Q dated August 16, 1999 and filed with the
Commission on August 16, 1999).
10.12 Employment Agreement dated April 26, 1999, by and between
IXC Communications, Inc. and James F. Guthrie (incorporated
by reference to Exhibit 10.25 of IXC Communications, Inc.'s
Form 10-Q dated August 16, 1999 and filed with the
Commission on August 16, 1999).
10.13 Employment Agreement dated May 27, 1999, by and between IXC
Communications, Inc. and John M. Zrno (incorporated by
reference to Exhibit 10.26 of IXC Communications, Inc.'s
Form 10-Q dated August 16, 1999 and filed with the
Commission on August 16, 1999).
10.14 Contract for Services dated June 28, 1999, by and between
IXC Communications, Inc. and American Business Development
Corp. (incorporated by reference to Exhibit 10.27 of IXC
Communications, Inc.'s Form 10-Q dated August 16, 1999 and
filed with the Commission on August 16, 1999).
10.15 Joint Reporting Agreement dated June 15, 1999 among the
Filing Persons (incorporated by reference to Exhibit 1 of
IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated
June 15, 1999 and filed with the Commission on June 17,
1999).
10.16 Master Agreement dated as of June 2, 1999 between MLI and
Internet (incorporated by reference to Exhibit 2 of IXC
Communications, Inc.'s Amendment No. 1 to Form 13D dated
June 15, 1999 and filed with the Commission on June 17,
1999).
10.17 Securities Loan Agreement dated as of June 2, 1999 between
MLI and Internet (incorporated by reference to Exhibit 3 of
IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated
June 15, 1999 and filed with the Commission on June 17,
1999).
10.18 Confirmation of OTC Transaction dated as of June 3, 1999
between Merrill Lynch International and IXC Internet
Services, Inc. (incorporated by reference to Exhibit 4 of
IXC Communications, Inc.'s Amendment No. 2 to Form 13D dated
June 25, 1999 and filed with the Commission on June 29,
1999).
10.19 Confirmation of OTC Transaction dated as of July 6, 1999
between Merrill Lynch International and IXC Internet
Services, Inc. (incorporated by reference to Exhibit 1 of
IXC Communications, Inc.'s Amendment No. 4 to Form 13D dated
July 31, 1999 and filed with the Commission on August 5,
1999).
10.20 Employment Agreement dated as of December 7, 1998, by and
between IXC Communications, Inc. and Michael W. Vent
(incorporated by reference to Exhibit 10.25 to IXC
Communications, Inc.'s Form 10-K dated March 26, 1999 and
filed with the Commission on March 31, 1999).
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.21+ Lease Agreement dated October 1, 1998, between The
Prudential Insurance Company of America (as successor in
interest to Kramer 34 HP, Ltd.), as Landlord, and IXC
Communications Services, Inc., as Tenant, as amended by the
First Amendment to Lease Agreement dated December 29, 1998,
the Second Amendment to Lease Agreement dated May 13, 1999,
the Third Amendment to Lease Agreement dated June 1999, the
Fourth Amendment to Lease Agreement dated August 16, 1999,
and the Fifth Amendment to Lease Agreement dated October 1,
1999, relating to certain space in the building commonly
known as Kramer 3 in Austin, Texas.
10.22+ Lease Agreement dated May 13, 1999, between Kramer 34 HP,
Ltd., as Landlord, and IXC Communications Services, Inc., as
Tenant, as amended by the First Amendment to Lease Agreement
dated June 1999, relating to certain space in the building
commonly known as Kramer 2 in Austin, Texas.
27.1+ Financial Data Schedule.
</TABLE>
- ---------------
+ Filed herewith.
(b) Reports on Form 8-K.
(1) Form 8-K dated July 21, 1999 and filed with the Commission on July
21, 1999 with respect to a press release announcing the agreement between
IXC Communications, Inc. and Cincinnati Bell, Inc. to an Agreement and Plan
of Merger and a press release reporting on IXC Communications, Inc.'s
anticipated results of operations for the fiscal quarter ending July 31,
1999.
(2) Form 8-K dated July 26, 1999 and filed with the Commission on July
27, 1999 announcing the Agreement and Plan of Merger dated as of July 20,
1999, among IXC Communications, Inc., Cincinnati Bell Inc. and Ivory Merger
Inc. and the Stockholders Agreements and Stock Option Agreements related
thereto.
(3) Form 8-K dated August 3, 1999 and filed with the Commission on
August 4, 1999 with respect to a press release announcing IXC
Communications, Inc.'s results of operations for the fiscal quarter ended
July 31, 1999.
(4) Form 8-K dated August 6, 1999 and filed with the Commission on
August 9, 1999 with respect to two Schedules 13D filed with the Commission
relating to the common stock of PSINet Inc.
(5) Form 8-K dated September 14, 1999 and filed with the Commission on
September 14, 1999 with respect to a press release announcing the
completion of a $310 million credit facility with Bank of America, N.A.
(6) Form 8-K dated September 19, 1999 and filed with the Commission on
September 21, 1999 reporting the approval by IXC Communications, Inc.'s
board of directors of the purchase by Oak Hill Capital Partners, L.P. of up
to five percent of IXC Communications, Inc.'s common stock in the open
market.
(7) Form 8-K dated September 21, 1999 and filed with the Commission on
September 24, 1999 reporting that IXC Communications, Inc.'s 7 1/4% Junior
Convertible Preferred Stock Due 2007, Depositary Shares representing 1/20
of a share of the 6 3/4% Cumulative Convertible Preferred Stock and 12 1/2%
Series B Junior Exchangeable Preferred Stock Due 2009 began trading on the
New York Stock Exchange.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE
OF
INCORPORATION
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 fifteen million one hundred thousand
(15,100,000) consisting of (i) fifteen
1
<PAGE> 2
million (15,000,000) shares of common stock, par value $.01 per share, and (ii)
one hundred thousand (100,000) 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.
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<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.
3
<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
4
<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
5
<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.
6
<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.
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<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
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<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
FIRST AMENDMENT TO
RESTATED
CERTIFICATE OF INCORPORATION
OF
IXC COMMUNICATIONS, INC.
The undersigned corporation, organized and existing under and by virtue of
the General Corporation Law of the State of Delaware does hereby certify:
1. That Ralph J. Swett and John J. Willingham are the duty elected and
acting Chairman of the Board, Chief Executive Officer and President and Senior
Vice President, Chief Financial Officer and Secretary, respectively, of IXC
Communications, Inc., a Delaware corporation (the "Corporation").
2. Article FOURTH of the Restated Certificate of Incorporation of the
Corporation is amended to read in full as follows:
"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 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 First 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 converted into three shares of common
stock.
3. This First Amendment to Restated Certificate of Incorporation has been
duly approved by the Board of Directors of the Corporation.
4. This First Amendment to Restated Certificate of Incorporation was duly
adopted and approved by the stockholders in accordance with the applicable
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware by the holders of (i) a majority of the outstanding voting shares of
common stock, par value $.01 per share, of the Corporation; and (ii) a majority
of the outstanding shares of the 10% Junior Series 3 Cumulative Redeemable
Preferred Stock, par value $.01 per share, of the Corporation. Prompt written
notice of the adoption of this First Amendment to Restated Certificate of
<PAGE> 12
Incorporation has been given to those stockholders who have not consented in
writing thereto, as provided by Section 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Ralph J. Swett, its Chairman of the Board, Chief Executive Officer and
President, and attested by John J. Willingham, its Senior Vice President, Chief
Financial Office and Secretary, this June 7, 1996.
IXC COMMUNICATIONS, INC.
By: /s/ RALPH J. SWETT
------------------------------------
Ralph J. Swett,
Chairman of the Board,
Chief Executive Officer and
President
Attest:
/s/ JOHN J. WILLINGHAM
- ---------------------------------------
John J. Willingham,
Senior Vice President,
Chief Financial Officer and Secretary
<PAGE> 13
SECOND AMENDMENT TO
RESTATED
CERTIFICATE OF INCORPORATION
OF
IXC COMMUNICATIONS, INC.
The undersigned corporation, organized and existing under and by virtue of
the General Corporation Law of the State of Delaware does hereby certify:
1. That Ralph J. Swett and John J. Willingham are the duly elected and
acting Chairman of the Board, Chief Executive Officer and President and Senior
Vice President, Chief Financial Officer and Secretary, respectively, of IXC
Communications, Inc., a Delaware corporation (the "Corporation").
2. Article FOURTH of the Restated Certificate of Incorporation of the
Corporation is amended to read in full as follows:
"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 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."
3. This Second Amendment to Restated Certificate of Incorporation has been
duly approved by the Board of Directors of the Corporation.
4. This Second Amendment to Restated Certificate of Incorporation was duly
adopted and approved by the stockholders in accordance with the applicable
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware by the holders of (i) a majority of the outstanding voting shares of
common stock, par value $.01 per share, of the Corporation; and (ii) a majority
of the outstanding shares of the 10% Junior Series 3 Cumulative Redeemable
Preferred Stock, par value $.01 per share, of the Corporation. Prompt written
notice of the adoption of this Second Amendment to Restated Certificate of
<PAGE> 14
Incorporation has been given to those stockholders who have not consented in
writing thereto, as provided by Sections 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Ralph J. Swett, its Chairman of the Board, Chief Executive Officer and
President, and attested by John J. Willingham, its Senior Vice President, Chief
Financial Officer and Secretary, this June 12, 1996.
IXC COMMUNICATIONS, INC.
By: /s/ RALPH J. SWETT
Ralph J. Swett,
Chairman of the Board,
Chief Executive Officer and
President
Attest:
/s/ JOHN J. WILLINGHAM
- ---------------------------------------
John J. Willingham,
Senior Vice President,
Chief Financial Officer and Secretary
<PAGE> 15
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> 16
(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> 17
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
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<PAGE> 18
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
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<PAGE> 19
(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> 20
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> 21
(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> 22
"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> 23
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;
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<PAGE> 24
(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> 25
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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<PAGE> 26
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).
12
<PAGE> 27
(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.
13
<PAGE> 28
(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
14
<PAGE> 29
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> 30
(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
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<PAGE> 31
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> 32
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> 33
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
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<PAGE> 34
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> 35
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> 36
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> 37
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> 38
(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> 39
"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
25
<PAGE> 40
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
26
<PAGE> 41
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> 42
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
28
<PAGE> 43
(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> 44
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> 45
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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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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(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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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> 51
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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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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(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
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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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(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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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> 60
(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
46
<PAGE> 61
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).
47
<PAGE> 62
(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
48
<PAGE> 63
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.
49
<PAGE> 64
"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.
50
<PAGE> 65
"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.
51
<PAGE> 66
"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
52
<PAGE> 67
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.
53
<PAGE> 68
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
54
<PAGE> 69
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> 70
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.
2
<PAGE> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
THIRD AMENDMENT TO
RESTATED
CERTIFICATE OF INCORPORATION
OF
IXC COMMUNICATIONS, INC.
The undersigned corporation, organized and existing under and by virtue of
the General Corporation Law of the State of Delaware does hereby certify:
1. That Ralph J. Swett and John J. Willingham are the duly elected and
acting Chairman of the Board, Chief Executive Officer and President and Senior
Vice President, Chief Financial Officer and Assistant Secretary, respectively,
of IXC Communications, Inc., a Delaware corporation (the "Corporation").
2. Section D.1(a) of Article ELEVENTH of the Restated Certificate of
Incorporation of the Corporation is amended to read in full 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 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. Such dividends
<PAGE> 85
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 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."
3. This Third Amendment to Restated Certificate of Incorporation has been
duly approved by the Board of Directors of the Corporation.
4. This Third Amendment to Restated Certificate of Incorporation was duly
adopted and approved by the stockholders in accordance with the applicable
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware by the holders of (i) a majority of the outstanding shares of Common
Stock, par value $.01 per share, and the outstanding shares of 10% Junior Series
3 Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series 3
Preferred Stock"), of the Corporation, voting as a class; and (ii) at least
three-fourths (3/4ths) of the outstanding shares of Series 3 Preferred Stock,
voting as a class. Prompt written notice of the adoption of this Third Amendment
to Restated Certificate of Incorporation has been given to those stockholders
who have not consented in writing thereto, as provided by Section 228 of the
General Corporation Law of the State of Delaware.
<PAGE> 86
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Ralph J. Swett, its Chairman of the Board, Chief Executive Officer and
President, and attested by John J. Willingham, its Senior Vice President, Chief
Financial Officer and Assistant Secretary, this 23 day of June, 1997.
IXC COMMUNICATIONS, INC.
By: /s/ RALPH J. SWETT
------------------------------------
Ralph J. Swett,
Chairman of the Board,
Chief Executive Officer and
President
Attest:
/s/ JOHN J. WILLINGHAM
- ---------------------------------------
John J. Willingham,
Senior Vice President, Chief Financial
Officer and Assistant Secretary
<PAGE> 87
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 $0.1 per
share, with a stated value of $1,000
<PAGE> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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
<PAGE> 112
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
<PAGE> 113
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
<PAGE> 114
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
<PAGE> 115
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> 116
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;
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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.
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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> 119
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.
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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> 121
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> 122
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> 123
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
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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.
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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> 127
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
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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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43
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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58
"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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59
"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);
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(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
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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
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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
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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> 150
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> 151
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> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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> 162
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> 163
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> 164
4
By:
----------------------------------
Name:
Title:
[Seal]
By:
----------------------------------
Name:
Title:
<PAGE> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE 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 OF IXC COMMUNICATIONS, INC. FILED IN THE
OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON AUGUST 19, 1997
IXC Communications, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is IXC Communications, Inc.
2. That a 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 was filed by the Secretary of
State of Delaware on August 19, 1997 and that said certificate
requires correction as permitted by subsection (f) of section 103 of
the General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said certificate to be corrected is as
follows: The first "RESOLVED" paragraph ("RESOLVED Paragraph 1") is to
be corrected.
4. RESOLVED Paragraph 1 of the certificate is corrected to read as
follows:
"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 $1,000 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 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
<PAGE> 174
that are set forth in the Restated Certificate of Incorporation and in
this Resolution as follows:"
IN WITNESS WHEREOF, said IXC Communications, Inc. has caused this
certificate to be signed by John J. Willingham, its Senior Vice President this
29th day of August, 1997.
IXC Communications, Inc.
By: /s/ JOHN J. WILLINGHAM
------------------------------------
John J. Willingham
Its: Senior Vice President
<PAGE> 175
FOURTH AMENDMENT TO
RESTATED
CERTIFICATE OF INCORPORATION
OF
IXC COMMUNICATIONS, INC.
The undersigned corporation, organized and existing under and by virtue of
the General Corporation Law of the State of Delaware does hereby certify:
1. That James F. Guthrie is the duly elected and acting Executive Vice
President and Chief Financial Officer of IXC Communications, Inc., a Delaware
corporation (the "Corporation").
2. Section D.1(a) of Article ELEVENTH of the Restated Certificate of
Incorporation of the Corporation is amended to read in full 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%
<PAGE> 176
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 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."
3. This Fourth Amendment to Restated Certificate of Incorporation has been
duly approved by the Board of Directors of the Corporation.
4. This Fourth Amendment to Restated Certificate of Incorporation was duly
adopted and approved by the stockholders in accordance with the applicable
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware by the holders of (i) a majority of the outstanding shares of Common
Stock, par value $.01 per share, and the outstanding shares of 10% Junior Series
3 Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series 3
Preferred Stock"), of the Corporation, voting class; and (ii) at least
three-fourths (3/4ths) of the outstanding shares of Series 3 Preferred Stock,
voting as a class. Prompt written notice of the adoption of this Fourth
Amendment to Restated Certificate of Incorporation has been given to those
stockholders who have not consented in writing thereto, as provided by Section
228 of the General Corporation Law of the State of Delaware.
<PAGE> 177
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by James F. Guthrie, its Executive Vice President and Chief Financial
Officer this 30th day of October, 1997.
IXC COMMUNICATIONS, INC.
By: /s/ JAMES F. GUTHRIE
------------------------------------
James F. Guthrie, Executive Vice
President and Chief Financial
Officer
<PAGE> 178
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE 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 OF IXC COMMUNICATIONS, INC. FILED IN THE OFFICE OF THE
SECRETARY OF STATE OF DELAWARE ON AUGUST 19, 1997
IXC Communications, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware does hereby
certify:
1. The name of the corporation is IXC Communications, Inc.
2. That a Certificate of Designation of the Powers, Preference 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 (the "Certificate") was filed by the Secretary of State of Delaware on
August 19, 1997 and that the Certificate requires correction as permitted by
subsection (f) of Section 103 of the General Corporation Law of the State of
Delaware.
3. The inaccuracy or defect of the Certificate to be corrected is to
correct the name of IXC Internet Services, Inc. which currently reads IXC
Internet, Inc. in the definition of "IXC Internet Capital Contribution" in
paragraph (n) Certain Definitions. of the Certificate.
4. The paragraph entitled "IXC Internet Capital Contribution" in
paragraph (n) Certain Definitions. of the Certificate is correct to read as
follows:
"IXC Internet Capital Contribution" means the contribution by the
Company to IXC Internet Services, Inc. (so long as IXC Internet
Services, 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 presence, in each case as contemplated in connection
with the transactions contemplated by the PSINet Agreement."
<PAGE> 179
IN WITNESS WHEREOF, IXC Communications, Inc. has caused this certificate to
be signed by its Senior Vice President, General Counsel and Secretary this 21st
day of January, 1998.
IXC COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ JEFFREY C. SMITH
------------------------------------
Jeffrey C. Smith
Senior Vice President,
General Counsel and Secretary
<PAGE> 180
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF
6 3/4% CUMULATIVE
CONVERTIBLE PREFERRED STOCK 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
"Finance Committee") to adopt the resolution set forth below and (ii) the
Finance Committee duly approved and adopted the following resolution on March
25, 1998 (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 "Finance Committee"), all the members of which are members of such
Board, the Finance Committee does hereby create, authorize and provide
for the issuance of 6 3/4% Cumulative Convertible Preferred Stock, par
value $.01 per share, with a stated value of $1000 per share, initially
consisting of up to 155,250 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:
1. 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 "6 3/4% Cumulative Convertible Preferred Stock" (the
"Cumulative Convertible Preferred Stock"). The number of shares constituting the
Cumulative Convertible Preferred Stock shall be 155,250, and such shares shall
be represented by stock certificates substantially in the form set forth in
Exhibit A hereto. The liquidation preference of the Cumulative Convertible
Preferred Stock shall be $1,000
<PAGE> 181
per share (the "Liquidation Preference"). The date the Cumulative Convertible
Preferred Stock is first issued is referred to as the "Issue Date".
2. Rank. The Cumulative Convertible Preferred Stock will, rank
(i) pari passu in right of payment with the Company's 7 1/4% Junior Convertible
Preferred Stock Due 2007 (the "7 1/4% Preferred Stock"), the Company's 12 1/2%
Junior Exchangeable Preferred Stock Due 2009 and 12 1/2% Series B Junior
Exchangeable Preferred Stock Due 2009 (collectively, the "Exchangeable Preferred
Stock") and each other class of Capital Stock or series of Preferred Stock
established hereafter by the Board of Directors, the terms of which expressly
provide that such class or series ranks on a parity with the Cumulative
Convertible Preferred Stock as to dividend rights and rights on liquidation,
dissolution and winding up of the Company (collectively referred to, as "Parity
Securities"); (ii) junior in right of payment to any Senior Securities (as
defined) as to dividends and upon liquidation, dissolution or winding up of the
Company and (iii) senior in right of payment as to dividend rights and upon
liquidation, dissolution or winding up of the Company to the Common Stock and
any Capital Stock of the Company that expressly provides that it will rank
junior to the Cumulative Convertible Preferred Stock as to dividend rights or
rights on liquidation, winding up and dissolution of the Company (collectively
referred to as "Junior Securities"). The Company may not authorize, create (by
way of reclassification or otherwise) or issue any class or series of Capital
Stock of the Company ranking senior in right of payment as to dividend rights or
upon liquidation, dissolution or winding up of the Company to the Cumulative
Convertible Preferred Stock ("Senior Securities") or any obligation or security
convertible or exchangeable into, or evidencing a right to purchase, shares of
any class or series of Senior Securities without the affirmative vote or consent
of the holders of at least 66-2/3% of the outstanding shares of Cumulative
Convertible Preferred Stock.
3. Dividends. The Holders of shares of the Cumulative Convertible
Preferred Stock will be entitled to receive, when, as and if dividends are
declared by the Board of Directors out of funds of the Company legally available
therefor, cumulative preferential dividends from the Issue Date of the
Cumulative Convertible Preferred Stock accruing at the rate of $67.50 per share
of Cumulative Convertible Preferred Stock per annum, or $16.875 per share of
Cumulative Convertible Preferred Stock per quarter, payable quarterly in arrears
on January 1, April 1, July 1, and October 1 of each year or, if any such date
is not a Business Day, on the next succeeding business day (each, a "Dividend
Payment Date"), to the Holders of record as of the next preceding December 15,
March 15, June 15, and September 15 (each, a "Record Date"). Accrued but unpaid
dividends, if any, may be paid on such dates as determined by the Board of
Directors. Dividends will be payable in cash except as set forth below.
Dividends payable on the Cumulative Convertible Preferred Stock will be computed
on the basis of a 360-day year of twelve 30-day months and will be deemed to
accrue on a daily basis. Dividends may, at the option of the Company, be paid in
Common Stock if, and only if, the documents governing the Company's indebtedness
that exists on the Issue Date then prohibit the payment of such dividends in
cash. If the Company elects to pay dividends in shares of Common Stock, the
number of shares of Common Stock to be distributed will be calculated by
dividing the amount of such dividend otherwise payable in cash by 95% of the
arithmetic average of the Closing Price (as defined) for the five Trading Days
(as defined) preceding the Dividend Payment Date. The Cumulative Convertible
Preferred Stock will not be redeemable unless all dividends accrued through such
redemption date shall have been paid in full.
-2-
<PAGE> 182
Notwithstanding anything to the contrary herein contained, the Company shall not
be required to declare or pay a dividend if another person (including, without
limitation, any of its subsidiaries) pays an amount to the Holders equal to the
amount of such dividend on behalf of the Company and, in such event, the
dividend will be deemed paid for all purposes.
Dividends on the Cumulative Convertible Preferred Stock will
accrue whether or not the Company has earnings or profits, whether or not there
are funds legally available for the payment of such dividends and whether or not
dividends are declared. Dividends will accumulate to the extent they are not
paid on the Dividend Payment Date for the quarter to which they relate.
Accumulated unpaid dividends will accrue and cumulate at a rate of 6.75% per
annum. The Company will take all reasonable actions required or permitted under
Delaware law to permit the payment of dividends on the Cumulative Convertible
Preferred Stock.
No dividend whatsoever shall be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the
Cumulative Convertible Preferred Stock with respect to any dividend period
unless all dividends for all preceding dividend periods have been declared and
paid upon, or declared and a sufficient sum set apart for the payment of such
dividend upon, all outstanding shares of Cumulative Convertible Preferred Stock.
Unless full cumulative dividends on all outstanding shares of Cumulative
Convertible Preferred Stock due for all past dividend periods shall have been
declared and paid, or declared and a sufficient sum for the payment thereof set
apart, then: (i) no dividend (other than a dividend payable solely in shares of
Junior Securities or options, warrants or rights to purchase Junior Securities)
shall be declared or paid upon, or any sum set apart for the payment of
dividends upon, any shares of Junior Securities; (ii) no other distribution
shall be declared or made upon, or any sum set apart for the payment of any
distribution upon, any shares of Junior Securities; (iii) no shares of Junior
Securities shall be purchased, redeemed or otherwise acquired or retired for
value (excluding an exchange for shares of other Junior Securities or a
purchase, redemption or other acquisition from the proceeds of a substantially
concurrent sale of Junior Securities) by the Company or any of its subsidiaries;
and (iv) no monies shall be paid into or set apart or made available for a
sinking or other like fund for the purchase, redemption or other acquisition or
retirement for value of any shares of Junior Securities by the Company or any of
its subsidiaries. Holders of the Cumulative Convertible Preferred Stock will not
be entitled to any dividends, whether payable in cash, property or stock, in
excess of the full cumulative dividends as herein described.
4. Liquidation Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company after
payment in full of the liquidation preference (and any accrued and unpaid
dividends) on any Senior Securities, each Holder of shares of the Cumulative
Convertible Preferred Stock shall be entitled, on an equal basis with the
holders of the 7 1/4% Preferred Stock, the Exchangeable Preferred Stock and any
other outstanding Parity Securities, to payment out of the assets of the Company
available for distribution of the Liquidation Preference per share of the
Cumulative Convertible Preferred Stock held by such Holder, plus an amount equal
to the accrued and unpaid dividends on the Cumulative Convertible Preferred
Stock and Liquidated Damages (as defined) (if any) to the date fixed for
liquidation, dissolution, or winding up before any distribution is made on any
Junior Securities, including, without limitation, Common Stock of the Company.
After payment in full of the Liquidation Preference and an amount
-3-
<PAGE> 183
equal to the accrued and unpaid dividends and Liquidated Damages (if any), to
which Holders of Cumulative Convertible Preferred Stock are entitled, such
Holders will not be entitled to any further participation in any distribution of
assets of the Company. However, neither the voluntary 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 corporations
will be deemed to be a voluntary or involuntary liquidation, dissolution or
winding up of the Company, unless such sale, conveyance, exchange, transfer,
consolidation or merger shall be in connection with a liquidation, dissolution
or winding up of the affairs of the Company or reduction or decrease in capital
stock.
5. Redemption. The Cumulative Convertible Preferred Stock may not
be redeemed at the option of the Company on or prior to April 5, 2000. After
April 5, 2000 the Company may redeem the Cumulative Convertible Preferred Stock.
Notwithstanding the foregoing, prior to April 1, 2002, the Company shall only
have the option to redeem shares of the Cumulative Convertible Preferred Stock
if, during the period of 30 consecutive Trading Days ending on the Trading Day
immediately preceding the date that the notice of redemption is mailed to
Holders, the Closing Price for the Common Stock exceeded $75 divided by the
Conversion Rate effective on the date of such notice for at least 20 of such
Trading Days. Subject to the immediately preceding sentence, the Cumulative
Convertible Preferred Stock may be redeemed, in whole or in part, at the option
of the Company after April 5, 2000, at the redemption prices specified below
(expressed as percentages of the Liquidation Preference thereof), in each case,
together with an amount equal to accrued and unpaid dividends on the Cumulative
Convertible Preferred Stock (excluding any declared dividends for which the
Record Date has passed) and Liquidated Damages (if any), to the date of
redemption, upon not less than 15 nor more than 60 days' prior written notice,
if redeemed during the period commencing on April 5, 2000 to March 31, 2001 at
105.40%, and thereafter during the 12-month period commencing on April 1 of each
of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR RATE
- ---- -------
<S> <C>
2001................................................ 104.73%
2002................................................ 104.05%
2003................................................ 103.38%
2004................................................ 102.70%
2005................................................ 102.03%
2006................................................ 101.35%
2007................................................ 100.68%
2008 and thereafter................................. 100.00%
</TABLE>
Except as provided in the preceding sentence, no payment or
allowance will be made for accrued dividends on any shares of Cumulative
Convertible Preferred Stock called for redemption.
On and after any date fixed for redemption (the "Redemption
Date"), provided that the Company has made available at the office of the
Transfer Agent a sufficient amount of cash to effect the redemption, dividends
will cease to accrue on the Cumulative Convertible
-4-
<PAGE> 184
Preferred Stock called for redemption (except that, in the case of a Redemption
Date after a dividend payment Record Date and prior to the related Dividend
Payment Date, holders of Cumulative Convertible Preferred Stock on the dividend
payment Record Date will be entitled on such Dividend Payment Date to receive
the dividend payable on such shares), such shares shall no longer be deemed to
be outstanding and all rights of the holders of such shares as holders of
Cumulative Convertible Preferred Stock shall cease except the right to receive
the cash deliverable upon such redemption, without interest from the Redemption
Date.
In the event of a redemption of only a portion of the then
outstanding shares of Cumulative 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.
With respect to a redemption pursuant hereto, the Company will
send a written notice of redemption by first class mail to each holder of record
of shares of Cumulative 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 Cumulative 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:
a. the redemption price;
b. whether all or less than all the outstanding shares of
the Cumulative Convertible Preferred Stock are to be redeemed and the total
number of shares of the Cumulative Convertible Preferred Stock being redeemed;
c. the Redemption Date;
d. 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 Cumulative Convertible Preferred Stock
to be redeemed; and
e. that dividends on the shares of the Cumulative
Convertible Preferred Stock to be redeemed shall cease to accumulate on such
Redemption Date unless the Company defaults in the payment of the redemption
price.
Each holder of Cumulative Convertible Preferred Stock shall
surrender the certificate or certificates representing such shares of Cumulative
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 redemption price for such shares shall be payable in cash to the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled and retired. In the event that
less than all of the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.
-5-
<PAGE> 185
6. Voting Rights. Holders of record of shares of the Cumulative
Convertible Preferred Stock will have no voting rights, except as required by
law and as provided in this Section 6 and in Sections 2, 8 and 13 hereof. Upon
the accumulation of accrued and unpaid dividends on the outstanding Cumulative
Convertible Preferred Stock in an amount equal to six full quarterly dividends
(whether or not consecutive) (together with any event with a similar effect
pursuant to the terms of any other series of Preferred Stock upon which like
rights have been conferred, a "Voting Rights Triggering Event"), the number of
members of the Company's Board of Directors will be immediately and
automatically increased by two (unless previously increased pursuant to the
terms of any other series of Preferred Stock upon which like rights have been
conferred), and the Holders of a majority of the outstanding shares of
Cumulative Convertible Preferred Stock, voting together as a class (pro rata,
based on liquidation preference) with the holders of any other series of
Preferred Stock upon which like rights have been conferred and are exercisable,
will be entitled to elect two members to the Board of Directors of the Company.
Voting rights arising as a result of a Voting Rights Triggering Event will
continue until such time as all dividends in arrears on the Cumulative
Convertible Preferred Stock are paid in full. Notwithstanding the foregoing,
however, such voting rights to elect directors will expire when the number of
shares of Cumulative Convertible Preferred Stock outstanding is reduced to
13,500 or less.
In the event such voting rights expire or are no longer
exercisable because dividends in arrears have been paid in full, the term of any
directors elected pursuant to the provisions of this paragraph 6 above shall
terminate forthwith and the number of directors constituting the Board of
Directors shall be immediately and automatically 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 Cumulative Convertible Preferred Stock (together with the holders
of any other series of Preferred Stock upon which like rights have been
conferred and are exercisable) pursuant to this paragraph 6, 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 Cumulative Convertible Preferred Stock
then outstanding or the holders of 25% of the shares of any other series of
Preferred Stock then outstanding upon which like rights have been conferred and
are exercisable addressed to the secretary of the Company shall, call a special
meeting of the Holders of Cumulative Convertible Preferred Stock and the holders
of such other series of Preferred 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 (or such vacancies
arise, as the case may be), in which case such meeting shall be deemed to have
been called for such next annual meeting. If such meeting shall not be called,
pursuant to the provision of the immediately preceding sentence, 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 Cumulative Convertible Preferred Stock or
the holders of 25% of the shares of any other series of Preferred Stock upon
which like rights have been conferred 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
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Cumulative Convertible Preferred Stock or such other series of Preferred Stock
so designated shall have, and the Company shall provide, access to the lists of
Holders of Cumulative Convertible Preferred Stock and the holders of such other
series of Preferred Stock for any such meeting of the holders thereof to be
called pursuant to the provisions hereof. If no special meeting of the Holders
of Cumulative Convertible Preferred Stock and the holders of such other series
of Preferred Stock is called as provided in this paragraph 6, then such meeting
shall be deemed to have been called for the next meeting of stockholders of the
Company.
At any meeting held for the purposes of electing directors at
which the Holders of Cumulative Convertible Preferred Stock (together with the
holders of any other series of Preferred 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 Cumulative Convertible Preferred Stock (and such other series of
Preferred Stock) shall be required to constitute a quorum thereof.
Any vacancy occurring in the office of a director elected by the
Holders of Cumulative Convertible Preferred Stock (and such other series of
Preferred Stock) may be filled by the remaining director elected by the Holders
of Cumulative Convertible Preferred Stock (and such other series of Preferred
Stock) unless and until such vacancy shall be filled by the Holders of
Cumulative Convertible Preferred Stock (and such other series of Preferred
Stock).
Except as set forth above and otherwise required by applicable
law, the creation, authorization or issuance of any shares of any Junior
Securities, Parity Securities or Senior Securities, or the increase or decrease
in the amount of authorized Capital Stock of any class, including Preferred
Stock, shall not require the affirmative vote or consent of Holders of
Cumulative Convertible Preferred Stock and shall not be deemed to affect
adversely the rights, preferences, privileges or voting rights of shares of
Cumulative Convertible Preferred Stock.
In any case in which the Holders of Cumulative Convertible
Preferred Stock shall be entitled to vote pursuant hereto or pursuant to
Delaware law, each Holder of Cumulative Convertible Preferred Stock entitled to
vote with respect to such matters shall be entitled to one vote for each share
of Cumulative Convertible Preferred Stock held.
Except as required by law, the Holders of the Cumulative
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.
7. Conversion Rights. The Cumulative Convertible Preferred Stock
will be convertible at the option of the Holder, into shares of Common Stock at
any time, unless previously redeemed or repurchased, at a conversion rate of
13.748 shares of Common Stock per share of the Cumulative Convertible Preferred
Stock) (as adjusted pursuant to the provisions hereof, the "Conversion Rate")
(subject to the adjustments described below). The right to convert a share of
the Cumulative Convertible Preferred Stock called for redemption or delivered
for repurchase will
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terminate at the close of business on the Redemption Date for such Cumulative
Convertible Preferred Stock or at the time of the repurchase, as the case may
be.
The right of conversion attaching to any share of Cumulative
Convertible Preferred Stock may be exercised by the Holder thereof by delivering
the share to be converted to the office of the Transfer Agent, or any agency or
office of the Company maintained for that purpose, accompanied by a duly signed
and completed notice of conversion in form reasonably satisfactory to the
Transfer Agent of the Company, such as that which is set forth in Exhibit B
hereto. The conversion date will be the date on which the share and the duly
signed and completed notice of conversion are so delivered. As promptly as
practicable on or after the conversion date, the Company will issue and deliver
to the Transfer Agent a certificate or certificates for the number of full
shares of Common Stock issuable upon conversion, with any fractional shares
rounded up to full shares or, at the Company's option, payment in cash in lieu
of any fraction of a share, based on the Closing Price of the Common Stock on
the Trading Day preceding the conversion date. Such certificate or certificates
will be delivered by the Transfer Agent to the appropriate Holder on a
book-entry basis or by mailing certificates evidencing the additional shares to
the Holders at their respective addresses set forth in the register of Holders
maintained by the Transfer Agent. All shares of Common Stock issuable upon
conversion of the Cumulative Convertible Preferred Stock will be fully paid and
nonassessable and will rank pari passu with the other shares of Common Stock
outstanding from time to time. Any shares of Cumulative Convertible Preferred
Stock surrendered for conversion during the period from the close of business on
any Record Date to the opening of business on the next succeeding Dividend
Payment Date must be accompanied by payment of an amount equal to the dividends
payable on such Dividend Payment Date on the shares of Cumulative Convertible
Preferred Stock being surrendered for conversion. No other payment or adjustment
for dividends, or for any dividends in respect of shares of Common Stock, will
be made upon conversion. Holders of Common Stock issued upon conversion will not
be entitled to receive any dividends payable to holders of Common Stock as of
any record time before the close of business on the conversion date.
The Conversion Rate shall be adjusted from time to time by the
Company as follows:
a. 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 Rate 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
increased by multiplying such Conversion Rate by a fraction of which the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the Record Date (as defined below) fixed for such
determination and the numerator shall be the sum of such number of outstanding
shares and the total number of shares constituting such dividend or other
distribution, such increase 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 provision (a) is declared but not so paid or made,
the Conversion Rate shall again be adjusted to the Conversion Rate which would
then be in effect if such dividend or distribution had not been declared.
b. If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Rate
in effect at the opening of
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business on the day following the day upon which such subdivision becomes
effective shall be proportionately increased and, conversely, if the outstanding
shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Rate in effect at the opening of business on the
day following the day upon which such combination becomes effective shall be
proportionately reduced, such increase or reduction, 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.
c. If the Company shall offer or issue rights, options 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 below) on the Record Date fixed for the
determination of shareholders entitled to receive such rights or warrants, the
Conversion Rate shall be adjusted so that the same shall equal the rate
determined by multiplying the Conversion Rate in effect at the opening of
business on the date after such Record Date by a fraction 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 number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
subject to such rights, options or warrants would purchase at such Current
Market Price and 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 total
number of additional shares of Common Stock subject to such rights, options 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, options or warrants, upon the expiration or termination
of such rights or warrants the Conversion Rate shall again be adjusted to be the
Conversion Rate 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 Rate shall again be adjusted to be
the Conversion Rate 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.
d. 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 to which
provision (a) of this Section 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 (c) of this Section) (the foregoing hereinafter
called the "Distributed Securities"), then, in each such case, the Conversion
Rate shall be increased so that the same shall be equal to the rate determined
by multiplying the Conversion Rate in effect immediately prior to the close of
business on the Record Date (as defined below) with respect to such distribution
by a fraction of which the denominator shall be the Current Market Price
(determined as provided in provision g(ii) of this Section) of the Common Stock
on such date less the Fair Market Value (as
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defined below) on such date of the portion of the Distributed Securities so
distributed applicable to one share of Common Stock and the numerator shall be
such Current Market Price, such increase 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 Cumulative Convertible Preferred Stock shall have the right
to receive upon conversion of a share of Cumulative Convertible Preferred Stock
(or any portion thereof) the amount of Distributed Securities such holder would
have received had such holder converted such share of Cumulative 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 Rate shall
again be adjusted to be the Conversion Rate 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 hereof by
reference to the actual or when issued trading market for any securities
comprising all 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 provision g(ii) of this section 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 provision (d) (and no adjustment to the
Conversion Rate under this provision (d) 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 Rate under this provision (d) 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 Rate under this provision (d) 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 Rate 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 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 Rate shall be readjusted
as if such rights and warrants had not been issued.
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Notwithstanding any other provision of this provision (d) 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 provision (d) if the Company makes proper
provision so that each Holder of shares of Cumulative Convertible Preferred
Stock who converts a share of Cumulative 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 Cumulative Convertible Preferred Stock into Common Stock.
For purposes of this provision (d), provision (a) and provision
(b), any dividend or distribution to which this provision (d) is applicable that
also includes Common Stock, or rights or warrants to subscribe for or purchase
Common Stock to which provision (b) 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 provision (b) applies (and
any Conversion Rate increase required by this provision (d) 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 Rate increase required by provisions (a) and (b) with
respect to such dividend or distribution shall then be made), except that (1)
the Record Date of such 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 provision (a) 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
provision (b), 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 provision (a).
e. If the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash that is
part of a distribution referred to in provision (d)) 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 provision (e) 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 provision
(d) has been made, exceeds 10% of the product of the Current Market Price
(determined as provided below) 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 Rate shall be
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increased so that the same shall equal the price determined by multiplying the
Conversion Rate in effect immediately prior to the close of business on such
Record Date by a fraction (i) the denominator 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 10% amount divided by (y) the
number of shares of Common Stock outstanding on the Record Date and (ii) the
numerator 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 Cumulative
Convertible Preferred Stock shall have the right to receive upon conversion of a
share of Cumulative Convertible Preferred Stock (or any portion thereof) the
amount of cash such holder would have received had such holder converted such
share of Cumulative 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 Rate shall again be adjusted to be the Conversion Rate
which would then be in effect if such dividend or distribution had not been
declared.
f. 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 that, combined
together with (1) the aggregate of the cash plus the Fair Market Value, 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 provision (f) has been made and (2) the aggregate amount of any
distributions to all holders of 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 provision (e) has been made, exceeds 10% of the
product of the Current Market Price 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 Rate shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Rate in effect
immediately prior to the close of business on the date of the Expiration Time by
a fraction of which the denominator 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 numerator shall be the sum of (x)
the Fair Market Value 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
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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 Rate shall again be adjusted to be
the Conversion Rate which would then be in effect if such tender offer had not
been made. If the application of this provision (f) to any tender offer would
result in a decrease in the Conversion Rate, no adjustment shall be made for
such tender offer under this provision (f).
The Company may make voluntary increases in the Conversion Rate
in addition to those required in the foregoing provisions, provided that each
such increase is in effect for at least 20 calendar days.
In addition, in the event that any other transaction or event
occurs as to which the foregoing Conversion Rate adjustment provisions are not
strictly applicable but the failure to make any adjustment would adversely
affect the conversion rights represented by the Cumulative Convertible Preferred
Stock in accordance with the essential intent and principles of such provisions,
then, in each such case, either (i) the Company will appoint an investment
banking firm of recognized national standing, or any other financial expert that
does not (or whose directors, officers, employees, affiliates or stockholders do
not) have a direct or material indirect financial interest in the Company or any
of its subsidiaries, who has not been, and, at the time it is called upon to
give independent financial advice to the Company, is not (and none of its
directors, officers, employees, affiliates or stockholders are) a promoter,
director or officer of the Company or any of its subsidiaries, which will give
their opinion upon or (ii) the Board of Directors shall, in its sole discretion,
determine consistent with the Board of Directors' fiduciary duties to the
holders of the Company's Common Stock, the adjustment, if any, on a basis
consistent with the essential intent and principles established in the foregoing
Conversion Rate adjustment provisions, necessary to preserve, without dilution,
the conversion rights represented by the Cumulative Convertible Preferred Stock.
Upon receipt of such opinion or determination, the Company will promptly mail a
copy thereof to the Holders of the Cumulative Convertible Preferred Stock and
will, subject to the fiduciary duties of the Board of Directors, make the
adjustments described therein.
The Company will provide to Holders of the Cumulative Convertible
Preferred Stock reasonable notice of any event that would result in an
adjustment to the Conversion Rate pursuant to this section so as to permit the
Holders to effect a conversion of Cumulative Convertible Preferred Stock into
shares of Common Stock prior to the occurrence of such event.
g. For purposes of this section, the following terms shall
have the meaning indicated:
i. "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.
ii. "Fair Market Value" shall mean the amount which
a willing buyer would pay a willing seller in an arm's-length transaction, under
usual and ordinary circumstances and after consideration of all available uses
and purposes without any compulsion
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upon the seller to sell or the buyer to buy, as determined by the Board of
Directors, whose determination shall be made in good faith and shall be
conclusive and described in a resolution of the Board of Directors.
iii. "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).
h. No adjustment in the Conversion Rate shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such rate; provided, however, that any adjustments which by reason of this
paragraph are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this paragraph
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.
i. Whenever the Conversion Rate is adjusted as herein
provided, the Company shall promptly file with the Transfer Agent an Officers'
Certificate setting forth the Conversion Rate 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 Rate setting forth the adjusted Conversion Rate and
the date on which each adjustment becomes effective and shall mail such notice
of such adjustment of the Conversion Rate to each holder of Cumulative
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.
j. In any case in which this paragraph 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 Cumulative 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.
k. For purposes of this paragraph, 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.
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8. Certain Covenants.
a. Transactions with Affiliates
Without the affirmative vote or consent of the holders of
a majority of the outstanding shares of Cumulative Convertible Preferred Stock,
the Company will not, and will not permit any of its subsidiaries to, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
subsidiary with an unrelated Person and (ii) the Company files in its minute
books with respect to any Affiliate Transaction or series of related Affiliate
Transaction involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the members
of the Board of Directors that are disinterested as to such Affiliate
Transaction.
As used herein, "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 purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
The provisions of the foregoing paragraph shall not
prohibit (i) 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, (ii) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the Board of Directors,
(iii) any employment or consulting arrangement or agreement entered into by the
Company or any of its subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such subsidiary, (iv) the
payment of reasonable fees to directors of the Company and its subsidiaries who
are not employees of the Company or its subsidiaries, (v) any Affiliate
Transaction between the Company and a subsidiary thereof or between such
subsidiaries (for purposes of this paragraph, "subsidiary" includes any entity
deemed to be an Affiliate because the Company or any of its subsidiaries own
securities in such entity or controls such entity), or (vi) transactions between
the Company or any subsidiary thereof specifically contemplated by the PSINet
Agreement dated as of July 22, 1997 between a subsidiary of the Company and
PSINet, as amended as of the date hereof.
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b. Payments for Consent
The Company nor any of its subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
dividend or other distribution, fee or otherwise, to any Holder of shares of the
Cumulative Convertible Preferred Stock for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Certificate of
Designations or the Cumulative Convertible Preferred Stock unless such
consideration is offered to be paid and is paid to all Holders of the Cumulative
Convertible Preferred Stock that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
c. Reports
Whether or not required by the rules and regulations of
the Commission, so long as any shares of the Cumulative Convertible Preferred
Stock are outstanding, the Company will furnish to the Holders of the Cumulative
Convertible Preferred Stock (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all information that
would be required to be contained in a current report on Form 8-K if the Company
were required to file such reports. In the event the Company has filed any such
report with the Commission, it will not be obligated to separately finish the
report to any Holder unless and until such Holder requests a copy of the report.
In addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request.
9. Merger, Consolidation or Sale of Assets of the Company
In the event that the Company is party to any Fundamental Change
or transaction (including, without limitation, a merger other than a merger that
does not result in a reclassification, conversion, exchange or cancellation of
Common Stock), consolidation, sale of all or substantially all of the assets of
the Company, recapitalization or reclassification of Common Stock (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination of Common Stock) or any
compulsory share exchange (each of the foregoing, including any Fundamental
Change, being referred to as a "Transaction"), the Company will be obligated,
subject to applicable provisions of state law and the restrictions of the
Indenture, either to offer (a "Repurchase Offer") to purchase all of the shares
of Cumulative Convertible Preferred Stock on the date (the "Repurchase Date")
that is 75 days after the date the Company gives notice of the Transaction, at a
price (the "Repurchase Price") equal to $1,000.00 per share of Cumulative
Convertible Preferred Stock, together with an amount equal to accrued and unpaid
dividends on the Cumulative Convertible Preferred Stock through the Repurchase
Date or to adjust the Conversion Rate as described below. If a Repurchase Offer
is made, the Company shall deposit, on or prior to the Repurchase Date, with a
paying agent an amount of money sufficient to
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pay the aggregate Repurchase Price of the Cumulative Convertible Preferred Stock
which is to be paid on the Repurchase Date.
On or before the 15th day after the Company knows or reasonably
should know that a Transaction has occurred, the Company will be required to
mail to all Holders a notice of the occurrence of such Transaction and whether
or not the documents governing the Company's indebtedness permit at such time a
Repurchase Offer, and, as applicable, either the new Conversion Rate (as
adjusted at the option of the Company) or the date by which the Repurchase Offer
must be accepted, the Repurchase Price for the Cumulative Convertible Preferred
Stock and the procedures which the holder must follow to accept the Repurchase
Offer. To accept the Repurchase Offer, the Holder of a share of Cumulative
Convertible Preferred Stock will be required to deliver, on or before the 10th
day prior to the Repurchase Date, written notice to the Company (or an agent
designated by the Company for such purpose) of the holder's acceptance, together
with the certificates evidencing the Cumulative Convertible Preferred Stock with
respect to which the offer is being accepted, duly endorsed for transfer.
In the event the Company does not make a Repurchase Offer with
respect to a Transaction and such Transaction results in shares of Common Stock
being converted into the right to receive, or being exchanged for, (i) in the
case of any Transaction other than a Transaction involving a Common Stock
Fundamental Change (as defined below) (and subject to funds being legally
available for such purpose under applicable law at the time of such conversion),
securities, cash or other property, each share of the Cumulative Convertible
Preferred Stock shall thereafter be convertible into the kind and, in the case
of a Transaction which does not involve a Fundamental Change (as defined below),
amount of securities, cash and other property receivable upon the consummation
of such Transaction by a holder of that number of shares of Common Stock into
which a share of the Cumulative Convertible Preferred Stock was convertible
immediately prior to such Transaction, or (ii) in the case of a Transaction
involving a Common Stock Fundamental Change, common stock, each share of the
Cumulative Convertible Preferred Stock shall thereafter be convertible (in the
manner described therein) into common stock of the kind received by holders of
Common Stock (but in each case after giving effect to any adjustment discussed
below relating to a Fundamental Change if such Transaction constitutes a
Fundamental Change), other than as required by Delaware law.
If any Fundamental Change occurs, then the Conversion Rate in
effect will be adjusted immediately after such Fundamental Change as described
below. In addition, in the event of a Common Stock Fundamental Change, each
share of Cumulative Convertible Preferred Stock shall be convertible solely into
common stock of the kind received by holders of Common Stock as a result of such
Common Stock Fundamental Change.
The Conversion Rate in the case of any Transaction involving a
Fundamental Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change
(as defined below), the Conversion Rate will thereupon become the higher of (A)
the Conversion Rate in effect immediately prior to such Non-Stock Fundamental
Change, but after giving effect to any other prior
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adjustments effected, and (B) a fraction, the numerator of which is (x) the
redemption rate for one share of the Cumulative Convertible Preferred Stock if
the redemption date were the date of such Non-Stock Fundamental Change (or, for
the period commencing on the first date of original issuance of the Cumulative
Convertible Preferred Stock and through April 1, 1999, and the twelve-month
period commencing April 1, 1999, the product of 106.75% and 106.075%,
respectively), multiplied by $1000 plus (y) the amount of any then-accrued and
unpaid dividends on one share of the Cumulative Convertible Preferred Stock, and
the denominator of which is the greater of the Applicable Price or the then
applicable Reference Market Price; and
(ii) in the case of a Common Stock Fundamental
Change, the Conversion Rate in effect immediately prior to such Common Stock
Fundamental Change, but after giving effect to any other prior adjustments
effected, will thereupon be adjusted by multiplying such Conversion Rate by a
fraction of which the denominator will be the Purchaser Stock Price (as defined
below) and the numerator will be the Applicable Price; provided, however, that
in the event of a Common Stock Fundamental Change in which (A) 100% of the value
of the consideration received by a holder of Common Stock is common stock of the
successor, acquirer, or other third party (and cash, if any, is paid only with
respect to any fractional interests in such common stock resulting from such
Common Stock Fundamental Change) and (B) all Common Stock will have been
exchanged for, converted into, or acquired for common stock (and cash with
respect to fractional interests) of the successor, acquirer, or other third
party, the Conversion Rate in effect immediately prior to such Common Stock
Fundamental Change will thereupon be adjusted by multiplying such Conversion
Rate by the number of shares of common stock of the successor, acquirer, or
other third party received by a holder of one share of Common Stock as a result
of such Common Stock Fundamental Change.
The term "Applicable Price" means (i) in the case of a Non-Stock
Fundamental Change in which the holders of 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 Fundamental Change or any Common Stock
Fundamental Change, the average of the Closing Price (as defined below) for
Common Stock during the ten Trading Days prior to the record date for the
determination of the holders of Common Stock entitled to receive such
securities, cash, or other property in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change or, if there is no such
record date, the date upon which the holders of Common Stock shall have the
right to receive such securities, cash, or other property (such record date or
distribution date being hereinafter referred to as the "Entitlement Date") in
each case as adjusted in good faith by the Company to appropriately reflect any
of the events referred to above.
The term "Common Stock Fundamental Change" means any Fundamental
Change 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 prior to the Entitlement Date has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the Nasdaq National Market; provided, however, that a
Fundamental Change shall not be a Common Stock Fundamental Change unless either
(i) the Company continues to exist after the occurrence of such Fundamental
Change and the outstanding Cumulative Convertible Preferred
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Stock continues to exist as outstanding Cumulative Convertible Preferred Stock
or (ii) not later than the occurrence of such Fundamental Change, the
outstanding Cumulative Convertible Preferred Stock is converted into or
exchanged for shares of convertible Preferred Stock of an entity succeeding to
the business of the Company or a subsidiary thereof, 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 Cumulative Convertible Preferred Stock.
The term "Fundamental Change" means the occurrence of any
Transaction or event in connection with a plan pursuant to which all or
substantially all Common Stock shall be exchanged for, converted into, acquired
for, or constitute solely the right to receive securities, cash, or other
property (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise), provided, that, in the case of a plan involving more than one such
Transaction or event, for purposes of adjustment of the Conversion Rate, such
Fundamental Change shall be deemed to have occurred when substantially all
Common Stock shall be exchanged for, converted into, or acquired for or
constitute solely the right to receive securities, cash, or other property, but
the adjustment shall be based upon the consideration that a holder of Common
Stock received in such Transaction or event as a result of which more than 50%
of Common Stock shall have been exchanged for, converted into, or acquired for
or constitute solely the right to receive securities, cash, or other property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other than
a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any
Common Stock Fundamental Change, the average of the Closing Prices for the
common stock received in such Common Stock Fundamental Change for the ten
consecutive Trading Days prior to and including the Entitlement Date, as
adjusted in good faith by the Company to appropriately reflect any of the events
referred to above.
The term "Reference Market Price" shall initially mean $38.79
(which is an amount equal to 66 2/3% of the reported last sales price for Common
Stock on the Nasdaq National Market on March 25, 1998) and in the event of any
adjustment of the Conversion Rate other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the Conversion Rate after giving
effect to any such adjustment shall always be the same as the ratio of the
initial Reference Market Price to the initial Conversion Rate.
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; (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; (3) of any
reclassification of the Common Stock of the Company (other than a subdivision or
combination of its outstanding Common Stock); (4) of any consolidation or merger
to which the Company is a party and for which approval of any shareholders of
the Company is required; (5) the sale or transfer of all or substantially all
the assets of the Company; or (6) of the voluntary or involuntary dissolution,
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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 Cumulative Convertible Preferred Stock, and shall
cause to be mailed to all holders at their last addresses as they shall appear
in the Cumulative 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.
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 Cumulative
Convertible Preferred Stock, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding shares of Cumulative Convertible
Preferred Stock.
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 Cumulative 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 Cumulative Convertible Preferred Stock or the shares of Cumulative
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.
10. Reissuance of Cumulative Convertible Preferred Stock. Shares
of Cumulative Convertible Preferred Stock redeemed for or converted into Common
Stock or that have been reacquired in any manner shall not be reissued as shares
of Cumulative 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 Cumulative Convertible Preferred Stock
are outstanding, any issuance of such shares must be in compliance with the
terms hereof.
11. 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.
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12. 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.
13. Amendment, Supplement and Waiver. The Company may amend this
Certificate of Designation with the affirmative vote or consent of the holders
of a majority of the shares of Cumulative Convertible Preferred Stock then
outstanding, (including votes or consents obtained in connection with a tender
offer or exchange offer for the Cumulative Convertible Preferred Stock) and,
except as otherwise provided by applicable law, any past default or failure to
comply with any provision of this Certificate of Designation may also be waived
with the consent of such holders. Notwithstanding the foregoing, however,
without the consent of each Holder affected, an amendment or waiver may not
(with respect to any shares of the Cumulative Convertible Preferred Stock held
by a non-consenting Holder): (i) alter the voting rights with respect to the
Cumulative Convertible Preferred Stock or reduce the number of shares of the
Cumulative Convertible Preferred Stock whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the Liquidation Preference of any
share of the Cumulative Convertible Preferred Stock or adversely alter the
provisions with respect to the redemption of the Cumulative Convertible
Preferred Stock, (iii) reduce the rate of or change the time for payment of
dividends on any share of the Cumulative Convertible Preferred Stock, (iv) waive
a default in the payment of dividends or Liquidated Damages (if any) on the
Cumulative Convertible Preferred Stock, (v) make any share of the Cumulative
Convertible Preferred Stock payable in money other than United States dollars,
(vi) make any change in the provisions of the Certificate of Designation
relating to waivers of the rights of Holders of the Cumulative Convertible
Preferred Stock to receive the Liquidation Preference, dividends or Liquidated
Damages (if any) on the Cumulative Convertible Preferred Stock, or (vii) make
any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder
of the Cumulative Convertible Preferred Stock, the Company may (to the extent
permitted by, and subject to the requirements of, Delaware law) amend or
supplement this Certificate of Designation to cure any ambiguity, defect or
inconsistency, to provide for uncertificated shares of the Cumulative
Convertible Preferred Stock in addition to or in place of certificated shares of
the Cumulative Convertible Preferred Stock, to make any change that would
provide any additional rights or benefits to the Holders of the Cumulative
Convertible Preferred Stock or to make any change that the Board of Directors
determines, in good faith, is not materially adverse to Holders of the
Cumulative Convertible Preferred Stock.
14. Shelf Registration; Liquidated Damages. Pursuant to the
Registration Rights Agreement, the Company will agree to file a Shelf
Registration Statement with the Commission on the appropriate form under the
Securities Act with respect to the Cumulative Convertible Preferred Stock, any
depositary shares issued in connection with the Cumulative Convertible Preferred
Stock (the "Depositary Shares"), and Common Stock issuable upon conversion
thereof or paid as dividends thereon, to cover resales of the Depositary Shares,
the Cumulative Convertible Preferred Stock or such Common Stock by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Company will use its
best efforts to cause the Shelf Registration Statement to be declared effective
as promptly as possible by
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the Commission. For purposes hereof, "Transfer Restricted Securities" means each
Depositary Share or share of the Cumulative Convertible Preferred Stock or
Common Stock issuable upon conversion thereof or paid as dividends thereon until
the earlier of (i) the date on which such Depositary Share or share of
Cumulative Convertible Preferred Stock or Common Stock 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 Depositary Share or share
of Cumulative Convertible Preferred Stock or Common Stock is eligible to be
distributed to the public pursuant to Rule 144(k) under the Securities Act.
The Registration Rights Agreement will provide that the Company
will (i) file the Shelf Registration Statement with the Commission on or prior
to 45 days after the Issue Date, (ii) use its best efforts to cause the Shelf
Registration to be declared effective by the Commission on or prior to June 26,
1998 and (iii) use its best efforts to maintain the effectiveness of the Shelf
Registration Statement until all Depositary Shares, shares of Cumulative
Convertible Preferred Stock and shares of Common Stock issued upon conversion
thereof or as dividends thereon that are not held by affiliates of the Company
(A) may be resold without restriction under Rule 144(k) under the Securities Act
or (B) have been sold pursuant to the Shelf Registration Statement (subject to
the Company's right to notify Holders that the Prospectus contained therein
ceases to be accurate and complete as a result of material business developments
for up to 120 days during such three-year period, provided that (A) no single
period may exceed 45 days and (B) such periods in the aggregate may not exceed
60 days in any calendar year). If (a) the Company fails to file the Shelf
Registration Statement required by the Registration Rights Agreement on or
before the date specified for such filing, (b) such Shelf Registration Statement
is not declared effective by the Commission on or prior to the date specified
for such effectiveness (the "Effectiveness Target Date") or (c) the Shelf
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (c) above a "Registration Default"),
then the Company will pay Liquidated Damages as required by the Registration
Rights Agreement to each Holder of shares of the Cumulative Convertible
Preferred Stock which are Transfer Restricted Securities (and the corresponding
Depositary Shares), with respect to the first 45-day period immediately
following the occurrence of such Registration Default in an amount equal to
$0.25 per year per Depositary Share ($5.00 per year per $1,000 in Liquidation
Preference of the Cumulative Convertible Preferred Stock) held by such Holder.
The amount of the Liquidated Damages will increase by an additional $2.50 per
year per $1,000 in Liquidation Preference of the Cumulative Convertible
Preferred Stock with respect to any subsequent period until all Registration
Defaults have been cured. In addition, holders of shares of the Cumulative
Convertible Preferred Stock which are Transfer Restricted Securities may receive
Liquidated Damages with respect to Common Stock which are Transfer Restricted
Securities issued in lieu of paying dividends in cash. The Liquidated Damages
amount per share of Common Stock will be equal to the Liquidated Damages per
share of Cumulative Convertible Preferred Stock, divided by the Conversion Rate.
All accrued Liquidated Damages will be paid by the Company, to the extent
permitted by applicable law, on each Dividend Payment Date and, to the extent
the net dividend payable on such date may be paid through the issuance of Common
Stock, may be paid in Common Stock (valued on the same basis as for the dividend
then payable). Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease. Notwithstanding anything to
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the contrary herein contained, during any period, the Company will not be
required to pay Liquidated Damages with respect to more than one Registration
Default.
The summary herein of certain provisions of the Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Registration Rights Agreement, a copy of which is available upon request to the
Company.
15. Transfer and Exchange. When Cumulative Convertible Preferred
Stock is presented to the Transfer Agent with a request to register the transfer
of such Cumulative Convertible Preferred Stock or to exchange such Cumulative
Convertible Preferred Stock for an equal number of shares of Cumulative
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 and such transfer or
exchange is in compliance with applicable laws or regulations.
16. 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:
"Board of Directors" mean the Board of Directors of the Company
or any committee thereof duly authorized to act on behalf of the Board.
"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.
"Closing Price" means on any day the reported last bid price on
such day, or in case no sale takes place on such day, the average of the
reported closing bid and asked prices 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, in each case
adjusted for any stock split during the relevant period.
"Commission" means the Securities and Exchange Commission.
"Default" means any event which is, or after notice or passage of
time or both would be, a Voting Rights Triggering Event.
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"Holders" means the registered holders from time to time of the
Cumulative Convertible Preferred Stock.
"Indenture" means the Indenture dated as of October 5, 1995, as
supplemented and amended, between the Company and IBJ Schroder Bank & Trust
Company.
"Liquidated Damages" means, with respect to any share of
Cumulative Convertible Preferred Stock, the additional amounts payable pursuant
to Section 14 hereof.
"Officers' Certificate" means a certificate signed by two
officers of the Company.
"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.
"Registration Rights Agreement" means the Registration Rights
Agreement among the Company, Goldman, Sachs & Co., Credit Suisse First Boston
Corporation, Merrill Lynch & Company and Morgan Stanley Dean Witter with respect
to the Cumulative Convertible Preferred Stock.
"Securities Act" means the Securities Act of 1933.
"Shelf Registration Statement" means a shelf registration
statement filed with the Commission 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.
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"Transfer Agent" means the transfer agent for the Cumulative
Convertible Preferred Stock appointed by the Company, which initially shall be
BankBoston, N.A.
"Transfer Restricted Securities" means each share of Cumulative
Convertible Preferred Stock (or the shares of Common Stock into which such share
of Cumulative Convertible Preferred Stock is convertible) 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.
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IN WITNESS WHEREOF, said IXC Communications, Inc., has caused
this Certificate of Designation to be signed by James F. Guthrie, its Executive
Vice President and Chief Financial Officer, this 30th day of March, 1998.
IXC COMMUNICATIONS, INC.,
by /s/ JAMES F. GUTHRIE
---------------------------------------
Name: James F. Guthrie
Title: Executive Vice President
and Chief Financial Officer
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EXHIBIT A
FORM OF CONVERTIBLE PREFERRED STOCK
FACE OF SECURITY
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHOM 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
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTION
THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, AND IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES
LAWS OF THE STATES OF THE UNITED STATES.
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.
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Certificate Number Number of Shares of Convertible
Preferred Stock
[ ] [ ]
CUSIP NO.: 450713870
6 3/4% Cumulative Convertible Preferred Stock (par
value $0.01) (liquidation preference $1,000
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 6 3/4%
Cumulative Convertible Preferred Stock (par value $0.01) (liquidation preference
$1,000 per share of Cumulative Convertible Preferred Stock) (the "Cumulative
Convertible Preferred Stock"). The shares of Cumulative 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,
restrictions, preferences and other terms and provisions of the Cumulative
Convertible Preferred Stock represented hereby are issued and shall in all
respects be subject to the provisions of the Certificate of Designation dated
March [ ], 1998, 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 Cumulative
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 Cumulative Convertible Preferred
Stock shall not be entitled to any benefit under the Certificate of Designation
or be valid or obligatory for any purpose.
-2-
<PAGE> 208
IN WITNESS WHEREOF, the Company has executed this certificate
this [ ] day of [ ], [ ].
IXC COMMUNICATIONS, INC.,
By:
----------------------------------
Name:
Title:
[Seal]
By:
----------------------------------
Name:
Title:
TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Cumulative Convertible Preferred Stock
referred to in the within mentioned Certificate of Designation.
Dated: [ ], [ ]
BankBoston, N.A.
as Transfer Agent,
By:
---------------------------------
Authorized Signatory
-3-
<PAGE> 209
REVERSE OF SECURITY
Dividends on each share of Cumulative 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.
The shares of Cumulative Convertible Preferred Stock shall be
redeemable as provided in the Certificate of Designation. The shares of
Cumulative 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.
-4-
<PAGE> 210
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the
shares of Cumulative 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 Cumulative 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 Cumulative
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.)
-5-
<PAGE> 211
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 [ ]% Cumulative Convertible Preferred Stock (the "Cumulative Convertible
Preferred Stock"), represented by stock certificate No(s). ___ (the "Cumulative
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 Designation of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of the Cumulative Convertible
Preferred Stock and Qualifications, Limitations and Restrictions Thereof (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 Cumulative 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 Cumulative 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 Cumulative 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 Rate:
--------------------------
Number of shares of Convertible
Preferred Stock to be Converted:
---------------------
Number of shares of
-1-
<PAGE> 212
Common Stock to be Issued:
----------------------------
Signature:
--------------------------------------------
Name:
-------------------------------------------------
Address:**
----------------------------------------------
Fax No.:
----------------------------------------------
* The Company is not required to issue shares of Common Stock until the
original Cumulative 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 Cumulative
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.
-1-
<PAGE> 213
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
IXC COMMUNICATIONS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
IXC Communications, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on September 4, 1998 adopted the
following resolution creating a series of 55,000 shares of Preferred Stock
designated as "Series A Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, a series of Preferred Stock, par value
$.01 per share, of the Corporation be and hereby is created, and that
the designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other
rights of the shares of such series and the qualifications, limitations
and restrictions thereof are as follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred Stock
that shall be designated as "Series A Junior Participating Preferred Stock," and
the number of shares constituting such series shall be 55,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, however, that no decrease shall reduce the number of shares of Series
A Junior Participating Preferred Stock to less than the number of shares then
issued and outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
1
<PAGE> 214
2. Dividends and Distribution.
(A) Subject to the prior and superior rights of the holders of
any shares of any class or series of stock of the Corporation ranking prior and
superior to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Series A Junior Participating
Preferred Stock in respect thereof, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the 15th day of January, April,
July and October, in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $10.00 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.01 per share, of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. The "Adjustment Number" shall initially be 1000. In the event the
Corporation shall at any time after September 20, 1998 (i) declare and pay any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Junior Participating Preferred Stock as provided in paragraph (A)
above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment
2
<PAGE> 215
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Junior Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Junior Participating
Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to a number of votes equal to the Adjustment
Number on all matters submitted to a vote of the stockholders of the
Corporation.
(B) Except as required by law, by Section 3(C) and by Section 10
hereof, holders of Series A Junior Participating Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
(C) If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Junior Participating
Preferred Stock are in default, the number of directors constituting the Board
of Directors of the Company shall be increased by two. In addition to voting
together with the holders of Common Stock for the election of other directors of
the Company, the holders of record of the Series A Junior Participating
Preferred Stock, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at each
subsequent annual meeting of stockholders), unless all dividends in arrears on
the Series A Junior Participating Preferred Stock have been paid or declared and
set apart for payment prior thereto, to vote for the election of two directors
of the Company, the holders of any Series A Junior Participating Preferred Stock
being entitled to cast a number of votes per share of Series A Junior
Participating Preferred Stock as is specified in paragraph (A) of this Section
3. Until the default in payments of all dividends which permitted the election
of said directors shall cease to exist, any director who shall have been so
elected pursuant to the next preceding sentence may be removed at any time,
without cause, only by the affirmative vote of the holders of the shares of
Series A Junior Participating Preferred Stock at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such director
at a special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled by the vote of such holders. If and when such
default shall cease to exist, the holders of the Series A Junior Participating
Preferred Stock shall be divested of the foregoing special voting rights,
subject to revesting in the event of each and every subsequent like default in
payments of dividends. Upon the termination of the foregoing special voting
rights, the terms of office of all persons who may have been elected directors
pursuant to said special voting rights shall forthwith terminate, and the number
of directors constituting the Board of Directors shall
3
<PAGE> 216
be reduced by two. The voting rights granted by this Section 3(c) shall be in
addition to any other voting rights granted to the holders of the Series A
Junior Participating Preferred Stock in this Section 3.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series A
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of Series A Junior
Participating Preferred Stock, or to such holders and holders of any such shares
ranking on a parity therewith, upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred
4
<PAGE> 217
Stock to be created by resolution or resolutions of the Board of Directors,
subject to any conditions and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation, dissolution or winding up of the Corporation, voluntary or
otherwise, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount per share (the "Series A Liquidation Preference")
equal to the greater of (i) $10.00 plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, or (ii) the Adjustment Number times the per share amount of all
cash and other property to be distributed in respect of the Common Stock upon
such liquidation, dissolution or winding up of the Corporation.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other classes and series of
stock of the Corporation, if any, that rank on a parity with the Series A Junior
Participating Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series A
Junior Participating Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6.
7. Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the outstanding shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. No Redemption. Shares of Series A Junior Participating
Preferred Stock shall not be subject to redemption by the Company.
9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Preferred Stock as to the payment
of dividends and as to the distribution of assets upon liquidation, dissolution
or winding up, unless the terms of any such series shall provide otherwise, and
shall rank senior to the Common Stock as to such matters.
5
<PAGE> 218
10. Amendment. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Certificate of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the outstanding shares of
Series A Junior Participating Preferred Stock, voting separately as a class.
11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this 16th day of September, 1998.
IXC COMMUNICATIONS, INC.
By: /s/ Benjamin L. Scott
-------------------------
Name: Benjamin L. Scott
Title: Chairman of the Board,
President and Chief
Executive Officer
6
<PAGE> 219
FIFTH AMENDMENT TO
RESTATED
CERTIFICATE OF INCORPORATION
OF
IXC COMMUNICATIONS, INC.
The undersigned corporation, organized and existing under and by virtue
of the General Corporation Law of the State of Delaware does hereby certify:
1. That Stuart K. Coppens is the duly elected and acting Vice President
of Finance and Chief Accounting Officer of IXC Communications, Inc., a Delaware
corporation (the "Corporation").
2. Article FOURTH of the Restated Certificate of Incorporation of the
Corporation is amended to read in full as follows:
"FOURTH:
A. Classes of Stock.
The Corporation is authorized to issue three classes of stock
to be designated "Common Stock," "Preferred Stock" and "Class B
Preferred Stock." The total number of shares of stock that the
Corporation shall have authority to issue is 320,000,000 consisting of:
(i) 300,000,000 shares of Common Stock, par value $.01 per share; (ii)
3,000,000 shares of Preferred Stock, par value $.01 per share; and
(iii) 17,000,000 shares of Class B Preferred Stock, par value $.01 per
share.
B. Rights, Preferences, Privileges and Restrictions of Preferred Stock.
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.
C. Rights, Preferences, Privileges and Restrictions of Class B
Preferred Stock.
The Class B 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
<PAGE> 220
providing for such issue duly adopted by the Board. Such resolution or
resolutions shall set forth the voting powers, full or limited, or
none, of each such series of Class B Preferred Stock and shall fix the
number of shares constituting any such series and the designations,
preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of each such
series of Class B Preferred Stock. Subject to the rights of the holders
of any series of Class B Preferred Stock pursuant to the terms of this
Restated Certificate of Incorporation or any resolution or resolutions
providing for the issuance of such series of stock adopted by the
Board, the number of authorized shares of Class B Preferred Stock may
be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority
of the stock of the Corporation entitled to vote generally in the
election of directors irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of the State of Delaware."
3. Article ELEVENTH of the Restated Certificate of Incorporation is
deleted in its entirety.
4. This Fifth Amendment to the Restated Certificate of Incorporation
has been duly adopted and approved in accordance with the applicable provisions
of Sections 228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Stuart K. Coppens, its Vice President of Finance and Chief Accounting
Officer this 19th day of July, 1999.
By: /s/ Stuart K. Coppens
---------------------------------
Stuart K. Coppens
Vice President of Finance and
Chief Accounting Officer
<PAGE> 221
CERTIFICATE OF MERGER
OF
IXC MERGER SUB, INC.
WITH AND INTO
IXC COMMUNICATIONS, INC.
Pursuant to Section 251 of the General Corporation Law of the State of
Delaware (the "DGCL"), IXC Communications, Inc., a Delaware corporation ("IXC"),
hereby certifies as follows:
FIRST: The name and state of incorporation of each of the constituent
corporations to the merger (the "Constituent Corporations") are as follows:
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
IXC Merger Sub, Inc. Delaware
IXC Communications, Inc. Delaware
</TABLE>
SECOND: An Agreement Governing the IXC Internal Reorganization dated as
of August 16, 1999 (the "Merger Agreement"), between IXC Merger Sub, Inc., a
Delaware corporation and a wholly owned subsidiary of IXC, and IXC, has been
approved, adopted, certified, executed and acknowledged by each of the
Constituent Corporations in accordance with Section 251 of the DGCL.
THIRD: The name of the surviving corporation of the merger is IXC
Communications, Inc. (the "Surviving Corporation").
FOURTH: The Restated Certificate of Incorporation of the Surviving
Corporation, as in effect immediately prior to the Effective Time (as defined
below), shall be amended at the Effective Time as so provided in Exhibit "A"
attached hereto, and, as so amended, such Restated
<PAGE> 222
Certificate of Incorporation shall be the Restated Certificate of Incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
FIFTH: The executed Merger Agreement is on file at an office of the
Surviving Corporation, located at 1122 Capital of Texas Highway South, Austin,
Texas 78746-6426.
SIXTH: A copy of the Merger Agreement will be furnished by the Surviving
Corporation, on request and without cost, to any stockholder of either
Constituent Corporation.
SEVENTH: This Certificate of Merger, and the merger provided for herein,
shall become effective at the time this Certificate of Merger is filed with the
Delaware Secretary of State (the "Effective Time").
IN WITNESS WHEREOF, IXC has caused this Certificate of Merger to be
executed as of November 8, 1999.
IXC COMMUNICATIONS, INC.
By: /s/ JEFFREY C. SMITH
------------------------------------
Name: Jeffrey C. Smith
Title: Senior Vice President, General
Counsel and Secretary
<PAGE> 223
Exhibit "A"
The Restated Certificate of Incorporation of IXC Communications, Inc.
shall be amended in the merger as follows:
1. Section (g)(ix)(3) of the Certificate of Designation for the 7
1/4% Junior Convertible Preferred Stock Due 2007 shall be
amended by inserting after the words "business of the Company"
in the definition of "Common Stock Change in Control" the
following: "(which shall include a corporation that is the
direct or indirect owner of all the equity interests of the
surviving corporation in the merger) (hereinafter, a
"successor")".
2. Section (f)(i) of the Certificate of Designation for the 12 1/2%
Junior Exchangeable Preferred Stock Due 2009 shall be amended by
(i) deleting such section (f)(i) in its entirety and (ii)
substituting the following therefor: "The holders of
Exchangeable Preferred Stock, in addition to the voting rights
required under Delaware law and set forth in paragraphs (ii) and
(iii) below, shall be entitled to cast one-tenth of one vote per
share on all matters, voting together with the common stock of
the Company as a single class."
3. Section (f) (iii)(B) of the Certificate of Designation for the
12 1/2% Junior Exchangeable Preferred Stock Due 2009 shall be
amended by deleting the words "a majority" and by substituting
the words "two-thirds" therefor.
4. Section (6) of the Certificate of Designation for the 6 3/4%
Cumulative Convertible Preferred Stock shall be amended by
inserting the following paragraph after paragraph 5 of such
section:
"So long as any shares of the Cumulative 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 Cumulative Convertible Preferred Stock or
to authorize the issuance of any additional shares of Cumulative
Convertible Preferred Stock without the affirmative vote or
consent of Holders of at least two-thirds of the issued and
outstanding shares of Cumulative 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."
<PAGE> 224
CERTIFICATE OF MERGER
OF
IVORY MERGER INC.
WITH AND INTO
IXC COMMUNICATIONS, INC.
Pursuant to Section 251 of the General Corporation Law of the State of
Delaware (the "DGCL"), IXC Communications, Inc., a Delaware corporation ("IXC"),
hereby certifies as follows:
FIRST: The name and state of incorporation of each of the constituent
corporations to the merger (the "Constituent Corporations") are as follows:
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
Ivory Merger Inc. Delaware
IXC Communications, Inc. Delaware
</TABLE>
SECOND: An Agreement and Plan of Merger dated as of July 20, 1999, as
amended by Amendment No. 1 thereto dated as of October 13, 1999 (as so amended,
the "Merger Agreement"), among Cincinnati Bell Inc., an Ohio corporation
("Cincinnati Bell"), Ivory Merger Inc., a Delaware corporation and a wholly
owned subsidiary of Cincinnati Bell ("Ivory"), and IXC, has been approved,
adopted, certified, executed and acknowledged by each of the Constituent
Corporations in accordance with Section 251 of the DGCL.
THIRD: The name of the surviving corporation of the merger is IXC
Communications, Inc. (the "Surviving Corporation").
FOURTH: The Restated Certificate of Incorporation of the Surviving
Corporation, as in effect immediately prior to the Effective Time (as defined
below), shall be amended at the Effective Time so that the first sentence of
Article FOURTH thereof reads in its
<PAGE> 225
entirely as follows: "The total number of shares of stock which the Corporation
shall have authority to issue is 6,000,000 consisting of (i) three million
(3,000,000) shares of common stock, par value $.01 per share and (ii) three
million (3,000,000) share of preferred stock, par value $.01 per share.", and,
as so amended, such Restated Certificate of Incorporation shall be the Restated
Certificate of Incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
FIFTH: The executed Merger Agreement is on file at an office of the
Surviving Corporation, located at 1122 Capital of Texas Highway South, Austin,
Texas 78746- 6426.
SIXTH: A copy of the Merger Agreement will be furnished by the Surviving
Corporation, on request and without cost, to any stockholder of either
Constituent Corporation.
SEVENTH: This Certificate of Merger, and the merger provided for herein,
shall become effective at the time this Certificate of Merger is filed with the
Delaware Secretary of State (the "Effective Time").
IN WITNESS WHEREOF, IXC has caused this Certificate of Merger to be
executed as of November 8th, 1999.
IXC COMMUNICATIONS, INC.
by:
/s/ JEFFREY C. SMITH
-----------------------------------------
Name: Jeffrey C. Smith
Title: Senior Vice President,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 3.2
BYLAWS OF IXC COMMUNICATIONS, INC.
ARTICLE I
Meetings of Stockholders; Stockholders'
Consent in Lieu of Meeting
SECTION 1.01. Annual Meeting. The annual meeting of the stockholders for
the election of directors, and for the transaction of such other business as may
properly come before the meeting, shall be held at such place, date and hour as
shall be fixed by the Board of Directors and designated in the notice or waiver
of notice thereof; except that no annual meeting need be held if all actions,
including the election of directors, required by the General Corporation Law of
the State of Delaware to be taken at a stockholders' annual meeting are taken by
written consent in lieu of meeting pursuant to Section 1.03 of this Article.
SECTION 1.02. Special Meetings. A special meeting of the stockholders for
any purpose or purposes may be called by the Board of Directors, the Chairman of
the Board of Directors, the President or the Secretary of the corporation or a
stockholder or stockholders holding of record at least a majority of the shares
of common stock of the corporation issued and outstanding, such meeting to be
held at such place, date and hour as shall be designated in the notice or waiver
of notice thereof.
SECTION 1.03. Stockholders' Consent in Lieu of Meeting. Any action required
by the laws of the State of
<PAGE> 2
2
Delaware to be taken at any annual or special meeting of the 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 all the stockholders.
SECTION 1.04. Quorum and Adjournment. Except as otherwise provided by law,
by the Certificate of Incorporation of the corporation or by these Bylaws, the
presence, in person or by proxy, of the holders of a majority of the aggregate
voting power of the stock issued and outstanding, entitled to vote thereat,
shall be requisite and shall constitute a quorum for the transaction of business
at all meetings of stockholders. If, however, such a quorum shall not be present
or represented at any meeting of stockholders, the stockholders present,
although less than a quorum, shall have the power to adjourn the meeting.
SECTION 1.05. Majority Vote Required. When a quorum is present at any
meeting of stockholders, the affirmative vote of the majority of the aggregate
voting power of the shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall constitute the act of
the stockholders, unless
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3
by express provision of law, the Certificate of Incorporation or these Bylaws a
different vote is required, in which case such express provision shall govern
and control.
SECTION 1.06. Manner of Voting. At each meeting of stockholders, each
stockholder having the right to vote shall be entitled to vote in person or by
proxy. Proxies need not be filed with the Secretary of the corporation until the
meeting is called to order, but shall be filed before being voted. Each
stockholder shall be entitled to vote each share of stock having voting power
registered in his or her name on the books of the corporation on the record date
fixed, as provided in Section 6.07 of these Bylaws, for the determination of
stockholders entitled to vote at such meeting. No election of directors need be
by written ballot.
ARTICLE II
Board of Directors
SECTION 2.01. General Powers. The management of the affairs of the
corporation shall be vested in the Board of Directors, which may exercise all
such powers of the corporation and do all such lawful acts and things as are
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4
not by law or by the Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
SECTION 2.02. Number and Term of Office. The number of directors which
shall constitute the whole Board of Directors shall be fixed from time to time
by a vote of a majority of the whole Board of Directors but shall not consist of
less than one director. The term "whole Board of Directors" is used herein to
refer to the total number of directors which the corporation would have if there
were no vacancies. Directors need not be stockholders. Each director shall hold
office until his successor is elected and qualified, or until his earlier death
or resignation or removal in the manner hereinafter provided.
SECTION 2.03. Resignation, Removal and Vacancies. Any director may resign
at any time by giving written notice of his resignation to the Board of
Directors, the Chairman of the Board of Directors, the President or the
Secretary of the corporation. Such resignation shall take effect at the time
specified therein or, if the time be not specified, upon receipt thereof; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Any director or the entire Board of Directors may be removed, with or
without cause, at any time by the
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5
holders of a majority of the shares then entitled to vote at an election of
directors or by written consent of the stockholders pursuant to Section 1.03 of
Article I hereof.
Vacancies in the Board of Directors 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, although less than a quorum, or
by a sole remaining director.
SECTION 2.04. Meetings. (a) Annual Meeting. As soon as practicable after
each annual election of directors, the Board of Directors shall meet for the
purpose of organization and the transaction of other business, unless it shall
have transacted all such business by written consent pursuant to Section 2.05 of
this Article.
(b) Other Meetings. Other meetings of the Board of Directors shall be held
at such times and places as the Board of Directors, the Chairman of the Board of
Directors or the President shall from time to time determine.
(c) Notice of Meetings. The Secretary of the corporation shall give notice
to each director of each meeting, including the time, place and purpose of such
meeting. Notice of each such meeting shall be mailed to each director, addressed
to him at his residence or usual place of business, at least two days before the
day on which
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6
such meeting is to be held, or shall be sent to him at such place by telegraph,
cable, wireless or other form of recorded communication, or be delivered
personally or by telephone not later than the day before the day on which such
meeting is to be held, but notice need not be given to any director who shall
attend such meeting. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time of the meeting stated therein, shall
be deemed equivalent to notice.
(d) Place of Meetings. The Board of Directors may hold its meetings at such
place or places within or without the State of Delaware as the Board of
Directors may from time to time determine, or as shall be designated in the
respective notices or waivers of notice thereof.
(e) Quorum and Manner of Acting. One-third of the total number of directors
then in office shall be present in person at any meeting of the Board of
Directors in order to constitute a quorum for the transaction of business at
such meeting, and the vote of a majority of those directors present at any such
meeting at which a quorum is present shall be necessary for the passage of any
resolution or act of the Board of Directors, except as otherwise expressly
required by law or these Bylaws. In the absence of a quorum for any such
meeting, a majority of the
<PAGE> 7
7
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.
(f) Organization. At each meeting of the Board of Directors, one of the
following shall act as chairman of the meeting and preside, in the following
order of precedence:
(i) the Chairman of the Board of Directors;
(ii) the President;
(iii) any director chosen by a majority of the directors present.
The Secretary of the corporation or, in the case of his absence, any person (who
shall be an Assistant Secretary of the corporation, if an Assistant Secretary of
the corporation is present) whom the Chairman of the Board of Directors shall
appoint shall act as secretary of such meeting and keep the minutes thereof.
SECTION 2.05. Directors' Consent in Lieu of Meeting. 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 of
Directors or committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes or the proceedings of the Board
of Directors or committee.
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8
SECTION 2.06. Action by Means of Conference Telephone or Similar
Communications Equipment. Any one or more 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 such 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 participation in a meeting by such means
shall constitute presence in person at such meeting.
ARTICLE III
Committees of the Board
SECTION 3.01. Appointment of Executive Committee. The Board of Directors
may from time to time by resolution passed by a majority of the whole Board of
Directors designate from its members an Executive Committee to serve at the
pleasure of the Board of Directors. The Chairman of the Executive Committee
shall be designated by the Board of Directors. The Board of Directors may
designate one or more directors as alternate members of the Executive Committee,
who may replace any absent or disqualified member or members at any meeting of
the Executive Committee. The Board of Directors shall have power at any time to
change the
<PAGE> 9
9
membership of the Executive Committee, to fill all vacancies in it and to
discharge it, either with or without cause.
SECTION 3.02. Procedures of Executive Committee. The Executive Committee,
by a vote of a majority of its members, shall fix by whom its meetings may be
called and the manner of calling and holding its meetings, shall determine the
number of its members requisite to constitute a quorum for the transaction of
business and shall prescribe its own rules of procedure, no change in which
shall be made except by a majority vote of its members or by the Board of
Directors.
SECTION 3.03. Powers of Executive Committee. During the intervals between
the meetings of the Board of Directors, unless otherwise determined from time to
time by resolution passed by the whole Board of Directors, the Executive
Committee shall possess and may exercise all the powers and authority of the
Board of Directors in the management and direction of the business and affairs
of the corporation to the extent permitted by the General Corporation Law of
Delaware, and may authorize the seal of the corporation to be affixed to all
papers which may
<PAGE> 10
10
require it, except that the Executive Committee shall not have power or
authority in reference to:
(a) amending the Certificate of Incorporation;
(b) adopting an agreement of merger or consolidation;
(c) recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets;
(d) recommending to the stockholders a dissolution of the corporation
or a revocation of a dissolution;
(e) submitting to shareholders of any action which pursuant to the
General Corporation Law of the State of Delaware requires shareholders'
approval;
(f) filling vacancies in the Board of Directors or in any committee or
fixing compensation of members of the Board of Directors for serving on the
Board of Directors or on any committee;
(g) amending or repealing the Bylaws;
(h) declaring a dividend or authorizing the issuance of stock; or
(i) amending or repealing any resolution of the Board of Directors
which by its terms is not so amendable or repealable.
<PAGE> 11
11
SECTION 3.04. Reports of Executive Committee. The Executive Committee shall
keep regular minutes of its proceedings, and all action by the Executive
Committee shall be reported promptly to the Board of Directors. Such action
shall be subject to review by the Board of Directors, provided that no rights of
third parties shall be affected by such review.
SECTION 3.05. Other Committees. The Board of Directors, by resolution
adopted by a majority of the whole Board of Directors, may designate from among
its members one or more other committees, each of which shall have such
authority of the Board of Directors as may be specified in the resolution of the
Board of Directors designating such committee; provided, however, that any such
committee so designated shall not have any powers not allowed to the Executive
Committee under Section 3.03 of this Article III. The Board of Directors shall
have power at any time to change the members of any such committee, designate
alternate members of any such committee and fill vacancies therein; and any such
committee shall serve at the pleasure of the Board of Directors.
<PAGE> 12
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ARTICLE IV
Officers
SECTION 4.01. Executive Officers. The executive officers of the corporation
shall be a President, a Secretary and a Treasurer and may include a Chairman of
the Board of Directors, one or more Vice Presidents and one or more Assistant
Secretaries or Assistant Treasurers. Any two or more offices may be held by the
same person.
SECTION 4.02. Authority and Duties. All officers, as between themselves
and the corporation, shall have such authority and perform such duties in the
management of the corporation as may be provided in these Bylaws or, to the
extent not so provided, by the Board of Directors.
SECTION 4.03. Term of Office, Resignation and Removal. All officers shall
be elected or appointed by the Board of Directors and shall hold office for such
term as may be prescribed by the Board of Directors. The Chairman of the Board
of Directors, if any, and the President shall be elected or appointed from among
the members of the Board of Directors. Each officer shall hold office until his
successor has been elected or appointed and qualified or his earlier death or
resignation or removal in the manner hereinafter provided. The Board of
Directors may require
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any officer to give security for the faithful performance of his duties.
Any officer may resign at any time by giving written notice to the
President or the Secretary of the corporation, and such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective is not specified therein, at the time it is accepted by action of the
Board of Directors. Except as aforesaid, the acceptance of such resignation
shall not be necessary to make it effective.
All officers and agents elected or appointed by the Board of Directors
shall be subject to removal at any time by the Board of Directors with or
without cause.
SECTION 4.04. Vacancies. If an office becomes vacant for any reason, the
Board of Directors shall fill such vacancy. Any officer so appointed or elected
by the Board of Directors shall serve only until such time as the unexpired term
of his predecessor shall have expired unless reelected or reappointed by the
Board of Directors.
SECTION 4.05. Chairman of the Board of Directors. If there shall be a
Chairman of the Board of Directors, he shall preside at meetings of the Board of
Directors and of the stockholders at which he is present, and shall give counsel
and advice to the Board of Directors and the
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officers of the corporation on all subjects touching the welfare of the
corporation and the conduct of its business. He shall perform such other duties
as the Board of Directors may from time to time determine. Except as otherwise
provided by resolution of the Board of Directors he shall be ex officio a member
of all committees of the Board of Directors.
SECTION 4.06. The President. The President shall be the Chief Executive
Officer of the corporation and, unless the Chairman of the Board of Directors be
present or the Board of Directors has provided otherwise by resolution, he shall
preside at all meetings of the Board of Directors and the stockholders at which
he is present. The President shall have general and active management and
control of the business and affairs of the corporation subject to the control of
the Board of Directors and the Executive Committee, if any, and shall see that
all orders and resolutions of the Board of Directors and the Executive
Committee, if any, are carried into effect.
SECTION 4.07. Vice Presidents. The Vice President or, if there be more
than one, the Vice Presidents in the order of their seniority or in any other
order determined by the Board of Directors, shall, in the absence or disability
of the President, perform the duties and exercise
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15
the powers of the President, and shall generally assist the President and
perform such other duties as the Board of Directors or the President shall
prescribe.
SECTION 4.08. The Secretary. The Secretary of the corporation shall, to the
extent practicable, attend all meetings of the Board of Directors and all
meetings of the stockholders and shall record all votes and the minutes of all
proceedings in a book to be kept for that purpose, and shall perform like duties
for the standing committees when required. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or the President, under whose supervision the Secretary shall
perform such duties. The Secretary shall keep in safe custody the seal of the
corporation and affix the same to any duly authorized instrument requiring it
and, when so affixed, it shall be attested by his signature or by the signature
of the Treasurer or an Assistant Secretary or Assistant Treasurer. The Secretary
shall keep in safe custody the certificate books and stockholder records and
such other books and records as the Board of Directors may direct and shall
perform all other duties as from time to time may be
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16
assigned to him by the Chairman of the Board of Directors, the President or the
Board of Directors.
SECTION 4.09. Assistant Secretaries. The Assistant Secretaries of the
corporation, if any, in order of their seniority or in any other order
determined by the Board of Directors shall, in the absence or disability of the
Secretary of the corporation, perform the duties and exercise the powers of the
Secretary of the corporation and shall perform such other duties as the Board of
Directors or the Secretary of the corporation shall prescribe.
SECTION 4.10. The Treasurer. The Treasurer shall have the care and custody
of the corporate funds and other valuable effects, including securities, and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation, and shall deposit all moneys and other valuable
effects to the name and to the credit of the corporation in such depositories as
may be designated by the Board of Directors. The Treasurer shall disburse the
funds of the corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President and
directors, at the regular meetings of the Board of Directors, or whenever they
may require it, an account of all his transactions as Treasurer and of the
financial condition of the corporation;
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and, in general, perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President
or the Board of Directors.
SECTION 4.11. Assistant Treasurers. The Assistant Treasurers, if any, in
the order of their seniority or in any other order determined by the Board of
Directors, shall in the absence or disability of the Treasurer perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties as the Board of Directors or the Treasurer shall prescribe.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, etc.
SECTION 5.01. Execution of Documents. The Board of Directors shall
designate the officers, employees and agents of the corporation who shall have
power to execute and deliver deeds, contracts, mortgages, bonds, debentures,
checks, drafts and other orders for the payment of money and other documents for
and in the name of the corporation, and may authorize such officers, employees
and agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the corporation; and,
unless so designated or expressly
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authorized by these Bylaws, no officer or agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable pecuniarily for any purpose or to any amount.
SECTION 5.02. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation or
otherwise as the Board of Directors or Treasurer or any other officer of the
corporation to whom power in this respect shall have been given by the Board of
Directors shall select.
SECTION 5.03. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Board of Directors shall designate the officers of the
corporation who shall have authority from time to time to appoint an agent or
agents of the corporation to exercise in the name and on behalf of the
corporation the powers and rights which the corporation may have as the holder
of stock or other securities in any other corporation, and to vote or consent in
respect of such stock or securities; such designated officers may instruct the
person or persons so appointed as to the manner of exercising such powers and
rights; and such designated officers may execute or cause to be executed in the
name and on behalf of the corporation and under its
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corporate seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the corporation
may exercise its said powers and rights.
ARTICLE VI
Shares and Their Transfer; Fixing Record Date
SECTION 6.01. Certificates for Shares. Every owner of stock of the
corporation shall be entitled to have a certificate certifying the number and
class of shares owned by him in the corporation, which shall otherwise be in
such form as shall be prescribed by the Board of Directors. Certificates of each
class shall be issued in consecutive order and shall be numbered in the order of
their issue, and shall be signed by, or in the name of the corporation by the
Chairman of the Board of Directors, the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the corporation.
SECTION 6.02. Record. A record (herein called the stock record) in one or
more counterparts shall be kept of the name of the person, firm or corporation
owning the shares represented by each certificate for stock of the corporation
issued, the number of shares represented by each such certificate, the date
thereof and, in the case of
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cancelation, the date of cancelation. Except as otherwise expressly required by
law, the person in whose name shares of stock stand on the stock record of the
corporation shall be deemed the owner thereof for all purposes as regards the
corporation.
SECTION 6.03. Registration of Stock. Registration of transfers of shares
of the corporation shall be made only on the books of the corporation upon
request of the registered holder thereof, or of his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and upon the surrender of the certificate or certificates for
such shares properly endorsed or accompanied by a stock power duly executed.
SECTION 6.04. Addresses of Stockholders. Each stockholder shall designate
to the Secretary of the corporation an address at which notices of meetings and
all other corporate notices may be served or mailed to him, and, if any
stockholder shall fail to designate such address, corporate notices may be
served upon him by mail directed to him at his post office address, if any, as
the same appears on the share record books of the corporation or at his last
known post office address.
SECTION 6.05. Lost, Destroyed and Mutilated Certificates. The Board of
Directors or a committee
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designated thereby with power so to act may, in its discretion, cause to be
issued a new certificate or certificates for stock of the corporation in place
of any certificate issued by it and reported to have been lost, destroyed or
mutilated, upon the surrender of the mutilated certificates or, in the case of
loss or destruction of the certificate, upon satisfactory proof of such loss or
destruction, and the Board of Directors or such committee may, in its
discretion, require the owner of the lost or destroyed certificate or his legal
representative to give the corporation a bond in such sum and with such surety
or sureties as it may direct to indemnify the corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate.
SECTION 6.06. Regulations. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for stock of the
corporation.
SECTION 6.07. Fixing Date for Determination of Stockholders of Record. 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, or to
express consent to corporate action in writing without
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22
a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or 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, in advance, a record date, which shall
not be more than 50 nor less than 10 days before the date of such meeting, nor
more than 50 days prior to any other action. A determination of stockholders
entitled to notice of or to vote at a meeting of the 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.
ARTICLE VII
Seal
The Board of Directors shall provide a corporate seal, which shall be in
the form of a circle and shall bear the full name of the corporation and the
words and figures "Corporate Seal Delaware 1999".
ARTICLE VIII
Fiscal Year
The fiscal year of the corporation shall end on the 31st day of December in
each year unless changed by resolution of the Board of Directors.
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ARTICLE IX
Indemnification and Insurance
SECTION 9.01. Indemnification of Directors and Officers. The corporation
shall, to the maximum extent and in the manner permitted by the DGCL as the same
now exists or may hereafter be amended, indemnify any person against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit or proceeding in which such person was or is a party or
is threatened to be made a party by reason of the fact that such person is or
was a director or officer of the corporation. For purposes of this Section 9.01,
a "director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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The corporation shall be required to indemnify a director or officer in
connection with an action, suit or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorneys' fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 9.01 in advance of its final disposition; provided, however, that
payment of expenses incurred by a director or officer of the corporation in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by the director or officer to repay all
amounts advanced if it should ultimately be determined that the director or
officer is not entitled to be indemnified under this Section 9.01 or otherwise.
The rights conferred on any person by this Article IX shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, these By-
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laws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Section 9.01
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
Section 9.02. Indemnification of Others. The corporation shall have the
power, to the maximum extent and in the manner permitted by the DGCL as the same
now exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or proceeding,
in which such person was or is a party or is threatened to be made a party by
reason of the fact that such person is or was an employee or agent of the
corporation. For purposes of this Section 9.02, an "employee" or "agent" of the
corporation (other than a director or officer) shall mean any person (i) who is
or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture,
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trust or other enterprise or (iii) who was an employee or agent of a corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
Section 9.03. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify him or her against such liability under the provisions of the
General Corporation Law of Delaware.
ARTICLE X
Waiver of Notice
Whenever any notice whatever is required to be given by these Bylaws or the
Certificate of Incorporation of the corporation or the laws of the State of
Delaware, the person entitled thereto may, in person or by attorney thereunto
authorized, in writing or by telegraph, cable or
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other form of recorded communication, waive such notice, whether before or after
the meeting or other matter in respect of which such notice is given, and in
such event such notice need not be given to such person and such waiver shall be
deemed equivalent to such notice.
ARTICLE XI
Amendments
Any Bylaw (including these Bylaws) may be adopted, amended or repealed by
the Board of Directors in any manner not inconsistent with the laws of the State
of Delaware or the Certificate of Incorporation.
<PAGE> 1
EXHIBIT 10.21
LEASE AGREEMENT
BETWEEN
KRAMER 34 HP, LTD.
as Landlord,
and
IXC COMMUNICATIONS SERVICES, INC.
as Tenant,
Covering the Building
known (or to be known) as
KRAMER 3
located at
1825-A KRAMER LANE, SUITE 100
Austin, Texas 78758
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
1. PREMISES, TERM, AND IMPROVEMENTS.......................................................1
2. BASE RENT, ADDITIONAL RENT AND SECURITY DEPOSIT........................................1
3. TAXES..................................................................................2
4. LANDLORD'S MAINTENANCE.................................................................2
5. TENANT'S MAINTENANCE AND REPAIR OBLIGATIONS............................................3
6. ALTERATIONS............................................................................3
7. SIGNS..................................................................................3
8. UTILITIES..............................................................................3
9. INSURANCE..............................................................................3
10. CASUALTY DAMAGE........................................................................4
11. LIABILITY, INDEMNIFICATION, WAIVER OR SUBROGATION AND NEGLIGENCE.......................4
12. USE....................................................................................5
13. INSPECTION.............................................................................5
14. ASSIGNMENT AND SUBLETTING..............................................................5
15. CONDEMNATION...........................................................................6
16. SURRENDER OF PREMISES; HOLDING OVER....................................................6
17. QUIET ENJOYMENT........................................................................7
18. EVENTS OF DEFAULT......................................................................7
19. REMEDIES...............................................................................7
20. LANDLORD'S DEFAULT.....................................................................8
21. MORTGAGES..............................................................................8
22. ENCUMBRANCES...........................................................................8
23. MISCELLANEOUS..........................................................................8
24. NOTICES...............................................................................10
25. HAZARDOUS WASTE.......................................................................10
</TABLE>
2
<PAGE> 3
LIST OF DEFINED TERMS
<TABLE>
<S> <C>
Lease..........................................................................................1
Landlord.......................................................................................1
Tenant.........................................................................................1
Premises.......................................................................................1
Building.......................................................................................1
Land...........................................................................................1
Proportionate Share............................................................................1
Commencement Date..............................................................................1
Term...........................................................................................1
Shell Improvements.............................................................................1
Base Rent......................................................................................1
Operating Expenses.............................................................................1
Rent...........................................................................................2
Taxes..........................................................................................2
Building's Structure...........................................................................2
HVAC Systems...................................................................................3
Repair Period..................................................................................4
Vacation Date..................................................................................5
Transfer.......................................................................................5
Taking.........................................................................................6
Event of Default...............................................................................7
Claimant.......................................................................................8
Mortgage.......................................................................................8
Primary Lease..................................................................................8
Landlord's Mortgagee...........................................................................8
Laws...........................................................................................8
Law............................................................................................9
Affiliate......................................................................................9
Tenant Party...................................................................................9
Including......................................................................................9
Hazardous Substances..........................................................................10
Environmental law.............................................................................10
Permitted Activities..........................................................................10
Permitted Materials...........................................................................10
MSDS..........................................................................................10
Working Drawings.............................................................................D-1
Initial Improvements.........................................................................D-1
Construction Allowance.......................................................................D-1
Total Construction Costs.....................................................................D-1
</TABLE>
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<PAGE> 4
LEASE AGREEMENT
This Lease Agreement (this "LEASE") is entered into by Kramer 34 HP,
Ltd., ("Landlord"), and IXC Communications Services, Inc., ("Tenant").
1. PREMISES, TERM AND IMPROVEMENTS.
(a) Landlord leases to Tenant, and Tenant leases from
Landlord, the space depicted on the floor plan attached as EXHIBIT A-1 (the
"PREMISES"), which is part of the approximately 62,167 square foot building (the
"BUILDING") located on the real property described on EXHIBIT A (the "LAND"),
subject to the terms and conditions in this Lease. The Building is a part of the
seven (7) building project known as Braker Center IV, as more particularly shown
on EXHIBIT A-2 attached hereto (the "PROJECT"). Landlord and Tenant stipulate
that, as of the date of this Lease, the size of the Premises is 24,682 square
feet (subject to increase as provided on Exhibit C) and the size of the Building
is 62,167 square feet, and Tenant's initial "PROPORTIONATE SHARE" is 39.7%. The
size of the Premises and Proportionate Share shall be adjusted if the size of
the Premises changes, including, without limitation, increases in the Premises
due to Tenant's lease of the Expansion Space as provided on EXHIBIT C.
(b) The Lease term shall be sixty (60) months, beginning on
the later of (i) sixty (60) days after the date of substantial completion of the
Shell Improvements (as defined on EXHIBIT B) or (ii) November 15, 1999 (the
"COMMENCEMENT DATE"), and ending November 14, 2004 (the "TERM"), which defined
term shall include all renewals and extensions of the Term, if any).
Notwithstanding the foregoing if the Commencement Date does not occur on
November 15, 1999, then the Term shall end sixty (60) months after the first day
of the first full calendar month after the Commencement Date.
(c) Landlord shall construct the shell improvements (the
"SHELL IMPROVEMENTS") described on EXHIBIT B, and, by occupying the Premises,
Tenant shall have accepted the Premises in their shell condition, subject to
completion of any punch-list items relating to the Shell Improvements. Tenant
shall be responsible for constructing the Initial Improvements described on the
plans and specifications referenced on Exhibit B.
2 BASE RENT, ADDITIONAL RENT AND SECURITY DEPOSIT.
(a) Tenant shall pay to Landlord "BASE RENT", in advance,
without demand, deduction or set off, equal to the following amounts for the
following periods of time:
TIME PERIOD MONTHLY BASE RENT
Months 1 through 24 $.82 per square foot of the Premises
Months 25 through 36 $.84 per square foot of the Premises
Months 37 through 60 $.86 per square foot of the Premises
The first monthly installment, plus the other monthly charges set forth in
Section 2(b.), shall be due on the date hereof; thereafter, monthly installments
of Base Rent shall be due on the first day of each calendar month following the
Commencement Date. If the Term begins on a day other than the first day of a
month or ends on a day other than the last day of a month, the Base Rent and
additional rent for such partial month shall be prorated.
(b) Tenant shall pay, as additional rent its Proportionate
Share of all costs incurred in operating, managing, and maintaining the
Premises, the Land and the Building and the facilities and services provided for
the common use of Tenant and any other tenants of the Building (collectively,
"OPERATING EXPENSES"), including the following items: (1) Taxes (defined below)
and the cost of any tax consultant employed to assist Landlord in determining
the fair tax valuation of the Building and Land; (2) the cost of all utilities
used in the Building which are not billed separately to a tenant for above
building standard utility consumption; (3) the cost of insurance; (4) the cost
of repairs, replacement, management fees and expenses, landscape maintenance and
replacement, security service (if provided), trash service (if provided); (5)
the cost of dues, assessments, and other charges applicable to the Land payable
to any property or community owner association under restrictive covenants or
deed restrictions to which the Land is subject; (6) maintenance of the
Building's fire sprinkler systems; and (7) alterations, additions, and
improvements made by Landlord to comply with Law (defined below) or in order to
reduce Operating Expenses. On the same day that Base Rent is due, Tenant shall
pay to Landlord an amount equal to 1/12 of Landlord's estimate of Tenant's
Proportionate Share of annual Operating Expenses. The initial monthly payments
are based upon Landlord's estimate of the Operating Expenses for the year in
question, and shall be increased or decreased annually to reflect the projected
actual Operating Expenses for that year. Within 90 days after each calendar year
or as soon thereafter as is reasonably practicable, Landlord shall deliver to
Tenant a statement setting forth the actual Operating Expenses for such year. If
Tenant's total payments in respect of Operating Expenses for any year are less
than Tenant's Proportionate Share of Operating Expenses for that year, Tenant
shall pay the difference to Landlord within 30 days after Landlord's request
therefor; if such payments are more than Tenant's Proportionate Share of
Operating Expenses, Landlord shall retain such excess and credit it against
Tenant's future annual payments monthly payments, except that any credit
remaining at the expiration or earlier termination of this Lease shall be paid
to Tenant within thirty (30) days after such expiration or termination,
notwithstanding the foregoing, the initial Operating Expenses and Taxes
described in this Section 2(b.) will be deemed to be the actual amounts owed by
Tenant (and not subject to adjustments if the actual
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<PAGE> 5
Operating Expenses and Taxes are less until such time as Tenant leases the
expansion space. Expenses shall not include the following: (A) any costs for
interest, amortization, or other payments or loans to Landlord; (B) commissions
or other expenses incurred in leasing or procuring tenants; (C) legal expenses
other than those incurred for the direct benefit of the tenants of the Building;
(D) allowances, concessions, and other costs of renovating or otherwise
improving space for occupants of the Building or vacant space in the Building;
(E) federal income taxes imposed on or measured by the income of Landlord from
the operation of the Building; (F) rents under ground leases; (G) costs incurred
in selling, syndicating, financing, mortgaging, or hypothecating any of
Landlord's interests in the Building. There shall be no duplication of costs for
reimbursements in calculating Operating Expenses; and (H) costs of capital
improvements except for those provided in (7) above and except that Landlord may
include in Operating Expenses only such portion of capital improvement costs as
is necessary to amortize such improvements over their useful life. The amounts
of the initial monthly Base Rent and Tenant's Proportionate Share of Operating
Expenses (and the part thereof attributable to Taxes) are as follows:
<TABLE>
<S> <C>
Base Rent (Section 2(a)..........................................$ 22,239.29
Operating Expenses, excluding Taxes (Section 2(b))...............$ 1,999.24
Taxes (Sections 2.(b) and 3......................................$ 2,438.58
Total initial monthly payment....................................$ 24,677.06
</TABLE>
(c) If any payment required of Tenant under this Lease is not
paid within fifteen (15) days after due, Landlord may charge Tenant a fee equal
to 5% of the delinquent payment to reimburse Landlord for its cost and
inconvenience incurred as a consequence of Tenant's delinquency; provided,
however, that if Tenant is late more than three (3) times in any given 12 month
period, then subsequent to any such third late payment any failure to pay rent
or any other sum when due shall be subject to the foregoing late fee immediately
(i.e., without the 15-day grace period).
(d) All payments and reimbursements required to be made by
Tenant under this Lease shall constitute "RENT" (herein so called).
(e) Landlord shall keep good and accurate books and records in
accordance with sound accounting principles consistently applied concerning the
Operating Expenses, and Tenant shall have the right, upon 10 days notice, to
inspect and copy such books and records. In any event, Landlord shall credit
Tenant in the same manner as overpayments of Operating Expenses per subparagraph
(b) above all Operating Expenses shown by such inspection to have been overpaid
by Tenant, as mutually determined by Landlord and Tenant in good faith, and,
similarly, Tenant shall promptly pay Landlord all Operating Expenses shown by
such inspection to have been underpaid by Tenant, as mutually determined by
Landlord and Tenant in good faith. Tenant shall not have the right to conduct
any such inspection more frequently than once annually or for periods prior to
the immediately preceding lease year. Landlord shall reimburse Tenant for the
audit expense if any overpayment is found to be 10% or greater.
3. TAXES.
(a) Landlord shall pay all taxes, assessments and governmental
charges whether federal, state, county, or municipal and whether they are
imposed by taxing or management districts or authorities presently existing or
hereafter created (collectively, "TAXES") that accrue against the Premises, the
Land and the Building. If, during the Term, there is levied, assessed or imposed
on Landlord a capital levy or other tax directly on the rent or a franchise tax,
assessment, levy or charge measured by or based, in whole or in part, upon rent,
then all such taxes, assessments, levies or charges, or the part thereof so
measured or based, shall be included within the term "Taxes".
(b) Tenant shall (1) before delinquency pay all taxes levied
or assessed against any personal property, fixtures or alterations placed in the
Premises and (2) upon the request of Landlord, deliver to Landlord receipts from
the applicable taxing authority or other evidence acceptable to Landlord to
verify that such taxes have been paid. If any such taxes are levied or assessed
against Landlord or Landlord's property and (A) Landlord pays them or (B) the
assessed value of Landlord's property is increased thereby and Landlord pays the
increased taxes, then Tenant shall pay to Landlord such taxes within ten days
after Landlord's request therefor.
4. LANDLORD'S MAINTENANCE.
(a) This Lease is intended to be a net lease; accordingly,
Landlord's maintenance obligations are limited to the replacement of the
Building's roof and maintenance of the foundation piers and structural members
of the exterior walls (collectively, the "BUILDING'S STRUCTURE"); however,
Landlord shall not be responsible for alterations to the Building's Structure
required by Law because of Tenant's use of the Premises (which alternations
shall be performed by Tenant). Landlord's liability for any defects, repairs,
replacement or maintenance for which Landlord is responsible hereunder shall be
limited to the cost of performing such work.
(b) Additionally, Landlord shall, maintain the parking areas,
driveways, alleys and grounds surrounding the Premises in a clean and sanitary
condition, consistent with the operation of a first-class office/warehouse
building, including prompt maintenance, repairs and replacements of (1) any
drill or spur tract servicing the Premises, (2) the exterior of the Building
(including painting), (3) sprinkler systems and sewage lines, and (4) any other
items normally associated with the foregoing. Tenant shall promptly notify
Landlord of any work required to be performed under this Section 4(b.), and
Landlord shall not be responsible for performing such work until Tenant delivers
to landlord such notice. All costs in performing the work described in this
Section 0 shall be included in Operating Expenses, subject to the applicable
provisions of Section 2(b) hereof.
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<PAGE> 6
(c) Additionally, Landlord shall maintain the private entry
drive, the detention pond, and other common areas for the Project as shown on
Exhibit A-2. The Building's Proportionate Share of all costs in performing the
work described in this Section 4(c) shall be included in Operating Expenses,
subject to the applicable provisions of Section 2(b) hereof. As used herein, the
term "Building's Proportionate Share" shall be a fraction which is determine by
dividing the number of square feet contained in the Building (62,167) by the
number of square feet then contained in the Project. Currently there are 167,311
square feet in the Project, and therefore the initial Building's Proportionate
Share is 37.15%. As additional square footage,in the Project is completed and
ready for occupancy, the number of square feet in the Project will be increased
and the Building's Proportionate Share will be adjusted accordingly.
5. TENANT'S MAINTENANCE AND REPAIR OBLIGATIONS.
(a) Tenant shall maintain all parts of the Premises [except
for maintenance work which Landlord is expressly responsible for under Section
4(a.) in good condition and promptly make all necessary repairs and replacements
to the Premises, normal wear and tear and damage by casualty excepted. Tenant
shall repair and pay for any damage caused by a Tenant Party (defined below) or
caused by Tenant's default hereunder.
(b) Tenant shall maintain the hot water equipment and the
heating, air condition, and ventilation equipment and system the "HVAC SYSTEM")
in good repair and condition and in accordance with Law and with such equipment
manufacturers' suggested operation/maintenance service program; such obligation
shall include replacement of all equipment necessary to maintain such equipment
and system in good working order. Within ten days after the Commencement Date.
At least 14 days before the end of the Term, Tenant shall deliver to Landlord a
certificate from an engineer reasonably acceptable to Landlord certifying that
the hot water equipment and the HVAC System are then in good repair and working
order.
6. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Landlord.
Landlord shall not be required to notify Tenant of whether it consents to any
alteration, addition or improvements until it (a) has received plans and
specifications therefor which are sufficiently detailed to allow construction of
the work depicted thereon to be performed in a good and workmanlike manner, and
(b) has had five (5) business days to review them. If the alteration, addition
or improvement will affect the Building's Structure, HVAC System, or mechanical,
electrical, or plumbing systems, then the plans and specifications therefor must
be prepared by a licensed engineer reasonably acceptable to Landlord. Landlord's
approval of any plans and specifications shall not be a representation that the
plans or the work depicted thereon will comply with law or be adequate for any
purpose, but shall merely be Landlord's consent to performance of the work. Upon
completion of any alteration, addition, or improvement, Tenant shall deliver to
Landlord accurate, reproducible as-built plans therefor. Tenant may erect
shelves, bins, machinery and trade fixtures provided that such items (1) do not
alter the basic character of the Premises; (2) do not overload or damage the
same; and (3) may be removed without damage to the Premises. Unless Landlord
specifies in writing otherwise, all alterations, additions, and improvements
shall be Landlord's property when installed in the Premises. All work performed
by a Tenant Party in the Premises (including that relating to the installations,
repair, replacement, or removal of any item) shall be performed in accordance
with Law and with Landlord's specifications and requirements, in a good and
workmanlike manner, and so as not to damage or alter the Building's Structure or
the Premises. Tenant shall be responsible for compliance with American With
Disabilities Act of 1990 for the interior, non-structural portions of the
Premises, Landlord shall be responsible for compliance with the American With
Disabilities Act of 1990 relative to the Building's Structure, unless such
compliance is required solely in connection with a Tenant alteration of the
Building, in which case such compliance shall be Tenant's responsibility.
7. SIGNS. Tenant shall not place, install or attach any signage,
decorations, advertising media, blinds, draperies, window treatments, bars, or
security installations to the Premises or the Building without Landlord's prior
written approval. Landlord hereby agrees that Tenant may erect such signage as
is shown on the Plans approved by Landlord in accordance with Exhibit B attached
hereto. Tenant shall repair, paint, and/or replace any portion of the Premises
or the Building damaged or altered as a result of its signage when it is removed
(including, without limitation, any discoloration of the Building). Tenant shall
not (a) make any changes to the exterior of the Premises or the Building, (b)
install any exterior lights, decorations, balloons, flags, pennants, banners or
paintings, or (c) erect or install any signs, windows or door lettering, decals,
window or storefront stickers, placards, decorations or advertising media of any
type that is visible from the exterior of the Premises or the Building without
Landlord's prior written consent. Landlord shall not be required to notify
Tenant of whether it consents to any sign until it (1) has received detailed,
to-scale drawings thereof specifying design, material composition, color scheme,
and method of installation, and (2) has had a reasonable opportunity to review
them.
8. UTILITIES. Tenant shall pay directly to the utility provider all
electricity and telephone charges used at the Premises, together with any taxes,
penalties, surcharges, maintenance charges, and the like pertaining thereto.
Tenant shall obtain telephone and computer line service tor the Premises.
Landlord shall provide, as part of the Initial Improvements, all other utility
service and connections to the Premises, including water, gas, electricity and
sewer. Except for electricity and telephone service, Tenant's use of all
utilities shall be part of Operating Expenses; provided, however, if Tenant's
use of any utility exceeds building- standard service, Landlord may, at Tenant's
expense, separately meter and bill Tenant directly for its use of any such
utility service, in which case, the amount separately billed to Tenant for above
building-standard utility service shall not be duplicated in Tenant's obligation
to pay additional rent under Section 2.(b). Landlord shall not be liable for any
interruption or failure of utility service to the Premises, unless caused by
Landlord. Landlord shall grant access to the Premises for telecom providers
designated by
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<PAGE> 7
Tenant on the same terms as other current providers of such service. All amounts
due Landlord from Tenant under this Section 8 shall be payable within ten days
after Landlord's request therefor.
9. INSURANCE. Tenant shall maintain (a) workers' compensation insurance
(with a waiver of subrogation endorsement reasonably acceptable to Landlord and
commercial general liability insurance (with contractual liability endorsement),
including personal injury and property damage in the amount of $1,000,000 per
occurrence combined single limit for personal injuries and death of persons and
property damage occurring in or about the Premises, plus umbrella coverage of at
least $2,000,000 per occurrence, (b) fire and extended coverage insurance
covering (1) the replacement cost of all alterations, additions, partitions and
improvements installed in the Premises, (2) the replacement cost of all of
Tenant's personal property in the Premises, and (3) loss of profits in the event
of an insured peril damaging the Premises, and (c) such other insurance as
Landlord may reasonably require. Such policies shall (A) name Landlord,
Landlord's agents, and their respective Affiliates (defined below), as
additional insurers (and as loss payees on the fire and extended coverage
insurance), (3) be issued by an insurance company acceptable to Landlord, (C)
provide that such insurance may not be cancelled unless 30-days prior written
notice is first given to Landlord, (D) be delivered to Landlord by Tenant before
the Commencement Date and at least 15 days before each renewal thereof, and (E)
provide primary coverage to Landlord when any policy issued to Landlord is
similar or duplicate in coverage, in which case Landlord's policy shall be
excess over Tenant's policies.
10. CASUALTY DAMAGE.
(a) Tenant shall give written notice to Landlord of any damage
to the Premises or the Building promptly on discovery of the same. If the
Premises or the Building is totally destroyed by an insured peril, or so damaged
by an insured peril that, in Landlord's reasonable estimation, rebuilding or
repairs cannot be substantially completed within 90 days after the date of
Landlord's actual knowledge of such damage, then either Landlord or (if a Tenant
Party did not cause such damage) Tenant may terminate this Lease by delivering
to the other written notice thereof within 30 days after such damage, in which
case, the rent shall be abated from the date of occurrence through the unexpired
portion of this Lease, effective upon the date such damage occurred.
Time is of the essence with respect to the delivery of such notices.
(b) Subject to Section 10 (a.), if this Lease is not
terminated under Section 10 (a.), then Landlord shall restore the Premises to
substantially its previous condition, except that Landlord shall not be required
to rebuild, repair or replace any part of the partitions, fixtures, additions
and other improvements or personal property required to be covered by Tenant's
insurance under Section 9. If the Premises are untenable, in whole or in part,
during the period during the period beginning on the date such damage occurred
and ending on the date of substantial completion of Landlord's repair or
restoration work (the "REPAIR PERIOD") then the rent for such period shall be
reduced to such extent as may be fair and reasonable under the circumstances.
(c) If the Premises are destroyed or substantially damaged by
any peril not covered by the insurance maintained by Landlord or any Landlord's
Mortgage (defined below) requires that insurance proceeds be applied to the
indebtedness secured by its Mortgage (defined below) or to the Primary Lease
(defined below) obligations, Landlord may terminate this Lease by delivering
written notice of termination to Tenant within 30 days after such destruction or
damage or such requirement is made known by any such Landlord's Mortgagee, as
applicable, whereupon all rights and obligations hereunder shall cease and
terminate, except for any liabilities of Tenant which accrued before this Lease
is terminated, provided that all Base Rent and any additional rent accruing
after the date of the casualty shall be abated.
11. LIABILITY, INDEMNIFICATION, WAIVER OF SUBROGATION AND NEGLIGENCE.
(a) Landlord shall not be liable to Tenant or Tenant's agents,
employees or contractors, or those claiming by, through, or under any of them
for any Loss, except and only to the extent such Loss is caused solely by
Landlord's gross negligence or international misconduct. The term "LOSS" means
any injury to or death of any person or persons or any damage to or theft,
destruction, loss, or loss of use of any real or personal property caused by
casualty, theft, fire, or any acts or omissions of any person or party, and any
injury or damage or inconvenience which may arise through repair or alteration
of any part of the Premises, or failure to make repairs, or from any other
cause. In addition, Landlord and Tenant each waives any claims it might have
against the other for any damage to or theft, destruction, loss or loss of use
of any property, to the extent the same is insured against under any insurance
policy that covers the Premises, Landlord's or Tenant's fixtures, personal
property, leasehold improvements, or business, or is required to be insured
against by the party which might have such claim under the terms of this Lease,
regardless of whether the negligence (of whatever type or nature, including, but
not limited to, gross negligence) or fault of the other party caused such loss.
EACH PARTY SHALL CAUSE ITS INSURANCE CARRIER TO ENDORSE ALL APPLICABLE POLICIES
WAIVING THE CARRIER'S RIGHT OF RECOVERY UNDER SUBROGATION OR OTHERWISE AGAINST
THE OTHER PARTY.
(b) Subject to paragraph 11 (a), Tenant shall defend,
indemnify, and hold harmless Landlord and its agents and employees from and
against all claims, demands, liabilities, causes of action, suits, judgments,
attorney's fees and expenses for any Loss arising from any occurrence within, on
or about the Premises or arising from Tenant's failure to perform its
obligations under this Lease or arising from any act or omission (whether
negligent, intentional or otherwise) of Tenant or Tenant's agents, employees,
invitees or contractors, except to the extent that a Loss is caused solely by
the gross negligence or intentional misconduct of Landlord.
Subject to paragraph 11 (a), Landlord shall defend, indemnify, and hold
harmless Tenant and its agents and
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<PAGE> 8
employees from and against all claims, demands, liabilities, causes of action,
suits, judgments, attorney's fees and expenses for any Loss arising from any
occurrence within, on or about the Premises, to the extent, and only to the
extent the Loss is caused solely by the gross negligence or intentional
misconduct of Landlord, or its agents, employees, invitees or contractors.
THIS INDEMNITY PROVISION SHALL SURVIVE TERMINATION OR EXPIRATION OF
THIS LEASE.
12. USE.
(a) The Premises shall be used only for receiving, storing,
shipping and selling products, materials and merchandise made or distributed by
Tenant, for a data center and for such other lawful purposes as may be
incidental thereto; however, no retail sales may be made from the Premises.
Tenant shall not use the Premises to received, store or handle any product,
material or merchandise that is explosive or highly inflammable or hazardous.
Outside storage is prohibited. Tenant shall be solely responsible for complying
with all Laws applicable to the use, occupancy, and condition of the Premises;
provided, however, that Landlord shall deliver the Premises to Tenant in a
condition which is in compliance with all Laws. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, light, noise or vibrations
to emanate from the Premises; nor take any other action that would constitute a
nuisance or would disturb, unreasonably interfere with, or endanger Landlord or
any other person; nor permit the Premises to be used for any purpose or in any
manner that would (1) void the insurance thereon, (2) increase the insurance
risk, or (3) cause the disallowance of any sprinkler credits. Tenant shall pay
to Landlord on demand any increase in the cost of any insurance on the Premises
incurred by Landlord, which is caused by Tenant's use of the Premises or because
Tenant vacates the Premises.
(b) Tenant and its employees and invitees shall have the
non-exclusive right to use, in common with others, any parking areas associated
with the Premises which Landlord has designated for such use, subject to (1)
such reasonable rules and regulations as Landlord may promulgate from time to
time and (2) rights of ingress and egress of other tenants and their employees,
agents and invitees. Landlord agrees to provide at least one (1) parking space
for every three hundred (300) square feet of space leased within the Building
for the use of Tenant The Landlord further agrees to provide to the Tenant
parking equal to one (1) space per 250 square feet , should the Tenant no longer
use the Premises for the data center. The additional parking will be in the area
as described on Exhibit A-2 and will include all areas approved by the Landlord
or Tenant's parking needs.
(c) Landlord shall have the right to establish and amend form
time to time, rules and regulations governing all tenants' uses and occupancy of
the Building (provided the same are reasonable, non-discriminatory and uniformly
enforced), and provided further that in the event of a conflict between those
rules and this Lease, the Lease shall control.
13. INSPECTION. Upon reasonable notice, Landlord and Landlord's agents
and representatives may enter the Premises during business hours to inspect the
Premises to make such repairs as may be required or permitted under this Lease;
to perform any unperformed obligations of Tenant hereunder; and to show the
Premises to prospective purchasers, mortgagees, ground lessors, and (during the
last 6 months of the Term) tenants. During the last 6 months of the Term,
Landlord may erect a sign on the Premises indicating that the Premises are
available. Tenant shall notify Landlord in writing of its intention to vacate
the Premises at least 60 days before Tenant will vacate the Premises; such
notice shall specify the date on which Tenant intends to vacate the Premises
(the "VACATION DATE"). At least 30 days before the Vacation Date, Tenant shall
arrange to meet with Landlord for a joint inspection of the Premises. After such
inspection, Landlord shall prepare a list of items that Tenant must perform
before the Vacation Date, which shall not include repairs due to normal wear and
tear or casualty. If Tenant fails to arrange for such inspection, then Landlord
may conduct such inspection and Landlord's determination of the work Tenant is
required to perform before the Vacation Date shall be conclusive. If Tenant
fails to perform such work before the Vacation Date, then Landlord may perform
such work at Tenant's cost. Tenant shall pay all costs incurred by Landlord in
performing such work within ten days after completion of the work and Landlord's
request therefor.
14. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not, without the prior written consent of
Landlord which will not be unreasonably withheld, (1) advertise that any portion
of the Premises is available for lease or cause or allow any such advertisement,
(2) assign, transfer, or encumber this Lease or any estate or interest herein,
whether directly or by operation of law, (3) permit any other entity to become
Tenant hereunder by merger, consolidation, or other reorganization; provided,
however, that such a transfer may occur without Landlord's consent so long as
the primary business of the new entity remains the same as Tenant's primary
business and the net worth of the new entity is equal or greater to that of
Tenant, (4) if Tenant is an entity other than a corporation whose stock is
publicly traded (or a corporation whose stock is in the process of being
publicly traded), permit the transfer of an ownership interest in Tenant so as
to result in a change in the current control of Tenant, (5) sublet any portion
of the Premises, (6) grant any license, concession, or other right of occupancy
of any portion of the Premises, or (7) permit the use of the Premises by any
parties other than Tenant (any of the events listed in Subparts 1 through 7
being a "TRANSFER"). If Tenant requests Landlord's consent to a Transfer, then
Tenant shall provide Landlord with a written description of all terms and
conditions of the proposed Transfer, copies of the proposed documentation, and
the following information about the proposed transferee: name and address;
reasonably satisfactory information about its business and business history; its
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proposed use of the Premises; banking, financial, and other credit information;
and general references sufficient to enable Landlord to determine the proposed
transferee's creditworthiness and character. Tenant shall reimburse Landlord for
its reasonable attorneys' fees and other expenses incurred in connection with
considering any request for its consent to a Transfer. If Landlord consents to a
proposed Transfer, then the proposed transferee shall deliver to Landlord a
written agreement whereby it expressly assumes the Tenant's obligations
hereunder (however, any transferee of less than all of the space in the Premises
shall be liable only for obligations under this Lease that are properly
allocable to the space subject to the Transfer, and only to the extent of the
rent it has agreed to pay Tenant therefor). Landlord's consent to a Transfer
shall not release Tenant from performing its obligations under this Lease, but
rather Tenant and its transferee shall be jointly and severally liable therefor.
Landlord's consent to any Transfer shall not waive Landlord's rights as to any
subsequent Transfers. If an Event of Default occurs while the Premises or any
part thereof are subject to a Transfer, then Landlord, in addition to its other
remedies, may collect directly from such transferee all rents becoming due to
Tenant and apply such rents against Tenant's rent obligations. Tenant authorizes
its transferees to make payments of rent directly to Landlord upon receipt of
notice from Landlord to do so.
(b) Landlord may, within 30 days after submission of Tenant's
written notification of intent to Transfer, cancel this Lease (or, as to a
subletting or assignment, cancel as to the portion of the Premises proposed to
be sublet or assigned) effective 30 days after receiving notice of intent to
Transfer. If Landlord cancels this Lease as to any portion of the Premises, then
this Lease shall cease for such portion of the Premises and Tenant shall pay to
Landlord all rent accrued through the cancellation date relating to the portion
of the Premises covered by the proposed Transfer. Thereafter, Landlord may lease
such portion of the Premises to the prospective transferee (or to any other
person) without liability to Tenant.
(c) Tenant hereby assigns, transfers and conveys all
consideration received by Tenant under any Transfer, which are in excess of the
rents payable by Tenant under this Lease plus reasonable costs incurred by
Tenant in connection with such reletting. Tenant shall hold such amounts in
trust for Landlord and pay them to Landlord within ten days after receipt.
(d) Notwithstanding anything to the contrary contained in
subpart (2) of Section 14(a) above, Tenant may assign the Lease without
Landlord's consent to any of the following (a "Permitted Transferee"), provided
that the Permitted Transferee's financial condition, creditworthiness and
business reputation following the transfer are equal to or exceed those of
Tenant: (i) any successor corporation or other entity resulting from a merger or
consolidation of Tenant; (ii) any purchaser of all or substantially all of
Tenant's assets; or (iii) any entity which controls, is controlled by, or is
under common control with Tenant. Tenant shall give Landlord thirty (30) days
prior written notice of such assignment or sublease. Any Permitted Transferee
shall assume in writing all of Tenant's obligations under this Lease. Tenant
shall nevertheless at all times remain fully responsible and liable for the
payment of rent and the performance and observance of all of Tenant's other
obligations under this Lease. Nothing in this paragraph is intended to nor shall
permit Tenant to transfer its interest under this Lease as part of a fraud or
subterfuge to intentionally avoid its obligations under this Lease (for example,
transferring its interest to a shell corporation that subsequently files a
bankruptcy), and any such transfer shall constitute an Event of Default
hereunder.
15. CONDEMNATION. If more than 50% of the Premises or 25% of the
Building or Land is taken for any public or quasi-public use by right of eminent
domain or private purchase in lieu thereof (a "TAKING"), and the Taking prevents
or materially interferes with the use of the Premises for the purpose for which
they were leased to Tenant, (including a data center) either party may terminate
this Lease by delivering to the other written notice thereof within 30 days
after the Taking, in which case rent shall be abated during the unexpired
portion of the Term, effective on the date of such Taking. If (a) less than 50%
of the Premises or 25% of the Building or Land are subject to a Taking or (b)
more than 50% of the Premises or 25% of the Building or Land are subject to a
Taking, but the Taking does not prevent or materially interfere with the use of
the Premises for the purpose for which they were leased to Tenant (including a
data center), then neither party may terminate this Lease, but the rent payable
during the unexpired portion of the Term shall be reduced to such extent as may
be fair and reasonable under the circumstances. All compensation awarded for any
Taking shall be the property of Landlord and Tenant assigns any interest it may
have in any such award to Landlord; however, Landlord shall have no interest in
any award made to Tenant for loss of business or goodwill or for the taking of
Tenant's trade fixtures, the cost of relocating Tenant and/or disruption of
Tenant's business, if a separate award for such items is made to Tenant.
16. SURRENDER OF PREMISES; HOLDING OVER.
(a) No agreement to accept a surrender of the Premises shall
be valid unless it is in writing and signed by Landlord. At the end of the Term
or the termination of Tenant's right to possess the Premises, Tenant shall (1)
deliver to Landlord the Premises with all improvements located thereon in good
repair and condition, reasonable wear and tear (subject however to Tenant's
maintenance obligations) excepted, and with the HVAC System and hot water
equipment, light and light fixtures (including ballasts), and overhead doors and
related equipment in good working order, (2) deliver to Landlord all keys to the
Premises, and (3) remove all signage placed on the Premises, the Building or the
Land by or at Tenant's request. All fixtures, alterations, additions, and
improvements (whether temporary or permanent) shall be Landlord's property and
shall remain on the Premises except as provided in the next two sentences.
Provided that Tenant has performed all of its obligations hereunder, Tenant may
remove all unattached trade fixtures, furniture, and personal property placed in
the Premises by Tenant (but Tenant shall not remove any such item which was paid
for, in whole or in part, by Landlord). Additionally, Tenant shall remove such
alterations, additions, improvement, fixtures, equipment, wiring, furniture, and
other property as Landlord may request, provided such request is made within
fifteen (15) days after the end of the Term and provided that the installation
or construction of
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the applicable alteration, improvement, additions, fixture or wiring was not
consented to by Landlord in writing (unless at the time of consent, Landlord
informed Tenant that such item would need to be removed upon expiration of the
Lease). All items not so removed shall, at the option of Landlord, be deemed
abandoned by Tenant and may be appropriated, sold, stored, destroyed, or
otherwise disposed of by Landlord without notice to Tenant and without any
obligation to account for such items and Tenant shall pay for the costs (if a
sale, after deducting proceeds of sale of such items) incurred by Landlord in
connection therewith. All work required of Tenant under this Section 16 (a.)
shall be coordinated with Landlord and be done in good and workmanlike manner,
in accordance with all Laws, and so as not to damage the Building or
unreasonably interfere with other tenants' use of their premises. Tenant shall,
at its expense, repair all damage caused by any work performed by Tenant under
this Section 16(a.)
(b) If Tenant fails to vacate the Premises at the end of the
Term, then Tenant shall be a Tenant at will and Tenant shall pay, in addition to
the other rent due hereunder, a daily base rental equal to 200% of the daily
Base Rent payable during the last month of the Term. Additionally, Tenant shall
defend, indemnify, and hold harmless Landlord from any damage, liability and
expense (including attorneys' fees and expenses) incurred because of such
holding over. No payments of money by Tenant to Landlord after the Term shall
reinstate, continue or extend the Term, and no extension of this Term shall be
valid unless it is in writing and signed by Landlord and Tenant.
17. QUIET ENJOYMENT. Provided Tenant has fully performed its
obligations under this Lease, Tenant shall peaceably and quietly hold and enjoy
the Premises for the Term, without hindrance from Landlord or any party claiming
by, through, or under Landlord, but not otherwise.
18. EVENTS OF DEFAULT. Each of the following events shall constitute an
"EVENT OF DEFAULT" under this Lease:
(a) Tenant fails to pay any rent when due or any payment or
reimbursement required under any other lease with Landlord when due, and in
either case such failure continues for a period of five days from the date
Landlord delivers written notice of such failure; provided, however, that
Landlord shall not be required to deliver written notice more than three (3)
times in any given 12 month period or more than six (6) times during the Term,
and subsequent to any such third notice in 12 months, or any such sixth notice
during the Term, any failure to pay rent or any other sum when due shall be an
immediate Event of Default without notice.
(b) The filing of a petition by or against Tenant or any
guarantor of Tenant's obligations hereunder (1) in any bankruptcy or other
insolvency proceeding; (2) seeking any relief under any debtor relief Law; (3)
for the appointment of a liquidator, receiver, trustee, custodian, or similar
official for all or substantially all of Tenant's property or for Tenant's
interest in this Lease; or (4) for reorganization or modification of Tenant's
capital structure (however, if any such petition is filed against Tenant, then
the filing of such petition shall not constitute an Event of Default, unless it
is not dismissed within sixty (60) days after the filing thereof).
(c) Tenants fails to discharge any lien placed upon the
Premises in violation of Section 22. within thirty (30) days after any such lien
or encumbrance is filed against the Premises.
(d) Tenant fails to comply with any term provision or covenant
of this Lease (other than those listed in Section 18. (a.), and such failure
continues for thirty (30) days after written notice thereof to Tenant.
19. REMEDIES.
(a) Upon any Event of Default, Landlord may, in addition to
all other rights and remedies afforded Landlord hereunder or by Law, take any of
the following actions:
(1) Terminate this Lease by giving Tenant written
notice thereof, in which event, Tenant shall
pay to Landlord the sum of (A) all rent accrued hereunder through the date of
termination, (B) all amounts due under Section 19. (b.), and (C) an amount equal
to (i) the total rent that Tenant would have been required to pay for the
remainder of the Term discounted to present value at a per annum rate equal to
the rate of interest set forth for 26-week U.S. governmental bills sold at a
discount from face value in units of $10,000 to $1,000,000 as published on the
date this Lease is terminated by The Wall Street Journal, Southwest Edition, in
its listing of "Money Rates" under the heading "Treasury Bills" (or, if no such
rate is published, the "Discount Rate" as published on such date under the
"Money Rates" listing), minus (ii) the then present fair rental value of the
Premises for such period, similarly discounted; or
(2) Terminate Tenant's right to possess the Premises
without terminating this Lease by giving
written notice thereof to Tenant, in which event Tenant shall pay to Landlord
(A) all rent and other amounts accrued hereunder to the date of termination of
possession, (B) all amounts due from time to time under Section 19 (b.), and (C)
all rent and other sums required hereunder to be paid by Tenant during the
remainder of the Term, diminished by any net sums thereafter received by
Landlord through reletting the Premises during such period; Landlord shall use
commercially reasonable efforts to mitigate Tenant's damages however, Landlord
shall not be obligated to relet the Premises and shall not be liable for, nor
shall Tenant's obligations hereunder be diminished because of, Landlord's
failure to relet the Premises or to collect rent due for a reletting. Tenant
shall not be entitled to the excess of any consideration obtained by reletting
over the rent due hereunder. Reentry by Landlord in the Premises shall not
affect Tenant's obligations hereunder for the unexpired Term; rather, Landlord
may, from time to time, bring action against Tenant to collect amounts
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due by Tenant, without the necessity of Landlord's waiting until the expiration
of the Term. Unless Landlord delivers written notice to Tenant expressly stating
that it has elected to terminate this Lease, all actions taken by Landlord to
exclude or dispossess Tenant of the Premises shall be deemed to be taken under
this Section 19(a)(2). If Landlord elects to proceed under this Section
19(a)(2), it may at any time elect to terminate this Lease under Section 19 (a)
(1).
Additionally, after written notice of a default which remains uncured for more
than 30 days, Landlord may alter locks or other security devices at the Premises
to deprive Tenant of access thereto, and Landlord shall not be required to
provide a new key or right of access to Tenant.
(b) Tenant shall pay to Landlord all direct reasonable costs
incurred by Landlord (including court costs and reasonable attorneys' fees and
expenses) in (1) obtaining possession of the Premises, (2) removing and storing
Tenant's or any other occupant's property, (3) repairing, restoring, altering,
remodeling, or otherwise putting the Premises into condition acceptable to a new
tenant, (4) if Tenant is dispossessed of the Premises and this Lease is not
terminated, reletting all or any part of the Premises (including brokerage
commissions, cost of tenant finish work, and other costs incidental to such
reletting), (5) performing Tenant's obligations which Tenant failed to perform,
and (6) enforcing, or advising Landlord of, its rights, remedies, and recourses.
Landlord's acceptance of rent following an Event of Default shall not waive
Landlord's rights regarding such Event of Default. Landlord's receipt of rent
with knowledge of any default by Tenant hereunder shall not be a waiver of such
default, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless set forth in writing and signed by Landlord. No
waiver by Landlord of any violation or breach of any of the terms contained
herein shall waive Landlord's rights regarding any future violation of such term
or violation of any other term. If Landlord repossesses the Premises pursuant to
the authority herein granted, then Landlord shall have the right to (A) keep in
place and use or (B) remove and store, at Tenant's expense, all of the
furniture, fixtures, equipment and other property in the Premises, including
that which is owned by or leased to Tenant at all times before any foreclosure
thereon by Landlord or repossession thereof by any lessor thereof or third party
having a lien thereon. Landlord may relinquish possession of all or any portion
of such furniture, fixtures, equipment and other property to any person (a
"CLAIMANT") who presents to Landlord a copy of any instrument represented by
Claimant to have been executed by Tenant (or any predecessor of Tenant) granting
Claimant the right under various circumstances to take possession of such
furniture, fixtures, equipment or other property; provided Landlord is
reasonable in believing that the instrument is authentic and legal. Landlord
may, at its option and without prejudice to or waiver of any rights it may have,
(i) escort Tenant to the Premises to retrieve any personal belongings of Tenant
and/or its employees not covered by the Landlord's statutory lien or (ii) obtain
a list from Tenant of the personal property of Tenant and/or its employees that
is not covered by the Landlord's statutory lien and make such property available
to Tenant and/or Tenant's employees; however, Tenant first shall pay in cash all
costs and estimated expenses to be incurred in connection with the removal of
such property and making it available. The rights of Landlord herein stated are
in addition to any and all other rights that Landlord has or may hereafter have
at law or in equity, and Tenant agrees that the rights herein granted Landlord
are commercially reasonable.
20. LANDLORD'S DEFAULT. If Landlord fails to perform any of its
obligations hereunder within 30 days after written notice from Tenant specifying
such failure, Tenant's exclusive remedy shall be an action for damages. Unless
Landlord fails to so cure such default after such notice, Tenant shall not have
any remedy or cause of action by reason thereof. Except for gross negligence or
willful misconduct, Liability of Landlord to Tenant for any default by Landlord,
shall be limited to actual, direct, but not consequential, damages therefor and
shall be recoverable only from the interest of Landlord in the Building and the
Land, and neither Landlord nor Landlord's owners shall have any personal
liability therefor.
21. MORTGAGES.
(a) This Lease shall be subordinate to any deed of trust,
mortgage or other security instrument (a "MORTGAGE"), and any ground lease,
master lease, or primary lease (a "PRIMARY LEASE") that now or hereafter covers
any portion of the Premises (the mortgagee under any Mortgage or the lessor
under any Primary Lease is referred to herein as "LANDLORD'S MORTGAGEE"), and to
increases, renewals, modifications, consolidations, replacements, and extensions
thereof. However, any Landlord's Mortgagee may elect to subordinate its Mortgage
or Primary Lease (as the case may be) to this Lease by delivering written notice
thereof to Tenant. The provisions of this Section 21. shall be self-operative,
and no further instrument shall be required to effect such subordination;
however, Landlord shall deliver to Tenant, and Tenant shall execute from time to
time within ten days after delivery thereof to Tenant, an instrument from each
Landlord's Mortgagee evidencing the subordination of this Lease to any such
Mortgage or Primary Lease (which instrument shall include a non-disturbance
provision in favor of Tenant and shall be on Landlord's Mortgagee's standard
form).
(b) Tenant shall attorn to any party succeeding to Landlord's
interest in the Premises, whether by purchase, foreclosure, deed in lieu of
foreclosure, power of sale, termination of lease, or otherwise, upon such
party's request, and shall execute such agreements confirming such attornment as
such party may reasonably request. Tenant shall not seek to enforce any remedy
it may have for any default on the part of Landlord without first giving written
notice by certified mail, return receipt requested, specifying the default in
reasonable detail to any Landlord's Mortgagee whose address has been given to
Tenant, and affording such Landlord's Mortgagee a reasonable opportunity to
perform Landlord's obligations hereunder.
(c) Notwithstanding any such attornment or subordination
of a Mortgage or Primary Lease to
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this Lease, the Landlord's Mortgagee shall not be liable for any acts of any
previous landlord, shall not be obligated to install the Shell or Initial
Improvements, and shall not be bound by any amendment to which it did not
consent in writing nor any payment of rent made more than one month in advance.
22. ENCUMBRANCES. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind Landlord's property or the interest of Landlord or
Tenant in the Premises or to charge the rent for any claim in favor of any
person dealing with Tenant, including those who may furnish materials or perform
labor for any construction or repairs. Tenant shall pay or cause to be paid all
sums due for any labor performed or materials furnished in connection with any
work performed on the Premises by or at the request of Tenant. Tenant shall give
Landlord immediate written notice of the placing of any lien or encumbrance
against the Premises.
23. MISCELLANEOUS.
(a) Words of any gender used in this Lease shall include any
other gender, and words in the singular shall include the plural, unless the
context otherwise requires. The captions inserted in this Lease are for
convenience only and in no way affect the interpretation of this Lease. The
following terms shall have the following meanings: "LAWS" shall mean all
federal, state, and local laws, rules, and regulations; all court orders,
governmental directives, and governmental orders; and all restrictive covenants
affecting the Property, and "LAW" shall mean any of the foregoing; "AFFILIATE"
shall mean any person or entity which, directly or indirectly, controls, is
controlled by, or is under common control with the party in question; "TENANT
PARTY" shall include Tenant, any assignees claiming by, through, or under
Tenant, any subtenants claiming by, through or under Tenant, and any of their
respective agents, contractors, employees, and invitees; and "INCLUDING" shall
mean including, without limitation. The normal rule of construction that any
ambiguities be resolved against the drafting party shall not apply to the
interpretation of this Lease or any exhibits or amendments hereto.
(b) Landlord may transfer and assign, in whole or in part, its
rights and obligations in the Building and property that are the subject to this
Lease, in which case Landlord shall have no further liability hereunder, except
for events occurring during the term of its ownership. Each party shall furnish
to the other, promptly upon demand, a corporate resolution, proof of due
authorization by partners, or other appropriate documentation evidencing the due
authorization of such party to enter into this Lease.
(c) Whenever a period of time is herein prescribed for action
to be taken by Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation for any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor materials, war,
governmental laws, regulations, or restrictions, or any other causes of any kind
whatsoever which are beyond the control of Landlord.
(d) Tenant shall, from time to time, within ten days after
request of Landlord, deliver to Landlord, or Landlord's designee, a certificate
of occupancy for the Premises, financial statements for itself and any guarantor
of its obligations hereunder, evidence reasonably satisfactory to Landlord that
Tenant has performed its obligations under this Lease (including evidence of the
payment of the Security Deposit), and an estoppel certificate stating that this
Lease is in full effect, the date to which rent has been paid, the unexpired
Term and such other factual matters pertaining to this Lease as may be requested
by Landlord. Tenant's obligation to furnish the above-described items in a
timely fashion is a material inducement for Landlord's execution of this Lease.
(e) This Lease constitutes the entire agreement of the
Landlord and Tenant with respect to the subject matter of this Lease, and
contains all of the covenants and agreements of Landlord and Tenant with respect
thereto. Landlord and Tenant each acknowledge that no representations,
inducements, promises or agreements, oral or written, have been made by Landlord
or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not
contained herein, and any prior agreements, promises, negotiations, or
representations not expressly set forth in this Lease are of no effect. This
Lease may not be altered, changed or amended except by an instrument in writing
signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully performed by
the end of the Term shall survive, including, without limitation, all payment
obligations with respect to Taxes and insurance and all obligations concerning
the condition and repair of the Premises. Upon the end of the Term and before
Tenant vacates the Premises, Tenant shall pay to Landlord any amount reasonably
estimated by Landlord as necessary to put the Premises in good condition and
repair, reasonable wear and tear excluded. Tenant shall also, prior to vacating
the Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's
obligation hereunder for Operating Expenses for the year in which the Term ends.
All such amounts shall be used and held by Landlord for payment of such
obligations of Tenant hereunder, with Tenant being liable for any additional
costs therefor upon demand by Landlord or with any excess to be returned to
Tenant after all such obligations have been determined and satisfied as the case
may be. Any Security Deposit held by Landlord may be credited against the amount
due by Tenant under this Section 23(f).
(g) If any provision of this Lease is illegal, invalid or
unenforceable, then the remainder of this Lease shall not be affected thereby,
and in lieu of each such provision, there shall be added, as a part of this
Lease, a provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
(h) All references in this Lease to the date hereof, or
similar references shall be deemed to refer
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to the last date, in point of time, on which all parties hereto have executed
this Lease.
(i) Landlord and Tenant each warrant to the other that it has not dealt
with any broker or agent in connection with this Lease, other than Hill
Partners, Inc. and C.B. Richard Ellis (the "Brokers"). Tenant and Landlord shall
each indemnify the other against all costs, attorneys' fees, and other
liabilities for commissions or other compensation claimed by any broker or agent
(other than the named Brokers) claiming the same by, through, or under the
indemnifying party. Landlord shall pay commission to such Brokers pursuant to
separate agreements.
(j) If and when included within the term "Tenant" as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of a notice
specifying an individual at a specific address within the continental United
States for the receipt of notices and payments to Tenant. All parties included
within the terms Landlord and Tenant, respectively, shall be bound by notices
given in accordance with the provisions of Section 24 to the same effect as if
each had received such notice.
(k) The terms and conditions of this Lease are confidential and Tenant
shall not disclose the terms of this Lease to any third party except as may be
required by law or its auditors or to enforce its rights hereunder.
(l) Tenant shall pay interest on all past-due rent from the date due
until paid at the maximum lawful rate. In no event, however, shall the charges
permitted under this Section 23(l) or elsewhere in this Lease, to the extent
they are considered to be interest under applicable Law, exceed the maximum
lawful rate of interest.
24. NOTICES. Each provision of this instrument or of any applicable
Laws and other requirements with reference to the sending, mailing or delivering
of notice or the making of any payment hereunder shall be deemed to be complied
with when and if the following steps are taken:
(a) All rent shall be payable to Landlord at the address for
Landlord set forth below or at such other address as Landlord may specify from
time to time by written notice delivered in accordance herewith. Tenant's
obligation to pay rent shall not be deemed satisfied until such rent has been
actually received by Landlord.
(b) All payments required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address set forth below, or at such
other address within the continental United States as Tenant may specify from
time to time by written notice delivered in accordance herewith.
(c) Any written notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered upon the earlier to occur of
(1) tender of delivery (in the case of a hand-delivered notice), (2) deposit in
the United States Mail, postage prepaid, Certified Mail or (3) receipt by
facsimile transmission, in each case, addressed to the parties hereto at the
respective addresses set out below, or at such other address as they have
theretofore
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specified by written notice delivered in accordance herewith. If Landlord has
attempted to deliver notice to Tenant at Tenant's address reflected on
Landlord's books but such notice was returned or acceptance thereof was refused,
then Landlord may post such notice in or on the premises, which notice shall be
deemed delivered to Tenant upon the posting thereof.
25. HAZARDOUS WASTE. The term "HAZARDOUS SUBSTANCES," as used in
this Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or
any other substances, the removal of which is required or the use of which is
restricted, prohibited or penalized by any "ENVIRONMENTAL LAW," which term shall
mean any Law relating to health, pollution, or protection of the environment.
Tenant hereby agrees that (a) no activity will be conducted on the Premises that
will produce any Hazardous Substances, except for such activities that are part
of the ordinary course of Tenant's business activities (the "PERMITTED
ACTIVITIES") provided such Permitted Activities are conducted in accordance with
all Environmental Laws and have been approved in advance in writing by Landlord;
(b) the Premises will not be used in any manner for the storage of any Hazardous
Substances except for any temporary storage of such materials that are used in
the ordinary course of Tenant's business (the "PERMITTED MATERIALS") provided
such Permitted Materials are properly stored in a manner and location satisfying
all Environmental Laws and approved in advance in writing by Landlord; (c) no
portion of the Premises will be used as a landfill or a dump; (d) Tenant will
not install any underground tanks of any type; (e) Tenant will not allow any
surface or subsurface conditions to exist or come into existence that
constitute, or with the passage of time may constitute a public or private
nuisance; (f) Tenant will not permit any Hazardous Substances to be brought onto
the premises, except for the Permitted Materials, and if so brought or found
located thereon, the same shall be immediately removed by Tenant, with proper
disposal, and all required cleanup procedures shall be diligently undertaken
pursuant to all Environmental Laws; (g) Tenant will maintain on the Premises a
list of all materials stored at the Premises for which a material safety data
sheet (an "MSDS") was issued by the producers or manufacturers thereof, together
with copies of the MSDS' s for such materials, and shall deliver such list and
MSDS copies of Landlord upon Landlord's request therefor; and (h) Tenant shall
remove all Permitted Materials from the Premises in a manner acceptable to
Landlord before Tenant's right to possess the Premises is terminated. If at any
time during or after the Term, the Premises are found to be so contaminated or
subject to such conditions, Tenant shall defend, indemnify and hold Landlord
harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from or as a result of the use of
the Premises by Tenant. Unless expressly identified on an addendum to this
Lease, as of the date hereof there are no Permitted Activities or Permitted
Materials for purposes of the foregoing provisions and none shall exist unless
and until approved in writing by the Landlord. Landlord may enter the Premises
and conduct environmental inspections and tests therein as it may reasonably
require from time to time provided that Landlord shall use reasonable efforts to
minimize the interference with Tenant's business. Such inspections and tests
shall be conducted at Landlord's expense, unless they reveal the presence of
Hazardous Substances (other than Permitted Materials) or that Tenant has
11
<PAGE> 15
not complied with the requirements set forth in this Section 25, in which case
Tenant shall reimburse Landlord for the cost thereof within ten days after
Landlord's request thereof.
TENANT ACKNOWLEDGES THAT UPON OCCUPANCY OF THE PREMISES EXCEPT FOR
WRITTEN PUNCH LIST ITEMS (1) IT HAS INSPECTED AND ACCEPTS THE PREMISES IN AN ?AS
IS, WHERE IS? CONDITION, (2) THE BUILDING'S IMPROVEMENTS ARE SUITABLE FOR THE
PURPOSE FOR WHICH THE PREMISES ARE LEASED AND LANDLORD HAS MADE NO WARRANTY,
REPRESENTATION, COVENANT, OR AGREEMENT WITH RESPECT TO THE MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF THE PREMISES, (3) THE PREMISES ARE IN GOOD
AND SATISFACTORY CONDITION, (4) NO REPRESENTATIONS AS TO THE REPAIR OF THE
PREMISES, NOR PROMISES TO ALTER, REMODEL OR IMPROVE THE PREMISES HAVE BEEN MADE
BY LANDLORD (UNLESS AND EXCEPT AS MAY BE SET FORTH IN EXHIBIT B ATTACHED TO THIS
LEASE, OR AS IS OTHERWISE EXPRESSLY SET FORTH IN THIS LEASE), AND (5) THERE ARE
NO REPRESENTATIONS OR WARRANTIES, EXPRESSED, IMPLIED OR STATUTORY, EXCEPT AS
PROVIDED HEREIN.
Executed by Landlord on the 1 day of OCT, 1998.
LANDLORD:
KRAMER 34 HP, LTD.
By: 2800 Industrial, Inc., general partner
By: /s/ R. E. Anderson
-------------------------------------
Richard Anderson
Vice President
Address: c/o Hill Partners, Inc.
2800 Industrial Terrace
Austin, Texas 78758
Telephone: (512) 835-4455
Fax: (512) 835-1222
TENANT:
IXC COMMUNICATIONS SERVICES, INC.
By: /s/ Stuart K. Coppens
-------------------------------------
Stuart K. Coppens
VP
Address: 1122 Capital of Texas Hwy, S
Austin, TX 78746
Telephone: (512) 427-3757
Fax: (512) 329-8638
EXHIBIT "A" Description of Premises
EXHIBIT "A-1" Floor Plan
EXHIBIT "A-2" Description of Project
EXHIBIT "B" Tenant Finish-Work: Allowance Approved as to form
EXHIBIT "C" Expansion Space Legal dept.
EXHIBIT "D" Extension Option
EXHIBIT "E" Guaranty
12
<PAGE> 16
EXHIBIT A
LEGAL DESCRIPTION
BUILDING: Kramer 3
LEGAL DESCRIPTION: Lot 3, BRAKER CENTER
IV, a subdivision in Travis County,
Texas, according to the map or plat
of record in Volume 101, Page 1,
Plat Records of Travis County,
Texas.
ADDRESS: 1825-A Kramer Lane
Austin, Texas 78758
(DIAGRAM)
13
<PAGE> 17
EXHIBIT A-1
(DIAGRAM)
14
<PAGE> 18
EXHIBIT A-1
(DIAGRAM)
15
<PAGE> 19
EXHIBIT B
TENANT FINISH-WORK: ALLOWANCE
1. Landlord, at its sole cost and expense, shall complete construction
of the shell of the Building including the roof, slab, exterior walls and site
work (the "SHELL IMPROVEMENTS"). All such construction shall be completed by
Landlord in a good and workmanlike manner and in accordance with all applicable
laws and regulations.
2. Before the commencement of interior construction the Tenant, at its
sole cost and expense, shall provide to Landlord for its approval final working
drawings, prepared by an architect that has been approved by Landlord (which
approval shall not be unreasonably withheld), of all improvements that Tenant
proposes to install in the Premises; such working drawings shall include the
partition layout, ceiling plan, electrical outlets and switches, telephone
outlets, HVAC, mechanical and plumbing systems of the Building, and detailed
plans and specifications for the construction of the improvements called for
under this Exhibit in accordance with all applicable governmental laws, codes,
rules, and regulations. Landlord's approval of such working drawings shall not
be unreasonably withheld or delayed, provided that (a) they comply with all
applicable governmental laws, codes, rules, and regulations, (b) such working
drawings are sufficiently detailed to allow construction of the improvements in
a good and workmanlike manner, (c) the improvements depicted thereon conform to
the rules and regulations promulgated from time to time by the Landlord for the
construction of tenant improvements (a copy of which has been delivered to
Tenant), and (d) the materials used are building standard (including doors,
ceiling tiles, lights and occupancy sensors). As used herein, "WORKING DRAWINGS"
shall mean the final working drawings approved by Landlord, as amended from time
to time by any approved changes thereto, and "INITIAL IMPROVEMENTS" shall mean
all improvements to be constructed in accordance with and as indicated on the
Working Drawings. Approval by Landlord of the Working Drawings shall not be a
representation or warranty of Landlord that such drawings are adequate for any
use, purpose, or condition, or that such drawings comply with any applicable law
or code, but shall merely be the consent of Landlord to the performance of the
Initial Improvements. Tenant shall, at Landlord's request, sign the Working
Drawings to evidence its review and approval thereof. All changes in the Initial
Improvements must receive the prior written approval of Landlord and upon
completion of the Initial Improvements, Tenant shall furnish Landlord with an
accurate, reproducible "as-built" plan (e.g., sepia) and a CADD disk of the
improvements as constructed, which plan shall be incorporated into this Lease by
this reference for all purposes.
3. Upon substantial completion of the Shell Improvements by Landlord,
Tenant shall be responsible for constructing and installing the Initial
Improvements. Tenant agrees to file for all required building and signage
permits necessary for the construction of the Initial Improvements and to use
good faith and diligent efforts to obtain all such permits. The cost of the
pursuit of such permits shall be borne by Tenant; however, Landlord will provide
its cooperation in connection therewith and, if necessary, shall join in such
applications, and execute such other documents, as Tenant may reasonably request
for such purposes. The Initial Improvements shall be diligently performed by
contractors and subcontractors reasonably acceptable to Landlord in a good and
workmanlike manner that is free of defects and is in strict conformance with the
Working Drawings and all applicable governmental laws, codes, rules, and
regulations. Tenant and its contractors and subcontractors shall be required to
maintain such liability and builder's risk insurance during construction of the
Initial Improvements as is reasonably required by Landlord.
4. If completion of the Initial Improvements is delayed beyond November
15, 1998 for any reason other than Landlord's failure to substantially complete
construction of the Shell Improvements on or before October 15, 1998, then,
notwithstanding any provision to the contrary in this Lease, Tenant's obligation
to pay Basic Rent and Tenant's Proportionate Share of Operating Expenses
hereunder shall commence on November 15, 1998. If the Premises are not ready for
occupancy and the Initial Improvements are not substantially completed (as
reasonably determined by Landlord) on November 15, 1998 due to Landlord's
failure to timely complete the Shell Improvements, then the Commencement Date
shall be sixty (60) days after Landlord delivers the Premises in Shell
Condition.
5. Landlord shall provide to Tenant a construction allowance (the
"CONSTRUCTION ALLOWANCE") equal to the lesser of (a) $20.00 per usable square
foot in that portion of the Premises initially delivered to Tenant or (b) the
Total Construction Costs, as adjusted for any approved changes to the Initial
Improvements.
6. Tenant shall bear the entire cost of constructing the Initial
Improvements (including, without limitation, costs of design, engineering,
construction, labor and materials, additional janitorial services, related taxes
and insurance costs, all of which costs are herein collectively called the
"TOTAL CONSTRUCTION COSTS") in excess of the Construction Allowance. Landlord
shall advance the Construction Allowance at such time as Tenant has furnished to
Landlord a certificate of occupancy for the Premises, lien waivers) from
Tenant's general contractor(s) establishing that all bills for labor and
materials incorporated in the Initial Improvements have been paid, and a
certificate from Tenant's architect certifying that the Initial Improvements
have been completed in accordance with the Working Drawings. Notwithstanding the
foregoing, at Tenant's request Landlord will fund portions of the Construction
Allowance monthly (on the 25th day of each month) for portions of the Initial
Improvements actually completed during the previous month, so long as Tenant
delivers to Landlord on or before the 10th day of the month a draw request along
with lien waivers from all contractors and subcontractors and a certificate from
the Tenant's architect's stating that the requested funds are for improvements
which have been incorporated into the Premises in accordance with the Working
Drawings. In no event shall Landlord be required to reimburse Tenant for costs
in excess of the Construction Allowance, as such excess costs will remain the
sole responsibility of Tenant. Furthermore, Landlord shall have no obligation to
reimburse Tenant for any the fees of any architect, engineer or other consultant
which are not reasonable and customary. All of the Initial Improvements will
become and shall remain Landlord's property on and after its construction or
installation on the Premises.
16
<PAGE> 20
7. Landlord or its affiliate shall have the right to inspect and
supervise the Work, and to ensure the Work does not adversely affect the
Building, and the Building's systems.
17
<PAGE> 21
[Expansion Space]
Beginning on the first day of the thirteenth (13th) month of the term
(the "EXPANSION DATE"), Tenant shall lease for the remaining Term 37,485
additional square feet of rentable area in the Building, constituting the
remainder of the Building (the "EXPANSION SPACE").
Landlord shall cause the Expansion Space to be in shell condition and
made ready for Tenant's occupancy sixty (60) days prior to the Expansion Date,
in accordance with the procedures referenced in Exhibit B. The Allowance
applicable to the Expansion Space shall be a sum equal to $16.00 per rentable
square foot in the Expansion Space. Except as set forth in this Exhibit C, all
Expansion Space taken by Tenant shall be taken "as is" and Landlord shall have
no obligation to construct any leasehold improvements therein or to make any
alterations thereto.
Tenant shall be required to commence paying rent on such Expansion
Space upon the date that is the sooner to occur of (a) the date that Tenant
commences to occupy such space or (b) sixty (60) days after Landlord delivers
the Premises in shell condition but in no event prior to the Expansion Date. If
the Expansion Space is not in shell condition sixty (60) days prior to the
Expansion Date, Landlord shall not be liable for damages therefor and Tenant
shall accept possession of the Expansion Space when Landlord tenders possession
thereof to Tenant in shell condition and Tenant's obligation to pay Base Rent
and Operating Expenses under Section 2.(b) of this Lease with respect to such
Expansion Space shall commence when Landlord tenders possession of such
Expansion Space to Tenant in shell condition.
Except as provided in this Exhibit C, the leasing of the Expansion
Space shall be upon the same terms and conditions as the leasing of the initial
Premises and shall be upon and subject to all of the provisions of this Lease.
Upon the Expansion Date: (i) the Base Rent payable by Tenant shall be increased
by the number of square feet contained within the Expansion Space multiplied by
the dollar amount per square foot provided in Section 2(a) of this Lease, (ii)
the "Premises" (as defined in the Lease) shall be deemed to include the
Expansion Space, and (iii) Tenant's Proportionate share shall be increased
commensurately to reflect the addition of the Expansion Space to the Premises.
It being acknowledged that on the Expansion Date, Tenant will be leasing the
entire Building and therefore its Proportionate Share of Operating Expenses
shall be 100%.
Notwithstanding anything to the contrary contained herein, Landlord
shall have the right to lease any portion of the Expansion Space to another
tenant or allow another party to use or occupy the Expansion Space, so long as
such lease or occupancy right is terminable on 30 days notice and expires sixty
(60) days prior to the Expansion Date.
18
<PAGE> 22
EXTENSION OPTION
Provided no Event of Default exists and Tenant is occupying the entire
Premises at the time of such election, Tenant may renew this Lease for one (1)
additional period of five (5) years on the same terms provided in this Lease
(except as set forth below), by delivering written notice of the exercise
thereof to Landlord not later than one hundred eighty (180) days before the
expiration of the Term. On or before the commencement date of the extended Term,
Landlord and Tenant shall execute an amendment to this Lease extending the Term
on the same terms provided in this Lease, except as follows:
(a) The Base Rent payable for each month during each such
extended Term shall be the prevailing rental rate in the Project, at
the commencement of such extended Term, for space of equivalent
quality, size, utility and location, with the length of the extended
Term and the credit standing of Tenant to be taken into account;
(b) Tenant shall have no further renewal options unless
expressly granted by Landlord in writing; and
(c) Landlord shall lease to Tenant the Premises in their
then-current condition, except that Tenant shall be entitled to an
improvement allowance equal to the prevailing rate in the Project, at
the commencement of such extended Term, for space of equivalent
quality, size, utility and location, with the length of the extended
Term to be taken into account.
Tenant's rights under this Exhibit shall terminate if (1) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises, or (3)
Tenant fails to timely exercise its option under this Exhibit, time being of the
essence with respect to Tenant's exercise thereof.
19
<PAGE> 23
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT is made and entered as of the
29 day of December 1998, by and between IXC COMMUNICATIONS SERVICES, INC.
("Tenant"), and KRAMER 34, HP, LTD. ("Landlord").
RECITALS
A. Pursuant to a Lease Agreement dated October 1, 1998 (the "Lease"),
Landlord leased to Tenant certain space in the building commonly known as
"Kramer 3" in Austin, Texas, as more fully described in the Lease.
B. Landlord and Tenant desire to amend the Lease as hereinafter
provided.
AMENDMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby amend
the Lease as follows:
1. Notwithstanding anything to the contrary contained in Section 1(a)
of the Lease, it is hereby agreed that the initial size of the Premises is
24,833 and Tenant's initial Proportionate Share is 39.95%.
2. Section 1(b) of the Lease is hereby deleted in its entirety and
replaced by the following:
(b) The lease term shall be sixty (60) months, beginning on the later
of (i) sixty (60) days after the date of substantial completion of the
Shell Improvements (as defined on Exhibit B) or (ii) January 1, 1999
(the "COMMENCEMENT DATE"), and ending December 31, 2003 (the "TERM",
which defined term shall include all renewals and extensions of the
Term, if any). Notwithstanding the foregoing if the Commencement Date
does not occur on January 1, 1999, then the Term shall end sixty (60)
months after the first day of the first full calendar month after the
Commencement Date.
3. The last sentence of Section 2(b) of the Lease is hereby deleted in
its entirety and replaced by the following:
The amounts of the initial monthly Base Rent and Tenant's Proportionate
Share of Operating Expenses (and the part thereof attributable to
Taxes) are as follows:
<TABLE>
<S> <C>
Base Rent (Section 2.(a)) $ 20,363.06
Operating Expenses, excluding Taxes (Section 2(b)) $ 1,999.24
Taxes (Sections 2.(b) and 3.(a)) $ 2,438.58
Total initial monthly payment $ 24,800.88
===========
</TABLE>
1
<PAGE> 24
4. In the second and third lines of the last paragraph of the Lease
(right before the signature blocks), the two (2) question marks are hereby
replaced by two (2) quotation marks. Further "Exhibit 'E' Guaranty" is hereby
deleted from the list of exhibits on the last page of the Lease.
5. Exhibit A-1 to the Lease is hereby replaced in its entirety by
EXHIBIT "A-1" attached hereto.
6. Each reference to the date "November 15, 1998" in paragraph 4 of
Exhibit B to the Lease is hereby replaced by "January 1, 1999".
7. The first sentence of Exhibit C to the Lease is hereby deleted in
its entirety and replaced by the following:
Beginning on January 1, 2000 (the "EXPANSION DATE"), Tenant shall lease
for the remaining Term 37,334 additional square feet of rentable area
in the Building, constituting the reminder of the Building (the
"EXPANSION SPACE").
8. EXHIBIT D attached hereto is hereby added to the Lease as Exhibit D
thereto.
9. Except as defined differently herein or the context clearly requires
otherwise, all capitalized terms used in this Amendment shall have the meanings
ascribed to them under the Lease. Except as expressly amended hereby, the Lease
shall remain unchanged and in full force and effect, and is hereby ratified by
Landlord and Tenant.
EXECUTED as of the date first written above.
TENANT:
IXC COMMUNICATIONS SERVICES, INC.
By: /s/ Stuart K. Coppens
-------------------------------------
Name: STUART K. COPPENS
Title: VP
LANDLORD:
KRAMER 34 HP, LTD.
By: 2800 Industrial Inc., General Partner
By: /s/ Richard E. Anderson
-----------------------------------
Richard E. Anderson
Vice President
2
<PAGE> 25
EXHIBIT D
EXTENSION OPTION
Provided no Event of Default exists and Tenant is occupying the entire
Premises at the time of such election, Tenant may renew this Lease for one (1)
additional period of five (5) years on the same terms provided in this Lease
(except as set forth below), by delivering written notice of the exercise
thereof to Landlord not later than one hundred eighty (180) days before the
expiration of the Term. On or before the commencement date of the extended Term,
Landlord and Tenant shall execute an amendment to this Lease extending the Term
on the same terms provided in this Lease, except as follows:
(a) The Base Rent payable for each month during each such
extended Term shall be the prevailing rental rate in the Project, at the
commencement of such extended Term, for space of equivalent quality, size,
utility and location, with the length of the extended Term and the credit
standing of Tenant to be taken into account;
(b) Tenant shall have no further renewal options unless
expressly granted by Landlord in writing; and
(c) Landlord shall lease to Tenant the Premises in their
then-current condition, except that Tenant shall be entitled to an improvement
allowance equal to the prevailing rate in the Project, at the commencement of
such extended Term, for space of equivalent quality, size, utility and location,
with the length of the extended Term to be taken into account.
Tenant's right under this Exhibit shall terminate if (1) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises, or (3)
Tenant fails to timely exercise its option under this Exhibit, time being of the
essence with respect to Tenant's exercise thereof.
3
<PAGE> 26
EXHIBIT A
(DIAGRAM)
4
<PAGE> 27
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT is made and entered as of the 13th day
of May 1999, by and between IXC COMMUNICATIONS SERVICES, INC. ("Tenant") and
KRAMER 34 HP, LTD. ("Landlord").
RECITALS
A. Pursuant to a Lease Agreement dated October 1, 1998 (as amended by
First Amendment to Lease Agreement, the "Lease"), Landlord leased to Tenant
certain space in the building commonly known as "Kramer 3" in Austin, Texas, as
more fully described in the Lease.
B. Contemporaneously herewith, Landlord has leased to Tenant certain
space in an adjacent building commonly known as "Kramer 2" pursuant to a Lease
Agreement dated of even date herewith (the "Building 2 Lease").
C. Landlord and Tenant desire to extend the Term of the Lease to be
coterminous with the Building 2 Lease and otherwise amend the Lease as
hereinafter provided.
AMENDMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby amend
the Lease as follows:
1. Notwithstanding anything to the contrary contained in the Lease, it
is hereby agreed that the initial Term shall be extended to be coterminous with
the initial term of the Building 2 Lease. Section 1(b) of the Building 2 Lease
(describing the term of the Building 2 Lease) is reprinted below for reference:
The Lease term shall be seventy two (72) months, beginning on the later
of (i) sixty (60) days after substantial completion of the Shell
Improvements (as defined on Exhibit B) or (ii) August 1, 1999 (the
"COMMENCEMENT DATE"), and ending July 31, 2005 (the "TERM", which
defined term shall include all renewals and extensions of the Term, if
any). Notwithstanding the foregoing if the Commencement Date does not
occur on August 1, 1999, then the Term shall end seventy-two (72)
months after the first day of the first full calendar month after the
Commencement Date.
2. The monthly Base Rent payable during the extension of the initial
Term (as provided in paragraph 1 above) shall be $.86 per square foot of the
Premises.
3. Exhibit C to the Lease is hereby deleted in its entirety and
replaced by Exhibit "C" attached hereto.
1
<PAGE> 28
4. Except as defined differently herein or the context clearly requires
otherwise, all capitalized terms used in this Amendment shall have the meanings
ascribed to them under the Lease. Except as expressly amended hereby, the Lease
shall remain unchanged and in full force and effect, and is hereby ratified by
Landlord and Tenant.
EXECUTED as of the date first written above.
TENANT:
IXC COMMUNICATIONS SERVICES, INC.
Approved as to form
Legal dept.
By: /s/ Stuart K. Coppens
-------------------------------------
Name: Stuart K. Coppens
Title: VP
LANDLORD:
KRAMER 34 HP, LTD.
By: 2800 Industrial Inc., General Partner
By: /s/ Richard E. Anderson
------------------------------
Richard E. Anderson
Vice President
2
<PAGE> 29
EXHIBIT C
[Expansion Space]
Except as provided below, on or before August 1, 1999, Tenant shall
lease for the remaining Term 37,334 additional square feet of rentable area in
the Building, constituting the remainder of the Building (the "Expansion
Space"). Notwithstanding the foregoing, if Tenant accepts delivery of, and
commences paying rent on, any portion of the expansion space under the Building
2 Lease prior to August 1, 1999, then the number of square feet of Expansion
Space which Tenant must lease prior to August 1, 1999, as provided above, shall
be reduced on a square foot for square foot basis; provided that any portion of
the Expansion Space not leased prior to August 1, 1999 must be leased by Tenant
on or before January 1, 2000. Tenant may commence its lease of the Expansion
Space in segments at various times provided that (i) it has leased all of the
Expansion Space on or before August 1, 1999, except for the number of square
feet of Expansion Space corresponding to the number of square feet of expansion
space leased by Tenant in Building 2 prior to August 1, 1999, which deferred
number of square feet of Expansion Space must be leased prior to January 1, 2000
(as provided above) (ii) each segment so leased (except for the last segment)
must be at least 5,000 square feet, and (iii) Tenant gives Landlord at least
forty-five (45) days prior written notice of the date on which it desires to
commence the lease of any given segment (each such date being referred to herein
as an ("Expansion Date").
Landlord shall cause the Expansion Space (or applicable portion
thereof) to be in shell condition and made ready for Tenant's occupancy thirty
(30) days prior to the applicable Expansion Date, in accordance with the
procedures referenced in Exhibit B. The Allowance applicable to the Expansion
Space shall be a sum equal to $18.89 per rentable square foot in the Expansion
Space (or applicable portion thereof). Except as set forth in this Exhibit C,
all Expansion Space taken by Tenant shall be taken "as is" and Landlord shall
have no obligation to construct any leasehold improvements therein or to make
any alterations thereto.
Tenant shall be required to commence paying rent on any applicable
portion of the Expansion Space upon the date that is the sooner to occur of (a)
the date that Tenant commences to occupy such space or (b) thirty (30) days
after Landlord delivers such portion of the Expansion Space in shell condition;
provided that Landlord shall not deliver the any portion of the Expansion Space
in shell condition prior to July 1, 1999, unless Tenant requests an earlier
delivery. If the applicable portion of the Expansion Space is not in shell
condition thirty (30) days prior to the applicable Expansion Date, Landlord
shall not be liable for damages therefor and Tenant shall accept possession of
such portion of the Expansion Space when Landlord tenders possession thereof to
Tenant in shell condition and Tenant's obligation to pay Base Rent and Operating
Expenses under Section 2.(b) of this Lease with respect to such portion of the
Expansion Space shall commence thirty (30) days after Landlord tenders
possession of such portion of the Expansion Space to Tenant in shell condition.
Tenant hereby acknowledges that if (x) Tenant is not required to commence paying
rent on any given portion of the Expansion Space on an earlier date, as provided
above, and (y) the outside rent commencement date for such Expansion Space is
not deferred until January 1, 2000, as provided above, then in any event, so
long as Landlord delivers such portion of the Expansion Space in shell condition
on or before July 1, 1999, Tenant's obligation to pay Base Rent and Operating
Expenses under
3
<PAGE> 30
Section 2.(b) of this Lease with respect to any portion of the Expansion Space
so delivered shall commence on August 1, 1999.
Except as provided in this Exhibit C, the leasing of the Expansion
Space shall be upon the same terms and conditions as the leasing of the initial
Premises and shall be upon and subject to all of the provisions of this Lease.
Upon any given Expansion Date: (i) the Base Rent payable by Tenant shall be
increased by the number of square feet contained within the applicable portion
of the Expansion Space multiplied by the dollar amount per square foot provided
in Section 2(a) of this Lease, (ii) the "Premises" (as defined in the Lease)
shall be deemed to include such portion the Expansion Space, and (iii) Tenant's
Proportionate Share shall be increased commensurately to reflect the addition of
such portion of the Expansion Space to the Premises. It being acknowledged that
at such time as Tenant has leased all of the Expansion Space, Tenant will be
leasing the entire Building and therefore its Proportionate Share of Operating
Expenses shall be 100%
Notwithstanding anything to the contrary contained herein, Landlord
shall have the right to lease any portion of the Expansion Space to another
tenant or allow another party to use or occupy the Expansion Space, so long as
such lease or occupancy right is terminable on thirty (30) days notice and
expires thirty (30) days prior to the Expansion Date.
4
<PAGE> 31
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT is made and entered as of the
___ day of June 1999, by and between IXC COMMUNICATIONS SERVICES, INC.
("Tenant"), and KRAMER 34 HP, LTD. ("Landlord").
RECITALS
A. Pursuant to a Lease Agreement dated October 1, 1998 (as amended by
First Amendment to Lease Agreement dated December 29, 1998 and Second Amendment
to Lease Agreement dated May 13, 1999, the "Lease"), Landlord leased to Tenant
certain space in the building commonly known as "Kramer 3" in Austin, Texas, as
more fully described in the Lease.
B. Landlord has leased to Tenant certain space in an adjacent building
commonly known as "Kramer 2", pursuant to a Lease Agreement dated of even date
herewith (the "Building 2 Lease").
C. Landlord and Tenant desire to delay the commencement date of the
Building 2 Lease until August 23, 1999, which correspondingly changes the
expiration of the Term of the Lease and the date by which Tenant must lease the
Expansion Space pursuant to Exhibit "C" attached to the Lease.
AMENDMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby amend
the Lease as follows:
1. Paragraph 1 of the Second Amendment to Lease Agreement is hereby
replaced in its entirety by the following:
Notwithstanding anything to the contrary contained in the Lease, it is
hereby agreed that the initial Term shall be extended to be coterminous
with the initial term of the Building 2 Lease. Section 1(b) of the
Building 2 Lease (describing the term of the Building 2 Lease is
reprinted below for reference:
The Lease term shall be seventy two (72) months, beginning on
the later of (i) sixty (60) days after substantial completion
of the Shell Improvements (as defined on Exhibit B) or (ii)
August 23, 1999 (the "COMMENCEMENT DATE"), and ending August
22, 2005 (the "TERM", which defined term shall include all
renewals and extensions of the Term, if any). Notwithstanding
the foregoing if the Commencement Date does not occur on
August 23, 1999, then the Term shall end seventy-two (72)
months after the Commencement Date.
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<PAGE> 32
2. Each time the date "August 1, 1999" appears on Exhibit C to the
Lease (as the same was amended by the Second Amendment to Lease Agreement) it is
hereby replaced by the date August 23, 1999. Each time the date "July 1, 1999"
appears on Exhibit C to the Lease (as the same was amended by the Second
Amendment to Lease Agreement) it is hereby replaced by the date July 23, 1999.
3. Except as defined differently herein or the context clearly requires
otherwise, all capitalized terms used in this Amendment shall have the meanings
ascribed to them under the Lease. Except as expressly amended hereby, the Lease
shall remain unchanged and in full force and effect, and is hereby ratified by
Landlord and Tenant.
EXECUTED as of the date first written above.
TENANT:
IXC COMMUNICATIONS SERVICES, INC.
By: /s/ Stuart K. Coppens
-------------------------------------
Name: Stuart K. Coppens
Title: VP
Approved as to form
Legal dept. ALJ
LANDLORD:
KRAMER 34 HP, LTD.
By: 2800 Industrial Inc., General Partner
By: /s/ R.E. Anderson
---------------------------------
Richard E. Anderson
Vice President
2
<PAGE> 33
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (this "Amendment") is entered into as of
the 16th day of August, 1999 by and between THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation ("Landlord") and IXC COMMUNICATIONS SERVICES,
INC., a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Kramer 34 HP, Ltd., a Texas limited partnership, and Tenant
executed that certain Lease Agreement (the "Lease Agreement") dated October 1,
1998 covering 24,833 square feet of space located in Suite 100 of the building
knows as Kramer 3, located at 1825-A Kramer Lane, Austin, Texas 78758 (the
"Building"), as more particularly described therein;
WHEREAS, the Lease Agreement has been amended pursuant to that certain
First Amendment to Lease Agreement, dated the 29th day of December 1998, that
certain Second Amendment to Lease Agreement dated the 13th day of May 1999 and
that certain Third Amendment to Lease Agreement dated the 3rd day of June 1999
(the Lease Agreement, as amended, the "Lease");
WHEREAS, Landlord is the current owner of the Building and the
landlord under the lease;
WHEREAS, Tenant desires to construct and install on the land upon which
the Building is located (the "Property") an antenna tower in the location shown
on Exhibit A attached hereto (the "Tower Space");
WHEREAS, subject to the terms and conditions set forth herein, Landlord
has agreed to permit Tenant to construct and install the antenna tower on the
Property in the Tower Space; and
WHEREAS, Landlord and Tenant desire to amend the Lease to reflect their
agreements as to the terms and conditions governing Tenant's construction,
installation, and operation of the antenna tower in the Tower Space.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants between the parties herein contained, and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Landlord and Tenant hereby agree as follows:
AGREEMENT:
1. ANTENNA TOWER. Landlord hereby grants Tenant a license (the "Tower
License"), subject to the approval of the City of Austin and all other
governmental authorities having jurisdiction over the Property and Tenant's
operations, to construct, install, operate and maintain an antenna tower and
related cabling, improvements and equipment on the Property in the Tower Space
1
<PAGE> 34
(such tower and related cabling and equipment, collectively, the "Antenna
Tower") in accordance with plans and specifications approved by Landlord, which
approval shall not be unreasonably withheld. Tenant shall, at Tenant's sole cost
and expense, construct a fence around the Tower Space pursuant to plans and
specifications approved by Landlord, which approval shall not be unreasonably
withheld. All work in connection with the construction and installation of the
Antenna Tower shall be performed in a good and workmanlike manner in accordance
with all applicable laws and by contractors approved by Landlord, which approval
shall not be unreasonably withheld. Tenant's contractors shall comply at all
times with Landlord's constructions rules applicable to the Property, including
contractor insurance requirements of Landlord. Upon completion of the Antenna
Tower, Tenant shall deliver to Landlord sworn statements setting forth the names
of all contractors and subcontractors who performed work on the Antenna Tower
and final lien waivers from all such contractors and subcontractors. Throughout
the construction and installation of the Antenna Tower, Tenant, at its expense,
shall carry, or cause to be carried, construction risk insurance under which
Landlord shall be named as an additional insured.
2. PLANS AND SPECIFICATIONS. Prior to installation of the Tower
Antenna, Tenant shall deliver to Landlord for its approval plans and
specifications therefor which are sufficiently detailed to allow construction
and installation of the Tower Antenna depicted thereon to be performed in a good
and workmanlike manner. If the construction and installation will affect the
Building's structure or mechanical or electrical systems, then the plans and
specifications therefor must be prepared by licensed engineer reasonably
acceptable to Landlord. Landlord's approval of any plans and specifications
shall not be a representation that the plans or the work depicted thereon will
comply with law or be adequate for any purpose, but shall merely be Landlord's
consent to performance of the work. Tenant shall furnish Landlord a complete set
of as builts at the completion of all work.
3. COMPLIANCE WITH LAWS. Prior to the installation of the Antenna
Tower, Tenant shall secure and shall at all times thereafter maintain all
required approvals and permits of the Federal Communications Commission and all
other government authorities having jurisdiction over the Antenna Tower, the
Property and/or Tenant's business, including it communications, operations and
facilities. Tenant shall at all times comply with all laws and ordinances and
all rules and regulations of municipal, state and federal governmental
authorities relating to the installation, maintenance, height, location, use,
operations, and removal of the Antenna Tower and shall fully indemnify Landlord
against any loss, cost, or expense which may be sustained or incurred by it as a
result of the installation, maintenance, operation, or removal of the Antenna
Tower, EXCEPT IF THE SAME IS CAUSED BY OR RESULTS FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, BUT NOT THE NEGLIGENCE OF LANDLORD. Landlord makes no
representation that applicable laws, ordinances or regulations permit the
installation or operation of the Antenna Tower at the Property.
4. MAINTENANCE OF THE ANTENNA TOWER. Tenant, at its expense, shall be
solely responsible for and shall maintain the Antenna Tower in a safe,
structural, sound, clean and sightly condition and shall indemnify and save
harmless Landlord against all liens and claims of mechanics
2
<PAGE> 35
and materialmen furnishing labor and materials in the construction and
maintenance of same. Tenant shall establish and observe safety procedures
relative to the operation, maintenance, and repair of the Antenna Tower. Tenant
shall not make any alterations, additions or improvements in or to the Tower
Space or the Antenna Tower without the prior written consent of Landlord, which
consent shall not be unreasonably withheld.
5. REMOVAL OF ANTENNA TOWER. At the termination of the Lease, the
Antenna Tower shall at Landlord's request be removed by Tenant, at Tenant's sole
cost and expense, and Tenant shall restore the Property, the Building and the
Tower Space to as similar of a condition as is reasonably practicable to that
which existed immediately prior to installation of the Antenna Tower.
6. LIMITATION OF LIABILITY. Notwithstanding any provision in the Lease
to the contrary, Landlord shall not have any liability arising out of or in
connection with the Tower Space, the Antenna Tower or Tenant's installation of
the Antenna Tower or Tenant's use of the Tower Space or any other areas on the
Property or in the Building where Tenant's equipment related to the use of the
Antenna Tower is located.
7. INSURANCE. All insurance required under the Lease to be maintained
by Tenant with respect to the Premises shall also be maintained by Tenant with
respect to the Tower Space.
8. AUTHORITY. Tenant and each person signing this Amendment on behalf
of Tenant represents to Landlord as follows; (a) Tenant is a duly incorporated
and validly existing under the laws of the State of Texas, (b) Tenant has and is
qualified to do business in Texas, (iii) Tenant has the full right and authority
to enter into this Amendment, and (iv) each person signing on behalf of Tenant
was and continues to be authorized to do so.
9. DEFINED TERMS. All terms not otherwise defined herein shall have the
same meaning as assigned to them in the Lease. Except as amended hereby, the
Lease shall remain in full force and effect in accordance with its terms and is
hereby ratified. In the event of a conflict between the Lease and this
Amendment, this Amendment shall control.
10. EXHIBITS. Each Exhibit attached hereto is made a part hereof for
all purposes.
11. NO REPRESENTATIONS. Landlord and Landlord's agents have made no
representations or promises, express or implied, in connection with the Tower
Space or this Amendment, except as expressly set forth herein.
12. ENTIRE AGREEMENT. This Amendment, together with the Lease, contains
all of the agreements of the parties hereto with respect to any matter covered
or mentioned in this Amendment or the Lease, and no prior agreement,
understanding or representation pertaining to any such matter shall be effective
for any purpose.
3
<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
LANDLORD:
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation
By: HILL PARTNERS MANAGEMENT
COMPANY, INC., ITS AUTHORIZED AGENT
By: /s/ Beth Ann Signor
-------------------------------------
Name: Beth Ann Signor
Title: President
TENANT:
IXC COMMUNICATIONS SERVICES, INC., a
Delaware Corporation
By: /s/ Kihm Schroeder
-------------------------------------
Name: Kihm Schroeder
Title: VP Network Planning
4
<PAGE> 37
EXHIBIT A
TOWER SPACE
5
<PAGE> 38
FIFTH AMENDMENT TO LEASE AGREEMENT
THIS FIFTH AMENDMENT TO LEASE AGREEMENT is made and entered as of the
1st day of October 1999, by and between IXC COMMUNICATIONS SERVICES, INC.
("Tenant"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Landlord").
RECITALS
A. Pursuant to a Lease Agreement dated October 1, 1998 (as amended by
First, Second, Third and Fourth Amendments to Lease Agreement, the "Lease"),
Kramer 34 HP, Ltd. (predecessor-in-interest to Landlord) leased to Tenant
certain space in the building commonly known as "Kramer 3" in Austin, Texas, as
more fully described in the Lease.
B. Pursuant to Exhibit "C" to the Lease, Tenant has delivered notice to
Landlord that it intends to commence its lease of 17,183 square feet out of the
Expansion Space, as such space is shown on EXHIBIT "A" attached hereto (the
"Current Expansion Space").
C. Although the terms of Exhibit "C" to the Lease do not require an
amendment to the Lease in order to evidence a take-down of Expansion Space
(i.e., the expansion provisions in the Lease are self-operative), Landlord and
Tenant desire to enter into this Amendment in order to set the date on which
Tenant will be required to commence paying rent on the Current Expansion Space.
AMENDMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby amend
the Lease as follows:
1. Notwithstanding anything to the contrary contained in Exhibit "C" to
the Lease, it is hereby agreed that Tenant shall commence paying rent on the
Current Expansion Space on the earlier of (i) the date Tenant commences to
occupy such space, or (ii) October 15, 1999. Furthermore, Landlord hereby
delivers the Current Expansion Space to Tenant in shell condition, and Tenant
hereby acknowledges and accepts such delivery. Effective as of the date Tenant
is required to commence paying rent on the Current Expansion Space, Tenant's
Proportionate Share of Operating Expenses shall be increased to 67.6%. Except as
provided above, Tenant's lease of the Current Expansion Space shall be in
accordance with the terms and provisions of Exhibit "C" to the Lease. Nothing
contained herein shall relieve Landlord of its obligation to deliver, or Tenant
to lease, the balance of the Expansion Space as and when required pursuant to
Exhibit "C" to the Lease.
2. Except as defined differently herein or the context clearly requires
otherwise, all capitalized terms used in this Amendment shall have the meanings
ascribed to them under the
1
<PAGE> 39
Lease. Except as expressly amended hereby, the Lease shall remain unchanged and
in full force and effect, and is hereby ratified by Landlord and Tenant.
EXECUTED as of the date first written above.
TENANT:
IXC COMMUNICATIONS SERVICES, INC.
By: /s/ Mike R. Jones
-------------------------------------
Name: Mike R. Jones, Vice President
Title: Facilities, Construction & Engineering
LANDLORD:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: Hill Partners Management Company,
Inc., its authorized agent
By: /s/ Richard E. Anderson
------------------------------
Richard E. Anderson
Vice President
2
<PAGE> 40
EXHIBIT A
(DIAGRAM)
3
<PAGE> 1
EXHIBIT 10.22
LEASE AGREEMENT
BETWEEN
KRAMER 34 HP, LTD.
as Landlord,
and
IXC COMMUNICATIONS SERVICES, INC.
as Tenant,
Covering the Building
known (or to be known) as
Kramer 2
Located at
-----------------------------------
Austin, Texas
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
1. PREMISES, TERM, AND IMPROVEMENTS..................................................1
2. BASE RENT, ADDITIONAL RENT AND SECURITY DEPOSIT...................................1
3. TAXES.............................................................................2
4. LANDLORD'S MAINTENANCE............................................................2
5. TENANT'S MAINTENANCE AND REPAIR OBLIGATIONS.......................................3
6. ALTERATIONS.......................................................................3
7. SIGNS.............................................................................3
8. UTILITIES.........................................................................3
9. INSURANCE.........................................................................4
10. CASUALTY DAMAGE...................................................................4
11. LIABILITY, INDEMNIFICATION, WAIVER OF SUBROGATION AND NEGLIGENCE..................4
12. USE...............................................................................5
13. INSPECTION........................................................................5
14. ASSIGNMENT AND SUBLETTING.........................................................5
15. CONDEMNATION......................................................................6
16. SURRENDER OF PREMISES; HOLDING OVER...............................................6
17. QUIET ENJOYMENT...................................................................7
18. EVENTS OF DEFAULT.................................................................7
19. REMEDIES..........................................................................7
20. LANDLORD'S DEFAULT................................................................8
21. MORTGAGES.........................................................................8
22. ENCUMBRANCES......................................................................9
23. MISCELLANEOUS.....................................................................9
24. NOTICES..........................................................................10
25. HAZARDOUS WASTE..................................................................10
</TABLE>
i
<PAGE> 3
LIST OF DEFINED TERMS
<TABLE>
<S> <C>
Lease.....................................................................................1
Landlord..................................................................................1
Tenant....................................................................................1
Premises..................................................................................1
Building..................................................................................1
Land......................................................................................1
Proportionate Share.......................................................................1
Commencement Date.........................................................................1
Term......................................................................................1
Shell Improvement.........................................................................1
Base Rent.................................................................................1
Operating Expenses........................................................................1
rent......................................................................................2
Taxes.....................................................................................2
Building's Structure......................................................................2
HVAC System...............................................................................3
Repair Period.............................................................................4
Vacation Date.............................................................................5
Transfer..................................................................................5
Taking....................................................................................6
Event of Default..........................................................................7
Claimant..................................................................................8
Mortgage..................................................................................8
Primary Lease.............................................................................8
Landlord's Mortgagee......................................................................8
Laws......................................................................................9
Law.......................................................................................9
affiliate.................................................................................9
Tenant Party..............................................................................9
including.................................................................................9
Hazardous Substances.....................................................................10
Environmental Law........................................................................10
Permitted Activities.....................................................................10
Permitted Materials......................................................................10
MSDS.....................................................................................10
Working Drawings........................................................................D-1
Initial Improvements....................................................................D-1
Construction Allowance..................................................................D-1
Total Construction Costs................................................................D-1
</TABLE>
ii
<PAGE> 4
LEASE AGREEMENT
This Lease Agreement (this "LEASE") is entered into by KRAMER 34 HP,
LTD., ("LANDLORD"), and IXC COMMUNICATIONS SERVICES, INC., ("TENANT").
1. PREMISES, TERM AND IMPROVEMENTS.
(a) Landlord leases to Tenant, and Tenant leases from
Landlord, the space depicted on the floor plan attached as EXHIBIT A (the
"PREMISES"), which is part of the approximately 68,400 square foot building (the
"BUILDING") located on the real property described on EXHIBIT A (the "LAND"),
subject to the terms and conditions in this Lease. The Building is a part of the
seven (7) building project known as Braker Center IV, as more particularly shown
on EXHIBIT A-1 attached hereto (the "PROJECT"). Landlord and Tenant stipulate
that, as of the date of this Lease, the size of the Premises is 36,024 square
feet (subject to increase as provided on Exhibit C) and the size of the Building
is 68,400 square feet, and Tenant's initial "PROPORTIONATE SHARE" is 52.7%. The
size of the Premises and Proportionate Share shall be adjusted if the size of
the Premises changes, including, without limitation, increases in the Premises
due to Tenant's lease of the Expansion Space as provided on Exhibit C.
(b) The Lease term shall be seventy two (72) months, beginning
on the later of (i) sixty (60) days after substantial completion of the Shell
Improvements (as defined on Exhibit B) or (ii) August 1, 1999 (the "COMMENCEMENT
DATE"), and ending July 31, 2005 (the "TERM", which defined term shall include
all renewals and extensions of the Term, if any). Notwithstanding the foregoing
if the Commencement Date does not occur on August 1, 1999, then the Term shall
end seventy-two (72) months after the first day of the first full calendar month
after the Commencement Date.
(c) Landlord shall construct the shell improvements (the
"SHELL IMPROVEMENTS") described on EXHIBIT B, and, by occupying the Premises,
Tenant shall have accepted the Premises in their shell condition, subject to
latent defects and completion of any punch-list items relating to the Shell
Improvements. Tenant shall be responsible for constructing the Initial
Improvements described on the plans and specifications referenced on Exhibit B.
2. BASE RENT, ADDITIONAL RENT AND SECURITY DEPOSIT.
(a) Tenant shall pay to Landlord "BASE RENT", in advance,
without demand, deduction or setoff, equal to the following amounts for the
following periods of time:
TIME PERIOD MONTHLY BASE RENT
Months 1 through 72 $1.06 per square foot of the Premises
The first monthly installment, plus the other monthly charges set forth in
Section 2.(b), shall be due on the date hereof; thereafter, monthly installments
of Base Rent shall be due on the first day of each calendar month following the
Commencement Date. If the Term begins on a day other than the first day of a
month or ends on a day other than the last day of a month, the Base Rent and
additional rent for such partial month shall be prorated.
(b) Tenant shall pay, as additional rent its Proportionate
Share of all costs incurred in operating, managing, and maintaining the
Premises, the Land and the Building and the facilities and services provided for
the common use of Tenant and any other tenants of the Building (collectively,
"OPERATING EXPENSES"), including the following items: (1) Taxes (defined below)
and the cost of any tax consultant employed to assist Landlord in determining
the fair tax valuation of the Building and Land; (2) the cost of all utilities
used in the Building which are not billed separately to a tenant for above
building standard utility consumption; (3) the cost of insurance; (4) the cost
of repairs, replacement, management fees and expenses, landscape maintenance and
replacement, security service (if provided), trash service (if provided); (5)
the cost of dues, assessments, and other charges applicable to the Land payable
to any property or community owner association under restrictive covenants or
deed restrictions to which the Land is subject; (6) maintenance of the
Building's fire sprinkler systems; and (7) alterations, additions, and
improvements made by Landlord to comply with Law (defined below) or in order to
reduce Operating Expenses. On the same day that Base Rent is due, Tenant shall
pay to Landlord an amount equal to 1/12 of Landlord's estimate of Tenant's
Proportionate Share of annual Operating Expenses. The initial monthly payments
are based upon Landlord's estimate of the Operating Expenses for the year in
question, and shall be increased or decreased annually to reflect the projected
actual Operating Expenses for that year. Within 90 days after each calendar year
or as soon thereafter as is reasonably practicable, Landlord shall deliver to
Tenant a statement setting forth the actual Operating Expenses for such year. If
Tenant's total payments in respect of Operating Expenses for any year are less
than Tenant's Proportionate Share of Operating Expenses for that year, Tenant
shall pay the difference to Landlord within 30 days after Landlord's request
therefor; if such payments are more than Tenant's Proportionate Share of
Operating Expenses, Landlord shall retain such excess and credit it against
Tenant's future monthly payments, except that any credit remaining at the
expiration or earlier termination of this Lease shall be paid to Tenant within
thirty (30) days after such expiration or termination. Operating Expenses shall
not include the following: (A) any costs for interest, amortization, or other
payments on loans to Landlord; (B) commissions or other expenses incurred in
leasing or procuring tenants; (C) legal expenses other than those incurred for
the direct benefit of the tenants of the Building; (D) allowances, concessions,
and other costs of renovating or otherwise improving space for occupants of the
Building or vacant space in the Building; (E) federal income taxes imposed on or
measured by the income of Landlord from the operation of the Building; (F) rents
under
1
<PAGE> 5
ground leases; (G) costs incurred in selling, syndicating, financing,
mortgaging, or hypothecating any of Landlord's interests in the Building; and
(H) costs of capital improvements except for those provided in (7) above and
except that Landlord may include in Operating Expenses only such portion of
capital improvement costs as is necessary to amortize such improvements over
their useful life. There shall be no duplication of costs for reimbursements in
calculating Operating Expenses. The amounts of the initial monthly Base Rent and
Tenant's Proportionate Share of Operating Expenses (and the part thereof
attributable to Taxes) are as follows:
<TABLE>
<S> <C>
Base Rent (Section 2.(a)).................................................$38,185.44
Operating Expenses, excluding Taxes (Section 2(b)).........................$3,362.24
Taxes (Sections 2.(b) and 3.(a))...........................................$4,803.20
Total initial monthly payment.............................................$46,350.88
</TABLE>
(c) If any payment required of Tenant under this Lease is not
paid within fifteen (15) days after due, Landlord may charge Tenant a fee equal
to 5% of the delinquent payment to reimburse Landlord for its cost and
inconvenience incurred as a consequence of Tenant's delinquency; provided,
however, that if Tenant is late more than three (3) times in any given 12 month
period, then subsequent to any such third late payment any failure to pay rent
or any other sum when due shall be subject to the foregoing late fee immediately
(i.e., without the 15-day grace period).
(d) All payments and reimbursements required to be made by
Tenant under this Lease shall constitute "RENT" (herein so called).
(e) Landlord shall keep good and accurate books and records in
accordance with sound accounting principles consistently applied concerning the
Operating Expenses, and Tenant shall have the right, upon 10 days notice, to
inspect and copy such books and records. In any event, Landlord shall credit
Tenant in the same manner as overpayments of Operating Expenses per subparagraph
(b) above all Operating Expenses shown by such inspection to have been overpaid
by Tenant, as mutually determined by Landlord and Tenant in good faith, and,
similarly, Tenant shall promptly pay Landlord all Operating Expenses shown by
such inspection to have been underpaid by Tenant, as mutually determined by
Landlord and Tenant in good faith. Tenant shall not have the right to conduct
any such inspection more frequently than once annually or for periods prior to
the immediately preceding lease year. Landlord shall reimburse Tenant for the
audit expense if any overpayment is found to be 10% or greater.
3. TAXES.
(a) Landlord shall pay all taxes, assessments and governmental
charges whether federal, state, county, or municipal and whether they are
imposed by taxing or management districts or authorities presently existing or
hereafter created (collectively, "TAXES") that accrue against the Premises, the
land and the Building. If, during the Term, there is levied, assessed or imposed
on Landlord a capital levy or other tax directly on the rent or a franchise tax,
assessment, levy or charge measured by or based, in whole or in part, upon rent,
then all such taxes, assessments, levies or charges, or the part thereof so
measured or based, shall be included within the term "Taxes".
(b) Tenant shall (1) before delinquency pay all taxes levied
or assessed against any personal property, fixtures or alterations placed in the
Premises and (2) upon the request of Landlord, deliver to Landlord receipts from
the applicable taxing authority or other evidence acceptable to Landlord to
verify that such taxes have been paid. If any such taxes are levied or assessed
against Landlord or Landlord's property and (A) Landlord pays them or (B) the
assessed value of Landlord's property is increased thereby and Landlord pays the
increased taxes, then Tenant shall pay to Landlord such taxes within ten days
after Landlord's request therefor.
4. LANDLORD'S MAINTENANCE.
(a) This Lease is intended to be a net lease; accordingly,
Landlord's maintenance obligations are limited to the replacement of the
Building's roof and maintenance of the foundation piers and structural members
of the exterior walls (collectively, the "BUILDING'S STRUCTURE"); however,
Landlord shall not be responsible for alterations to the Building's Structure
required by law because of Tenant's use of the Premises (which alterations shall
be performed by Tenant). Landlord's liability for any defects, repairs,
replacement or maintenance for which Landlord is responsible hereunder shall be
limited to the cost of performing such work.
(b) Additionally, Landlord shall maintain the parking areas,
driveways, alleys and grounds surrounding the Premises in a clean and sanitary
condition, consistent with the operation of a first-class office/warehouse
building, including prompt maintenance, repairs and replacements of (1) any
drill or spur tract servicing the Premises, (2) the exterior of the Building
(including painting), (3) sprinkler systems and sewage lines, and (4) any other
items normally associated with the foregoing. Tenant shall promptly notify
Landlord of any work required to be performed under this Section 4.(b), and
Landlord shall not be responsible for performing such work until Tenant delivers
to Landlord such notice. All costs in performing the work described in this
Section 4.(b) shall be included in Operating Expenses, subject to the applicable
provisions of Section 2(b) hereof.
2
<PAGE> 6
(c) Additionally, Landlord shall maintain the private entry
drive, the detention pond, and other common areas for the Project as shown on
Exhibit A-1. The Building's Proportionate Share of all costs in performing the
work described in this Section 4(c) shall be included in Operating Expenses,
subject to the applicable provisions of Section 2(b) hereof. As used herein, the
term "Building's Proportionate Share" shall mean a fraction which is determined
by dividing the number of square feet contained in the Building (68,400) by the
number of square feet then contained in the Project. Currently there are 296,646
square feet in the Project, and therefore the initial Building's Proportionate
Share is 23%. As additional square footage in the Project is completed and ready
for occupancy, the number of square feet in the Project will be increased and
the Building's Proportionate Share will be adjusted accordingly.
5. TENANT'S MAINTENANCE AND REPAIR OBLIGATIONS.
(a) Tenant shall maintain all parts of the Premises [except
for maintenance work which Landlord is expressly responsible for under Section
4.(a)] in good condition and promptly make all necessary repairs and
replacements to the Premises, normal wear and tear and damage by casualty
excepted. Tenant shall repair and pay for any damage caused by a Tenant Party
(defined below) or caused by Tenant's default hereunder.
(b) Tenant shall maintain the hot water equipment and the
heating, air condition, and ventilation equipment and system (the "HVAC SYSTEM")
in good repair and condition and in accordance with Law and with such equipment
manufacturers' suggested operation/maintenance service program; such obligation
shall include replacement of all equipment necessary to maintain such equipment
and system in good working order. Within ten days after the Commencement Date,
Tenant shall enter into regularly scheduled preventative maintenance/service
contracts for such equipment, each in compliance with Landlord's specifications
and otherwise in form and substance and with a contractor reasonably acceptable
to Landlord, and deliver copies thereof to Landlord. At least 14 days before the
end of the Term, Tenant shall deliver to Landlord a certificate from an engineer
reasonably acceptable to Landlord certifying that the hot water equipment and
the HVAC System are then in good repair and working order.
6. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Landlord.
Landlord shall not be required to notify Tenant of whether it consents to any
alteration, addition or improvements until it (a) has received plans and
specifications therefor which are sufficiently detailed to allow construction of
the work depicted thereon to be performed in a good and workmanlike manner, and
(b) has had five (5) business days to review them. If the alteration, addition
or improvement will affect the Building's Structure, HVAC System, or mechanical,
electrical, or plumbing systems, then the plans and specifications therefor must
be prepared by a licensed engineer reasonably acceptable to Landlord. Landlord's
approval of any plans and specifications shall not be a representation that the
plans or the work depicted thereon will comply with law or be adequate for any
purpose, but shall merely be Landlord's consent to performance of the work. Upon
completion of any alteration, addition, or improvement, Tenant shall deliver to
Landlord accurate, reproducible as-built plans therefor. Tenant may erect
shelves, bins, machinery and trade fixtures provided that (1) such items do not
alter the basic character of the Premises; (2) such items do not overload or
damage the same; and (3) Tenant promptly repairs any damage caused by removal of
such items. Unless Landlord specifies in writing otherwise, all alterations,
additions, and improvements shall be Landlord's property when installed in the
Premises. All work performed by a Tenant Party in the Premises (including that
relating to the installations, repair, replacement, or removal of any item)
shall be performed in accordance with Law and with Landlord's specifications and
requirements, in a good and workmanlike manner, and so as not to damage or alter
the Building's Structure or the Premises. Tenant shall be responsible for
compliance with American With Disabilities Act of 1990 for the interior,
non-structural portions of the Premises, Landlord shall be responsible for
compliance with the American with Disabilities Act of 1990 relative to the
Building's Structure, unless such compliance is required solely in connection
with a Tenant alteration of the Building, in which case such compliance shall be
Tenant's responsibility.
7. SIGNS. Tenant shall not place, install or attach any signage,
decorations, advertising media, blinds, draperies, window treatments, bars, or
security installations to the Premises or the Building without Landlord's prior
written approval. Landlord hereby agrees that the Tenant may erect such signage
as is shown on the Plans approved by Landlord in accordance with Exhibit B
attached hereto. Tenant shall repair, paint, and/or replace any portion of the
Premises or the Building damaged or altered as a result of its signage when it
is removed (including, without limitation, any discoloration of the Building).
Tenant shall not (a) make any changes to the exterior of the Premises or the
Building, (b) install any exterior lights, decorations, balloons, flags,
penants, banners or paintings, or (c) erect or install any signs, windows or
door lettering, decals, window or storefront stickers, placards, decorations or
advertising media of any type that is visible from the exterior of the Premises
or the Building without Landlord's prior written consent. Landlord shall not be
required to notify Tenant of whether it consents to any sign until it (1) has
received detailed, to-scale drawings thereof specifying design, material
composition, color scheme, and method of installation, and (2) has had a
reasonable opportunity to review them.
8. UTILITIES. Tenant shall pay directly to the utility provider all
electricity and telephone charges used at the Premises, together with any taxes,
penalties, surcharges, maintenance charges, and the like pertaining thereto.
Tenant shall obtain telephone and computer line service to the Premises.
Landlord shall provide, as part of the Initial Improvements, all other utility
service and connections to the Premises, including water, gas, electricity and
sewer. Except for electricity and telephone service, Tenant's use of all
utilities shall be part of Operating Expenses; provided, however, if Tenant's
use of any utility exceeds building-standard service, Landlord may, at Tenant's
expense, separately meter and bill Tenant directly for its use of any such
utility service, in which case, the amount separately billed to Tenant for above
building-standard utility service shall not be duplicated in Tenant's
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obligation to pay additional rent under Section 2.(b). Landlord shall not be
liable for any interruption or failure of utility service to the Premises,
unless caused by Landlord. Landlord shall grant access to the Premises for
telecom providers designated by Tenant on the same terms as other current
providers of such service. All amounts due Landlord from Tenant under this
Section 8 shall be payable within ten days after Landlord's request therefor.
9. INSURANCE. Tenant shall maintain (a) workers' compensation insurance
(with a waiver of subrogation endorsement reasonably acceptable to Landlord) and
commercial general liability insurance (with contractual liability endorsement),
including personal injury and property damage in the amount of $1,000,000 per
occurrence combined single limit for personal injuries and death of persons and
property damage occurring in or about the Premises, plus umbrella coverage of a
least $2,000,000 per occurrence, (b) fire and extended coverage insurance
covering (1) the replacement cost of all alterations, additions, partitions and
improvements installed in the Premises, (2) the replacement cost of all of
Tenant's personal property in the Premises, and (3) loss of profits in the event
of an insured peril damaging the Premises, and (c) such other insurance as
Landlord may reasonably require. Such policies shall (A) name Landlord,
Landlord's agents, and their respective Affiliates (defined below), as
additional insurers (and as loss payees on the fire and extended coverage
insurance), (B) be issued by an insurance company acceptable to Landlord, (C)
provide that such insurance may not be cancelled unless 30-days' prior written
notice is first given to Landlord, (D) be delivered to Landlord by Tenant before
the Commencement Date and at least 15 days before each renewal thereof, and (E)
provide primary coverage to Landlord when any policy issued to Landlord is
similar or duplicate in coverage, in which case Landlord's policy shall be
excess over Tenant's policies.
10. CASUALTY DAMAGE.
(a) Tenant shall give written notice to Landlord of any damage
to the Premises or the Building promptly on discovery of the same. If the
Premises or the Building is totally destroyed by an insured peril, or so damaged
by an insured peril that, in Landlord's reasonable estimation, rebuilding or
repairs cannot be substantially completed within 90 days after the date of
Landlord's actual knowledge of such damage, then either Landlord or (if a Tenant
Party did not cause such damage) Tenant may terminate this Lease by delivering
to the other written notice thereof within 30 days after such damage, in which
case, the rent shall be abated from the date of occurrence through the unexpired
portion of this Lease, effective upon the date such damage occurred. Time is of
the essence with respect to the delivery of such notices.
(b) Subject to Section 10.(c), if this Lease is not terminated
under Section 10.(a), then Landlord shall restore the Premises to substantially
its previous condition, except that Landlord shall not be required to rebuild,
repair or replace any part of the partitions, fixtures, additions and other
improvements or personal property required to be covered by Tenant's insurance
under Section 9. If the Premises are untenantable, in whole or in part, during
the period beginning on the dated such damage occurred and ending on the date of
substantial completion of Landlord's repair or restoration work (the "REPAIR
PERIOD"), then the rent for such period shall be reduced to such extent as may
be fair and reasonable under the circumstances.
(c) If the Premises are destroyed or substantially damaged by
any peril not covered by the insurance maintained by Landlord or any Landlord's
Mortgagee (defined below) requires that insurance proceeds be applied to the
indebtedness secured by its Mortgage (defined below) or to the Primary Lease
(defined below) obligations, Landlord may terminate this Lease by delivering
written notice of termination to Tenant within 30 days after such destruction or
damage or such requirement is made known by any such Landlord's Mortgagee, as
applicable, whereupon all rights and obligations hereunder shall cease and
terminate, except for any liabilities of Tenant which accrued before this Lease
is terminated, provided that all Base Rent and any additional rent accruing
after the date of the casualty shall be abated.
11. LIABILITY, INDEMNIFICATION, WAIVER OF SUBROGATION AND NEGLIGENCE.
(a) Landlord shall not be liable to Tenant or Tenant's agents,
employees or contractors, or those claiming by, through, or under any of them
for any Loss, except and only to the extent such Loss is caused solely by
Landlord's gross negligence or intentional misconduct. The term "Loss" means any
injury to or death of any person or persons or any damage to or theft,
destruction, loss, or loss of use of any real or personal property caused by
casualty, theft, fire, or any acts or omissions of any person or party, and any
injury or damage or inconvenience which may arise through repair or alteration
of any part of the Premises, or failure to make repairs, or from any other
cause. In addition, Landlord and Tenant each waives any claims it might have
against the other for any damage to or theft, destruction, loss or loss of use
of any property, to the extent the same is insured against under any insurance
policy that covers the Premises, Landlord's or Tenant's fixtures, personal
property, leasehold improvements, or business, or is required to be insured
against by the party which might have such claim under the terms of this Lease,
regardless of whether the negligence (of whatever type or nature, including, but
not limited to, gross negligence) or fault of the other party caused such loss.
EACH PARTY SHALL CAUSE ITS INSURANCE CARRIER TO ENDORSE ALL APPLICABLE POLICIES
WAIVING THE CARRIER'S RIGHT OF RECOVERY UNDER SUBROGATION OR OTHERWISE AGAINST
THE OTHER PARTY.
(b) Subject to paragraph 11 (a), Tenant shall defend,
indemnify, and hold harmless Landlord and its agents and employees from and
against all claims, demands, liabilities, causes of action, suits, judgments,
attorney's fees and expenses for any Loss arising from any occurrence within, on
or about the Premises or arising from Tenant's failure to perform its
obligations under this Lease or arising from any act or omission (whether
negligent, intentional or otherwise) of Tenant or Tenant's agents, employees,
invitees or contractors, except to the extent that a Loss is caused solely by
the gross negligence or intentional misconduct of Landlord.
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Subject to paragraph 11 (a), Landlord shall defend, indemnify, and hold
harmless Tenant and its agents and employees from and against all claims,
demands, liabilities, causes of action, suits, judgments, attorney's fees and
expenses for any Loss arising from any occurrence within, on or about the
Premises, to the extent, and only to the extent the Loss is caused solely by the
gross negligence or intentional misconduct of Landlord, or its agents,
employees, invitees or contractors.
THIS INDEMNITY PROVISION SHALL SURVIVE TERMINATION OR EXPIRATION OF
THIS LEASE.
12. USE.
(a) The Premises shall be used only for receiving, storing,
shipping and selling products, materials and merchandise made or distributed by
Tenant, for a data center and for such other lawful purposes as may be
incidental thereto; however, no retail sales may be made from the Premises.
Tenant shall not use the Premises to receive, store or handle any product,
material or merchandise that is explosive or highly inflammable or hazardous.
Outside storage is prohibited. Tenant shall be solely responsible for complying
with all Laws applicable to the use, occupancy, and condition of the Premises;
provided, however, that Landlord shall deliver the Premises to Tenant in a
condition which is in compliance with all Laws. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, light, noise or vibrations
to emanate from the Premises; nor take any other action that would constitute a
nuisance or would disturb, unreasonably interfere with, or endanger Landlord or
any other person; nor permit the Premises to be used for any purpose or in any
manner that would (1) void the insurance theron, (2) increase the insurance
risk, or (3) cause the disallowance of any sprinkler credits. Tenant shall pay
to Landlord on demand any increase in the cost of any insurance on the Premises
incurred by Landlord, which is caused by Tenant's use of the Premises or because
Tenant vacates the Premises.
(b) Tenant and its employees and invitees shall have the
non-exclusive right to use, in common with others, any parking areas associated
with the Premises which Landlord has designated for such use, subject to (1)
such reasonable rules and regulations as Landlord may promulgate from time to
time and (2) rights of ingress and egress of other tenants and their employees,
agents and invitees. Landlord agrees to provide at least one (1) parking space
for every two hundred eight-five (285) square feet of space leased within the
building for the common use of all of the tenants of the Building.
(c) Landlord shall have the right to establish and amend from
time to time, rules and regulations governing all tenants' uses and occupancy of
the Building (provided the same are reasonable, non-discriminatory and uniformly
enforced), and provided further that in the event of a conflict between those
rules and this Lease, the Lease shall control.
13. INSPECTION. Upon reasonable notice, Landlord and Landlord's agents
and representatives may enter the Premises during business hours to inspect the
Premises; to make such repairs as may be required or permitted under this Lease;
to perform any unperformed obligations of Tenant hereunder; and to show the
Premises to prospective purchasers, mortgagees, ground lessors, and (during the
last 6 months of the Term) tenants. During the last 6 months of the Term,
Landlord may erect a sign on the Premises indicating that the Premises are
available. Tenant shall notify Landlord in writing of its intention to vacate
the Premises at least 60 days before Tenant will vacate the Premises; such
notice shall specify the date on which Tenant intends to vacate the Premises
(the "VACATION DATE"). At least 30 days before the Vacation Date, Tenant shall
arrange to meet with Landlord for a joint inspection of the Premises. After such
inspection, Landlord shall prepare a list of items that Tenant must perform
before the Vacation Date, which shall not include repairs due to normal wear and
tear or casualty. If Tenant fails to arrange for such inspection, then Landlord
may conduct such inspection and Landlord's determination of the work Tenant is
required to perform before the Vacation Date shall be conclusive. If Tenant
fails to perform such work before the Vacation Date, then Landlord may perform
such work at Tenant's cost. Tenant shall pay all costs incurred by Landlord in
performing such work within ten days after completion of the work and Landlord's
request therefor.
14. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not, without the prior written consent of
Landlord which will not be unreasonably withheld, (1) advertise that any portion
of the Premises is available for lease or cause or allow any such advertisement,
(2) assign, transfer, or encumber this Lease or any estate or interest herein,
whether directly or by operation of law, (3) permit any other entity to become
Tenant hereunder by merger, consolidation, or other reorganization; provided,
however, that such a transfer may occur without Landlord's consent so long as
the primary business of the new entity remains the same as Tenant's primary
business and the net worth of the new entity is equal or greater to that of
Tenant, (4) if Tenant is an entity other than a corporation whose stock is
publicly traded (or a corporation whose stock is in the process of being
publicly traded), permit the transfer of an ownership interest in Tenant so as
to result in a change in the current control of Tenant, (5) sublet any portion
of the Premises, (6) grant any license, concession, or other right of occupancy
of any portion of the Premises, or (7) permit the use of the Premises by any
parties other than Tenant (any of the events listed in Sections 14.(a)(2)
through 14.(a)(7) being a "TRANSFER"). If Tenant requests Landlord's consent to
a Transfer, then Tenant shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer, copies of the proposed
documentation, and the following information about the proposed transferee: name
and address; reasonably satisfactory information about its business and business
history; its proposed use of the Premises; banking, financial, and other credit
information; and general references sufficient to enable Landlord to determine
the proposed transferee's creditworthiness and character. Tenant shall reimburse
Landlord for its reasonable attorneys' fees and other
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expenses incurred in connection with considering any request for its consent to
a Transfer. If Landlord consents to a proposed Transfer, then the proposed
transferee shall deliver to Landlord a written agreement whereby it expressly
assumes the Tenant's obligations hereunder (however, any transferee of less than
all of the space in the Premises shall be liable only for obligations under this
Lease that are properly allocable to the space subject to the Transfer, and only
to the extent of the rent it has agreed to pay Tenant therefor). Landlord's
consent to a Transfer shall not release Tenant from performing its obligations
under this Lease, but rather Tenant and its transferee shall be jointly and
severally liable therefor. Landlord's consent to any Transfer shall not waive
Landlord's rights as to any subsequent Transfers. If an Event of Default occurs
while the Premises or any part thereof are subject to a Transfer, then Landlord,
in addition to its other remedies, may collect directly from such transferee all
rents becoming due to Tenant and apply such rents against Tenant's rent
obligations. Tenant authorizes its transferees to make payments of rent directly
to Landlord upon receipt of notice from Landlord to do so.
(b) Landlord may, within 30 days after submission of Tenant's
written notification of intent to Transfer, cancel this Lease (or, as to a
subletting or assignment cancel as to the portion of the Premises proposed to be
sublet or assigned) effective 30 days after receiving notice of intent to
Transfer. If Landlord cancels this Lease as to any portion of the Premises, then
this Lease shall cease for such portion of the Premises and Tenant shall pay to
Landlord all rent accrued through the cancellation date relating to the portion
of the Premises covered by the proposed Transfer. Thereafter, Landlord may lease
such portion of the Premises to the prospective transferee (or to any other
person) without liability to Tenant.
(c) Tenant hereby assigns, transfers and conveys all
consideration received by Tenant under any Transfer, which are in excess of the
rents payable by Tenant under this Lease plus reasonable costs incurred by
Tenant in connection with such reletting. Tenant shall hold such amounts in
trust for Landlord and pay them to Landlord within ten days after receipt.
(d) Notwithstanding anything to the contrary contained in
subpart (2) of Section 14(a) above, Tenant may assign the Lease without
Landlord's consent to any of the following (a "Permitted Transferee"), provided
that the Permitted Transferee's financial condition, creditworthiness and
business reputation following the transfer are equal to or exceed those of
Tenant: (i) any successor corporation or other entity resulting from a merger or
consolidation of Tenant; (ii) any purchaser of all or substantially all of
Tenant's assets; or (iii) any entity which controls, is controlled by, or is
under common control with Tenant. Tenant shall give Landlord thirty (30) days
prior written notice of such assignment or sublease. Any Permitted Transferee
shall assume in writing all of Tenant's obligations under this Lease. Tenant
shall nevertheless at all times remain fully responsible and liable for the
payment of rent and the performance and observance of all of Tenant's other
obligations under this Lease. Nothing in this paragraph is intended to nor shall
permit Tenant to transfer its interest under this Lease as part of a fraud or
subterfuge to intentionally avoid its obligations under this Lease (for example,
transferring its interest to a shell corporation that subsequently files a
bankruptcy), and any such transfer shall constitute an Event of Default
hereunder.
15. CONDEMNATION. If more than 50% of the Premises or 25% of the
Building or Land is taken for any public or quasi-public use by right of eminent
domain or private purchase in lieu thereof (a "TAKING"), and the Taking prevents
or materially interferes with the use of the Premises for the purpose for which
they were leased to Tenant, (including a data center) either party may terminate
this Lease by delivering to the other written notice thereof within 30 days
after the Taking, in which case rent shall be abated during the unexpired
portion of the Term, effective on the date of such Taking. If (a) less than 50%
of the Premises or 25% of the Building or Land are subject to a Taking or (b)
more than 50% of the Premises or 25% of the Building or Land are subject to a
Taking, but the Taking does not prevent or materially interfere with the use of
he Premises for the purpose for which they were leased to Tenant (including a
data center), then neither party may terminate this Lease, but the rent payable
during the unexpired portion of the Term shall be reduced to such extent as may
be fair and reasonable under the circumstances. All compensation awarded for any
Taking shall be the property of Landlord and Tenant assigns any interest it may
have in any such award to Landlord; however, Landlord shall have no interest in
any award made to Tenant for loss of business or goodwill or for the taking of
Tenant's trade fixtures, the cost of relocating Tenant and/or disruption of
Tenant's business, if a separate award for such items is made to Tenant.
16. SURRENDER OF PREMISES; HOLDING OVER.
(a) No act by Landlord shall be an acceptance of a surrender
of the Premises, and no agreement to accept a surrender of the Premises shall be
valid unless it is in writing and signed by Landlord. At the end of the Term or
the termination of Tenant's right to possess the Premises, Tenant shall (1)
deliver to Landlord the Premises with all improvements located thereon in good
repair and condition, reasonable wear and tear (subject however to Tenant's
maintenance obligations) excepted, and with the HVAC System and hot water
equipment, light and light fixtures (including ballasts), and overhead doors and
related equipment in good working order, (2) deliver to Landlord all keys to the
Premises, and (3) remove all signage placed on the Premises, the Building or the
Land by or at Tenant's request. All fixtures, alterations, additions, and
improvements (whether temporary or permanent) shall be Landlord's property and
shall remain on the Premises except as provided in the next two sentences.
Provided that Tenant has performed all of its obligations hereunder, Tenant may
remove all unattached trade fixtures, furniture, and personal property placed in
the Premises by Tenant (but Tenant shall not remove any such item which was paid
for, in whole or in part, by Landlord). Additionally, Tenant shall remove such
alterations, additions, improvements, fixtures, equipment, wiring, furniture,
and other property as Landlord may request, provided such request is made within
fifteen (15) days after the end of the Term and provided that the installation
or construction of the applicable alteration, improvement, additions, fixture or
wiring was not consented to by Landlord in writing (unless at the time of
consent, Landlord informed Tenant that such item would need to be
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removed upon expiration of the Lease). All items not so removed shall, at the
option of Landlord, be deemed abandoned by Tenant and may be appropriated, sold,
stored, destroyed, or otherwise disposed of by Landlord without notice to Tenant
and without any obligation to account for such items and Tenant shall pay for
the costs (if a sale, after deducting proceeds of sale of such items) incurred
by Landlord in connection therewith. All work required of Tenant under this
Section 16.(a) shall be coordinated with Landlord and be done in a good and
workmanlike manner, in accordance with all Laws, and so as not to damage the
Building or unreasonably interfere with other tenants' use of their premises.
Tenant shall, at its expense, repair all damage caused by any work performed by
Tenant under this Section 16.(a).
(b) If Tenant fails to vacate the Premises at the end of the
Term, then Tenant shall be a Tenant at will and Tenant shall pay, in addition to
the other rent due hereunder, a daily base rental equal to 200% of the daily
Base Rent payable during the last month of the Term. Additionally, Tenant shall
defend, indemnify, and hold harmless Landlord from any damage, liability and
expense (including attorneys' fees and expenses) incurred because of such
holding over. No payments of money by Tenant to Landlord after the Term shall
reinstate, continue or extend the Term, and no extension of this Term shall be
valid unless it is in writing and signed by Landlord and Tenant.
17. QUIET ENJOYMENT. Provided Tenant has fully performed its
obligations under this Lease, Tenant shall peaceably and quietly hold and enjoy
the Premises for the Term, without hindrance from Landlord or any party claiming
by, through, or under Landlord, but not otherwise.
18. EVENTS OF DEFAULT. Each of the following events shall constitute an
"EVENT OF DEFAULT" under this Lease:
(a) Tenant fails to pay any rent when due or any payment or
reimbursement required under any other lease with Landlord when due, and in
either case such failure continues for a period of five days from the date
Landlord delivers written notice of such failure; provided, however, that
Landlord shall not be required to deliver written notice more than three (3)
times in any given 12 month period or more than six (6) times during the Term,
and subsequent to any such third notice in 12 months, or any such sixth notice
during the Term, any failure to pay rent or any other sum when due shall be an
immediate Event of Default without notice.
(b) The filing of a petition by or against Tenant or any
guarantor of Tenant's obligations hereunder (1) in any bankruptcy or other
insolvency proceeding; (2) seeking any relief under any debtor relief Law; (3)
for the appointment of a liquidator, receiver, trustee, custodian, or similar
official for all or substantially all of Tenant's property or for Tenant's
interest in this Lease; or (4) for reorganization or modification of Tenant's
capital structure (however, if any such petition is filed against Tenant then
the filing of such petition shall not constitute an Event of Default, unless it
is not dismissed within sixty (60) days after the filing thereof).
(c) Tenant fails to discharge any lien placed upon the
Premises in violation of Section 22 within thirty (30) days after any such lien
or encumbrance is filed against the Premises.
(d) Tenant fails to comply with any term, provision or
covenant of this Lease (other than those listed in this Section 18), and such
failure continues for thirty (30) days after written notice thereof to Tenant.
19. REMEDIES.
(a) Upon any Event of Default, Landlord may, in addition to
all other rights and remedies afforded Landlord hereunder or by Law, take any of
the following actions:
(1) Terminate this Lease by giving Tenant written
notice thereof, in which event, Tenant shall pay to Landlord the sum of
(A) all rent accrued hereunder through the date of termination, (B) all
amounts due under Section 19.(b), and (C) an amount equal to (i) the
total rent that Tenant would have been required to pay for the
remainder of the Term discounted to present value at a per annum rate
equal to the rate of interest set forth for 26-week U.S. governmental
bills sold at a discount from face value in units of $10,000 to
$1,000,000 as published on the date this Lease is terminated by The
Wall Street Journal, Southwest Edition, in its listing of "Money Rates"
under the heading "Treasury Bills" (or, if no such rate is published,
the "Discount Rate" as published on such date under the "Money Rates"
listing), minus (ii) the then present fair rental value of the Premises
for such period, similarly discounted; or
(2) Terminate Tenant's right to possess the Premises
without terminating this Lease by giving written notice thereof to
Tenant, in which event Tenant shall pay to Landlord (A) all rent and
other amounts accrued hereunder to the date of termination of
possession, (B) all amounts due from time to time under Section 19.(b),
and (C) all rent and other sums required hereunder to be paid by Tenant
during the remainder of the Term, diminished by any net sums thereafter
received by Landlord through reletting the Premises during such period;
Landlord shall use commercially reasonable efforts to mitigate Tenant's
damages however, Landlord shall not be obligated to relet the Premises
and shall not be liable for, nor shall Tenant's obligations hereunder
be diminished because of, Landlord's failure to relet the Premises or
to collect rent due for a reletting. Tenant shall not be entitled to
the excess of any consideration obtained by reletting over the rent due
hereunder. Reentry by Landlord in the Premises shall not affect
Tenant's obligations hereunder for the unexpired Term; rather, Landlord
may, from time to time, bring action against Tenant to collect amounts
due by Tenant, without the necessity of Landlord's waiting until the
expiration of the Term. Unless Landlord delivers written notice to
Tenant expressly stating that
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it has elected to terminate this Lease, all actions taken by Landlord
to exclude or dispossess Tenant of the Premises shall be deemed to be
taken under this Section 19.(a)(2). If Landlord elects to proceed under
this Section 19.(a)(2), it may at any time elect to terminate this
Lease under Section 19.(a)(1).
Additionally, without notice, Landlord may alter locks or other security devices
at the Premises to deprive Tenant of access thereto, and Landlord shall not be
required to provide a new key or right of access to Tenant.
(b) Tenant shall pay to Landlord all direct reasonable costs
incurred by Landlord (including court costs and reasonable attorneys' fees and
expenses) in (1) obtaining possession of the Premises, (2) removing and storing
Tenant's or any other occupant's property, (3) repairing, restoring, altering,
remodeling, or otherwise putting the Premises into condition acceptable to a new
tenant, (4) if Tenant is dispossessed of the Premises and this Lease is not
terminated, reletting all or any part of the Premises (including brokerage
commissions, cost of tenant finish work, and other costs incidental to such
reletting), (5) performing Tenant's obligations which Tenant failed to perform,
and (6) enforcing, or advising Landlord of, its rights, remedies, and recourses.
Landlord's acceptance of rent following an Event of Default shall not waive
Landlord's rights regarding such Event of Default. Landlord's receipt of rent
with knowledge of any default by Tenant hereunder shall not be a waiver of such
default, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless set forth in writing and signed by Landlord. No
waiver by Landlord of any violation or breach of any of the terms contained
herein shall waive Landlord's rights regarding any future violation of such term
or violation of any other term. If Landlord repossesses the Premises pursuant to
the authority herein granted, then Landlord shall have the right to (A) keep in
place and use or (B) remove and store, at Tenant's expense, all of the
furniture, fixtures, equipment and other property in the Premises, including
that which is owned by or leased to Tenant at all times before any foreclosure
thereon by Landlord or repossession thereof by any lessor thereof or third party
having a lien thereon. Landlord may relinquish possession of all or any portion
of such furniture, fixtures, equipment and other property to any person (a
"CLAIMANT") who presents to Landlord a copy of any instrument represented by
Claimant to have been executed by Tenant (or any predecessor of Tenant) granting
Claimant the right under various circumstances to take possession of such
furniture, fixtures, equipment or other property; provided Landlord is
reasonable in believing that the instrument is authentic and legal. Landlord
may, at its option and without prejudice to or waiver of any rights it may have,
(i) escort Tenant to the Premises to retrieve any personal belongings of Tenant
and/or its employees not covered by the Landlord's statutory lien or (ii) obtain
a list from Tenant of the personal property of Tenant and/or its employees that
is not covered by the Landlord's statutory lien and make such property available
to Tenant and/or Tenant's employees; however, Tenant first shall pay in cash all
costs and estimated expenses to be incurred in connection with the removal of
such property and making it available. The rights of Landlord herein stated are
in addition any and all other rights that Landlord has or may hereafter have at
law or in equity, and Tenant agrees that the rights herein granted Landlord are
commercially reasonable.
20. LANDLORD'S DEFAULT. If Landlord fails to perform any of its
obligations hereunder within 30 days after written notice from Tenant specifying
such failure, Tenant's exclusive remedy shall be an action for damages. Unless
Landlord fails to so cure such default after such notice, Tenant shall not have
any remedy or cause of action by reason thereof. Except for gross negligence or
willful misconduct, Liability of Landlord to Tenant for any default by Landlord,
shall be limited to actual, direct, but not consequential, damages therefor and
shall be recoverable only from the interest of Landlord in the Building and the
Land, and neither Landlord nor Landlord's owners shall have any personal
liability therefor.
21. MORTGAGES.
(a) This Lease shall be subordinate to any deed of trust,
mortgage or other security instrument (a"MORTGAGE"), and any ground lease,
master lease, or primary lease (a "PRIMARY LEASE") that now or hereafter covers
any portion of the Premises (the mortgagee under any Mortgage or the Lessor
under any Primary Lease is referred to herein as "LANDLORD'S MORTGAGEE"), and to
increases, renewals, modifications, consolidations, replacements, and extensions
thereof. However, any Landlord's Mortgagee may elect to subordinate its Mortgage
or Primary Lease (as the case may be) to this Lease by delivering written notice
thereof to Tenant. The provisions of this Section 21 shall be self-operative,
and not further instrument shall be required to effect such subordination;
however, Landlord shall deliver to Tenant, and Tenant shall execute from time to
time within ten days after delivery thereof to Tenant, an instrument from each
Landlord's Mortgagee evidencing the subordination of this Lease to any such
Mortgage or Primary Lease (which instrument shall include a non-disturbance
provision in favor of Tenant and shall be on Landlord's Mortgagee's standard
form).
(b) Tenant shall attorn to any party succeeding to Landlord's
interest in the Premises, whether by purchase, foreclosure, deed in lieu of
foreclosure, power of sale, termination of lease, or otherwise, upon such
party's request, and shall execute such agreements confirming such attornment as
such party may reasonably request. Tenant shall not seek to enforce any remedy
it may have for any default on the part of Landlord without first giving written
notice by certified mail, return receipt requested, specifying the default in
reasonable detail to any Landlord's Mortgagee whose address has been given to
Tenant, and affording such Landlord's Mortgagee a reasonable opportunity to
perform Landlord's obligations hereunder.
(c) Notwithstanding any such attornment or subordination of a
Mortgage or Primary Lease to this Lease, the Landlord's Mortgagee shall not be
liable for any acts of any previous landlord, shall not be obligated to install
the Shell or Initial Improvements, and shall not be bound by any amendment to
which it did not consent in writing nor any payment of rent made more than one
month in advance.
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22. ENCUMBRANCES. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind Landlord's property or the interest of Landlord or
Tenant in the Premises or to charge the rent for any claim in favor of any
person dealing with Tenant, including those who may furnish materials or perform
labor for any construction or repairs. Tenant shall pay or cause to be paid all
sums due for any labor performed or materials furnished in connection with any
work performed on the Premises by or at the request of Tenant. Tenant shall give
Landlord immediate written notice of the placing of any lien or encumbrance
against the Premises.
23. MISCELLANEOUS.
(a) Words of any gender used in this Lease shall include any
other gender, and words in the singular shall include the plural, unless the
context otherwise requires. The captions inserted in this Lease are for
convenience only and in no way affect the interpretation of this Lease. The
following terms shall have the following meanings: "LAWS" shall mean all
federal, state, and local laws, rules, and regulations; all court orders,
governmental directives, and governmental orders; and all restrictive covenants
affecting the Property, and "LAW" shall mean any of the foregoing; "AFFILIATE"
shall mean any person or entity which, directly or indirectly, controls, is
controlled by, or is under common control with the party question; "TENANT
PARTY" shall include Tenant, any assignees claiming by, through, or under
Tenant, any subtenant claiming by, through, or under Tenant, and any of their
respective agents, contractors, employees, and invitees and "INCLUDING" shall
mean including, without limitation. The normal rule of construction that any
ambiguities be resolved against the drafting party shall not apply to the
interpretation of this Lease or any exhibits or amendments hereto.
(b) Landlord may transfer and assign, in whole or in part, its
rights and obligations in the Building and property that are the subject to this
Lease, in which case Landlord shall have no further liability hereunder, except
for events occurring during the term of its ownership. Each party shall furnish
to the other, promptly upon demand, a corporate resolution, proof of due
authorization by partners, or other appropriate documentation evidencing the due
authorization of such party to enter into this Lease.
(c) Whenever a period of time is herein prescribed for action
to be taken by Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation for any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations, or restrictions, or any other causes of any kind
whatsoever which are beyond the control of Landlord.
(d) Tenant shall, from time to time, within ten days after
request of Landlord, deliver to Landlord, or Landlord's designee, a certificate
of occupancy for the Premises, financial statements for itself and any guarantor
of its obligations hereunder, evidence reasonably satisfactory to Landlord that
Tenant has performed its obligations under this Lease (including evidence of the
payment of the Security Deposit), and an estoppel certificate stating that this
Lease is in full effect, the date to which rent has been paid, the unexpired
Term and such other factual matters pertaining to this Lease as may be requested
by Landlord. Tenant's obligation to furnish the above-described items in a
timely fashion is a material inducement for Landlord's execution of this Lease.
(e) This Lease constitutes the entire agreement of the
Landlord and Tenant with respect to the subject matter of this Lease, and
contains all of the covenants and agreements of Landlord and Tenant with respect
thereto. Landlord and Tenant each acknowledge that no representations,
inducements, promises or agreements, oral or written, have been made by Landlord
or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not
contained herein, and any prior agreements, promises, negotiations, or
representations not expressly set forth in this Lease are of no effect. This
Lease may not be altered, changed or amended except by an instrument in writing
signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully performed by
the end of the Term shall survive, including, without limitation, all payment
obligations with respect to Taxes and insurance and all obligations concerning
the condition and repair of the Premises. Upon the end of the Term and before
Tenant vacates the Premises, Tenant shall pay to Landlord any amount reasonably
estimated by Landlord as necessary to put the Premises in good condition and
repair, reasonable wear and tear excluded. Tenant shall also, prior to vacating
the Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's
obligation hereunder for Operating Expenses for the year in which the Term ends.
All such amounts shall be used and held by Landlord for payment of such
obligations of Tenant hereunder, with Tenant being liable for any additional
costs therefor upon demand by Landlord or with any excess to be returned to
Tenant after all such obligations have been determined and satisfied as the case
may be. Any Security Deposit held by Landlord may be credited against the amount
due by Tenant under this Section 23.(f).
(g) If any provision of this Lease is illegal, invalid or
unenforceable, then the remainder of this Lease shall not be affected thereby,
and in lieu of each such provision, there shall be added, as a part of this
Lease, a provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
(h) All references in this Lease to "the date hereof" or
similar references shall be deemed to refer to the last date, in point of time,
on which all parties hereto have executed this Lease.
(i) Landlord and Tenant each warrant to the other that it has
not dealt with any broker or agent in connection with this Lease, other than
Hill Partners, Inc. and C. B. Richard Ellis (the "Brokers"). Tenant and Landlord
shall each indemnify the other against all costs, attorneys' fees, and other
liabilities for commissions
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or other compensation claimed by any broker or agent (other than the named
Brokers) claiming the same by, through, or under the indemnifying party.
Landlord shall pay commissions to such Brokers pursuant to separate agreements.
(j) If and when included withing the term "Tenant," as used in
this instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of a notice
specifying an individual at a specific address within the continental United
States for the receipt of notices and payments to Tenant. All parties included
within the terms "Landlord" and "Tenant," respectively, shall be bound by
notices given in accordance with the provisions of Section 24 to the same effect
as if each had received such notice.
(k) The terms and conditions of this Lease are confidential
and Tenant shall not disclose the terms of this Lease to any third party except
as may be required by law or its auditors or to enforce its rights hereunder.
(l) Tenant shall pay interest on all past-due rent from the
date due until paid at the maximum lawful rate. In no event, however, shall the
charges permitted under this Section 23.(l) or elsewhere in this Lease, to the
extent they are considered to be interest under applicable Law, exceed the
maximum lawful rate of interest.
(m) THIS LEASE SHALL BE GOVERNED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS.
24. NOTICES. Each provision of this instrument or of any applicable
Laws and other requirements with reference to the sending, mailing or delivering
of notice or the making of any payment hereunder shall be deemed to be complied
with when and if the following steps are taken:
(a) All rent shall be payable to Landlord at the address for
Landlord set forth below or at such other address as Landlord may specify from
time to time by written notice delivered in accordance herewith. Tenant's
obligation to pay rent shall not be deemed satisfied until such rent has been
actually received by Landlord.
(b) All payments required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address set forth below, or at such
other address within the continental United States as Tenant may specify from
time to time by written notice delivered in accordance herewith.
(c) Any written notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered upon the earlier to occur of
(1) tender of delivery (in the case of a hand-delivered notice), (2) deposit in
the United States Mail, postage prepaid, Certified Mail, or (3) receipt by
facsimile transmission, in each case, addressed to the parties hereto at the
respective addresses set out below, or at such other address as they have
theretofore specified by written notice delivered in accordance herewith. If
Landlord has attempted to deliver notice to Tenant at Tenant's address reflected
on Landlord's books but such notice was returned or acceptance thereof was
refused, then Landlord may post such notice in or on the Premises, which notice
shall be deemed delivered to Tenant upon the posting thereof.
25. HAZARDOUS WASTE. The term "HAZARDOUS SUBSTANCES," as used in
this Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or
any other substances, the removal of which is required or the use of which is
restricted, prohibited or penalized by any "ENVIRONMENTAL LAW," which term shall
mean any Law relating to health, pollution, or protection of the environment.
Tenant hereby agrees that (a) no activity will be conducted on the Premises that
will produce any Hazardous Substances, except for such activities that are part
of the ordinary course of Tenant's business activities (the "PERMITTED
ACTIVITIES") provided such Permitted Activities are conducted in accordance with
all Environmental Laws and have been approved in advance in writing by Landlord;
(b) the Premises will not be used in any manner for the storage of any Hazardous
Substances except for any temporary storage of such materials that are used in
the ordinary course of Tenant's business (the "PERMITTED MATERIALS") provided
such Permitted Materials are properly stored in a manner and location satisfying
all Environmental Laws and approved in advance in writing by Landlord; (c) no
portion of the Premises will be used as a landfill or a dump; (d) Tenant will
not install any underground tanks of any type; (e) Tenant will not allow any
surface or subsurface conditions to exist or come into existence that
constitute, or with the passage of time may constitute a public or private
nuisance; (f) Tenant will not permit any Hazardous Substances to be brought onto
the Premises, except for the Permitted Materials, and if so brought or found
located thereon, the same shall be immediately removed by Tenant, with proper
disposal, and all required cleanup procedures shall be diligently undertaken
pursuant to all Environmental Laws; (g) Tenant will maintain on the Premises a
list of all materials stored at the Premises for which a material safety data
sheet (an "MSDS") was issued by the producers or manufacturers thereof, together
with copies of the MSDS's for such materials, and shall deliver such list and
MSDS copies to Landlord upon Landlord's request therefor; and (h) Tenant shall
remove all Permitted Materials from the Premises in a manner acceptable to
Landlord before Tenant's right to possess the Premises is terminated. If at any
time during or after the Term, the Premises are found to be so contaminated or
subject to such conditions, Tenant shall defend, indemnify and hold Landlord
harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from or as a result of the use of
the Premises by Tenant. Unless expressly identified on an addendum to this
Lease, as of the date hereof there are no "Permitted Activities" or "Permitted
Materials" for purposes of the foregoing provision and none shall exist unless
and until approved in writing by the Landlord. Landlord may enter the Premises
and conduct environmental inspections and tests therein as it may reasonably
require from time to time, provided that Landlord shall use reasonable efforts
to minimize the interference with Tenant's business. Such inspections and tests
shall be conducted at Landlord's expense, unless
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they reveal the presence of Hazardous Substances (other than Permitted
Materials) or that Tenant has not complied with the requirements set forth in
this Section 25, in which case Tenant shall reimburse Landlord for the cost
thereof within ten days after Landlord's request therefor.
26. YEAR 2000. Landlord represents to and covenants with Tenant that
all of the Building's systems, hardware, equipment, software and goods which are
installed by Landlord will properly perform date sensitive functions before,
during and after January 1, 2000.
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TENANT ACKNOWLEDGES THAT UPON OCCUPANCY OF THE PREMISES EXCEPT FOR
WRITTEN PUNCH LIST ITEMS (1) IT HAS INSPECTED AND ACCEPTS THE PREMISES IN AN "AS
IS, WHERE IS" CONDITION (EXCEPT FOR LATENT DEFECTS), (2) THE BUILDING'S
IMPROVEMENTS ARE SUITABLE FOR THE PURPOSE FOR WHICH THE PREMISES ARE LEASED AND
LANDLORD HAS MADE NO WARRANTY, REPRESENTATION, COVENANT, OR AGREEMENT WITH
RESPECT TO THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE
PREMISES, (3) THE PREMISES ARE IN GOOD AND SATISFACTORY CONDITION, (4) NO
REPRESENTATIONS AS TO THE REPAIR OF THE PREMISES, NOR PROMISES TO ALTER, REMODEL
OR IMPROVE THE PREMISES HAVE BEEN MADE BY LANDLORD (UNLESS AND EXCEPT AS MAY BE
SET FORTH IN EXHIBIT B ATTACHED TO THIS LEASE, OR AS IS OTHERWISE EXPRESSLY SET
FORTH IN THIS LEASE), AND (5) THERE ARE NO REPRESENTATIONS OR WARRANTIES,
EXPRESSED, IMPLIED OR STATUTORY, EXCEPT AS PROVIDED HEREIN.
Executed by Landlord on the 13th day of May, 1999.
LANDLORD:
KRAMER 34 HP, LTD.
2800 Industrial, Inc., general partner
By: /s/R.E. Anderson
-----------------------------------------
Richard E. Anderson
Vice President
Address: c/o Hill Partners, Inc.
2800 Industrial Terrace
Austin, Texas 78758
Telephone: (512) 835-4455
Fax: (512) 835-1222
Executed by Tenant on the day of May, 1999.
TENANT:
IXC COMMUNICATIONS SERVICES, INC.
By: /s/ Stuart K. Coppens
-----------------------------------------
Name: Stuart K. Coppens
Title: VP
Address:
Approved as to form
Legal dept.
Telephone:
Fax:
EXHIBIT "A" - Description of Premises, Floor Plan
EXHIBIT "A-1 - Description of Project
EXHIBIT "B" - Landlord's Work
EXHIBIT "C" - Expansion Space
EXHIBIT "D" - Renewal Option
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<PAGE> 16
EXHIBIT A
BUILDING: KRAMER 2
LEGAL DESCRIPTION: Lot 2, BRAKER CENTER IV, a
subdivision in Travis County, Texas,
according to the map or plat of record in
Volume 101, Page 1, Plat Records of Travis
County, Texas.
ADDRESS: 1835B Kramer Lane, Suite
Austin, Texas 78758
<SITE PLAN>
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<PAGE> 17
EXHIBIT A-1
Project
<SITE PLAN>
14
<PAGE> 18
EXHIBIT B
TENANT FINISH-WORK: ALLOWANCE
1. Landlord, at its sole cost and expense, shall complete construction
of the shell of the Building including the roof, slab, exterior walls and site
work (the "SHELL IMPROVEMENTS"). All such construction shall be completed by
Landlord in a good and workmanlike manner and in accordance with all applicable
laws and regulations.
2. Tenant, at its sole cost and expense, shall provide to Landlord for
its approval final working drawings, prepared by an architect that has been
approved by Landlord (which approval shall not be unreasonably withheld), of all
improvements that Tenant proposes to install in the Premises; such working
drawings shall include the partition layout, ceiling plan, electrical outlets
and switches, telephone outlets, HVAC, mechanical and plumbing systems of the
Building, and detailed plans and specifications for the construction of the
improvements called for under this Exhibit in accordance with all applicable
governmental laws, codes, rules, and regulations. Landlord's approval of such
working drawings shall not be unreasonable withheld or delayed, provided that
(a) they comply with all applicable governmental laws, codes, rules, and
regulations, (b) such working drawings are sufficiently detailed to allow
construction of the improvements in a good and workmanlike manner, (c) the
improvements depicted thereon conform to the rules and regulations promulgated
from time to time by the Landlord for the construction of tenant improvements (a
copy of which has been delivered to Tenant), and (d) the materials used are
building standard (including doors, ceiling tiles, lights and occupancy
sensors). As used herein, "WORKING DRAWINGS" shall mean the final working
drawings approved by Landlord, as amended from time to time by any approved
changes thereto, and "INITIAL IMPROVEMENTS" shall mean all improvements to be
constructed in accordance with and as indicated on the Working Drawings.
Approval by Landlord of the Working Drawings shall not be a representation or
warranty of Landlord that such drawings are adequate for any use, purpose, or
condition, or that such drawings comply with any applicable law or code, but
shall merely be the consent of Landlord to the performance of the Initial
Improvements. Tenant shall, at Landlord's request, sign the Working Drawings to
evidence its review and approval thereof. All changes in the Initial
Improvements must receive the prior written approval of Landlord and upon
completion of the Initial Improvements, Tenant shall furnish Landlord with an
accurate, reproducible "as-built" plan (e.g., sepia) and a CADI disk of the
improvements as constructed, which plan shall be incorporated into this Lease by
this reference for all purposes.
3. Upon substantial completion of the Shell Improvements by Landlord,
Tenant shall be responsible for constructing and installing the Initial
Improvements. Tenant agrees to file for all required building and signage
permits necessary for the construction of the Initial Improvements and to use
good faith and diligent efforts to obtain all such permits. The cost of the
pursuit of such permits shall be borne by Tenant; however, Landlord will provide
its cooperation in connection therewith and, if necessary, shall join in such
applications, and execute such other documents, as Tenant may reasonably request
for such purposes. The Initial Improvements shall be diligently performed by
contractors and subcontractors reasonably acceptable to Landlord in a good and
workmanlike manner that is free of defects and is in strict conformance with the
Working Drawings and all applicable governmental laws, codes, rules, and
regulations. Tenant and its contractors and subcontractors shall be required to
maintain such liability and builder's risk insurance during construction of the
Initial Improvements as is reasonably required by Landlord.
4. If completion of the Initial Improvements is delayed beyond August
1, 1999 for any reason other than Landlord's failure to substantially complete
construction of the Shell Improvements on or before June 1, 1999, then,
notwithstanding any provision to the contrary in this Lease Tenant's obligation
to pay Basic Rent and Tenant's proportionate Share of Operating Expenses
hereunder shall commence on August 1, 1999. If the Premises are not ready for
occupancy and the Initial Improvements are not substantially completed on August
1, 1999 due to Landlord's failure to timely complete the Shell Improvements,
then the Commencement Date shall be sixty (60) days after Landlord delivers the
Premises in Shell Condition.
5. Landlord shall provide to Tenant a construction allowance (the
"CONSTRUCTION ALLOWANCE") equal to $27.00 per usable square foot in the
Premises.
6. Tenant shall bear the entire cost of constructing the Initial
Improvements (including, without limitation, costs of design, engineering,
construction, labor and materials, additional janitorial services, related taxes
and insurance costs, all of which costs are herein collectively called the
"TOTAL CONSTRUCTION COSTS") in excess of the Construction Allowance. Landlord
shall advance the Construction Allowance at such time as Tenant has furnished to
Landlord a certificate of occupancy for the Premises, lien waiver(s) from
Tenant's general contractor(s) establishing that all bills for labor and
materials incorporated in the Initial Improvements have been paid, and a
certificate from Tenant's architect certifying that the Initial Improvements
have been completed in accordance with the Working Drawings. All of the Initial
Improvements will become and shall remain Landlord's property on and after its
construction or installation on the Premises.
7. Landlord or its affiliate shall have the right to inspect and
supervise the Work, and to ensure the Work does not adversely affect the
Building, and the Building's systems.
B-1
<PAGE> 19
EXHIBIT C
[Expansion Space]
On or before January 1, 2000, Tenant shall lease for the remaining Term
32,376 additional square feet of rentable area in the Building, constituting the
remainder of the Building (the "Expansion Space"). Tenant may commence its lease
of the Expansion Space in segments at various times provided that (i) it has
leased all of the Expansion Space on or before January 1, 2000, (ii) each
segment so leased (except for the last segment) must be at least 5,000 square
feet, and (iii) Tenant gives Landlord at least forty-five (45) days prior
written notice of the date on which it desires to commence the lease of any
given segment (each such date being referred to herein as an "Exhibition Date").
Landlord shall cause the Expansion Space (or applicable portion
thereof) to be in shell condition and made ready for Tenant's occupancy thirty
(30) days prior to the applicable Expansion Date, and otherwise in accordance
with the procedures referenced in Exhibit B. The Allowance applicable to the
Expansion Space shall be a sum equal to $27.00 per rentable square foot in the
expansion space (or applicable portion thereof). Except as set forth in this
Exhibit C, all Expansion Space taken by Tenant shall be taken "as is" and
Landlord shall have no obligation to construct any leasehold improvements
therein or to make any alterations thereto.
Tenant shall be required to commence paying rent on any applicable
portion of the Expansion Space upon the date that is the sooner to occur of (a)
the date that Tenant commences to occupy such space or (b) thirty (30) days
after Landlord delivers such portion of the Expansion Space in shell condition;
provided that Landlord shall not deliver the any portion of the Expansion Space
in shell condition prior to December 1, 1999, unless Tenant requests an earlier
delivery as provided above. If the applicable portion of the Expansion Space is
not in shell condition thirty (30) days prior to the applicable Expansion Date,
Landlord shall not be liable for damages therefor and Tenant shall accept
possession of such portion of the Expansion Space when Landlord tenders
possession thereof to Tenant in shell condition and Tenant's obligation to pay
Base Rent and Operating Expenses under Section 2.(b) of this Lease with respect
to such portion of the Expansion Space shall commence thirty (30) days after
Landlord tenders possession of such portion of the Expansion Space to Tenant in
shell condition. Tenant hereby acknowledges that if Tenant is not required to
commence paying rent on any given portion of the Expansion Space on an earlier
date as provided above, then in any event, so long as Landlord delivers such
portion of the Expansion Space in shell condition on or before December 1, 1999,
Tenant's obligation to pay Base Rent and Operating Expenses under Section 2.(b)
of this Lease with respect to any portion of the Expansion Space so delivered
shall commence on January 1, 2000.
Except as provided in this Exhibit C, the leasing of the Expansion
Space shall be upon the same terms and conditions as the leasing of the initial
Premises and shall be upon and subject to all of the provision of this Lease.
Upon any given Expansion Date: (i) the Base Rent payable by Tenant shall be
increased by the number of square feet contained within the applicable portion
of the Expansion Space multiplied by the dollar amount per square foot provided
in Section 2(a) of this Lease, (ii) the "Premises" (as defined in the Lease)
shall be deemed to include such portion the Expansion Space, and (iii) Tenant's
Proportionate Share shall be increased commensurately to reflect the addition of
such portion of the Expansion Space to the Premises. It being acknowledged that
at such time as Tenant has leased all of the Expansion Space, Tenant will be
leasing the entire Building and therefore its Proportionate Share of Operating
Expenses shall be 100%.
C-1
<PAGE> 20
EXHIBIT D
EXTENSION OPTION
Provided no Event of Default exists and Tenant (or a Permitted
Transferee) is occupying at least fifty percent (50%) of the Building at the
time of such election, Tenant may renew this Lease for one (1) additional period
of five (5) years on the same terms provided in this Lease (except as set forth
below), by delivering written notice of the exercise thereof to Landlord not
later than one hundred eighty (180) days before the expiration of the Term. On
or before the commencement date of the extended Term, Landlord and Tenant shall
execute an amendment to this Lease extending the Term on the same terms provided
in this Lease, except as follows:
(a) The Base Rent payable for each month during each such
extended Term shall be the prevailing rental rate in the Project, at
the commencement of such extended Term, for space of equivalent
quality, size, utility and location, with the length of the extended
Term and the credit standing of Tenant to be taken into account;
(b) Tenant shall have no further renewal options unless
expressly granted by Landlord in writing; and
(c) Landlord shall lease to Tenant the Premises in their
then-current condition, except that Tenant shall be entitled to an
improvement allowance equal to the prevailing rate in the Project, at
the commencement of such extended Term, for space of equivalent
quality, size, utility and location, with the length of the extended
Term to be taken into account.
Tenant's rights under this Exhibit shall terminate if (1) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises (other
than to a Permitted Transferee), or (3) Tenant fails to timely exercise its
option under this Exhibit, time being of the essence with respect to Tenant's
exercise thereof.
D-1
<PAGE> 21
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT is made and entered as of the
_____ day of June 1999, by and between IXC COMMUNICATIONS SERVICES, INC.
("Tenant"), and KRAMER 34 HP, LTD. ("Landlord").
RECITALS
A. Pursuant to a Lease Agreement dated May 13, 1999 (the "Lease"),
Landlord leased to Tenant certain space in the building commonly known as
"Kramer 2" in Austin, Texas, as more fully described in the Lease.
B. Landlord and Tenant desire to delay the Commencement Date of the
Lease until August 23, 1999.
C. Pursuant to Exhibit "C" attached to the Lease, Landlord acknowledges
that it has been notified that Tenant desires to commence its lease of the
entire 32,376 square feet of Expansion Space on August 23, 1999.
AMENDMENT
In consideration of the premises, the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby amend
the Lease as follows:
1. Paragraph 1 (b) of the Lease is hereby replaced in its
entirety by the following:
The Lease term shall be seventy two (72) months, beginning on the later
of (i) sixty (60) days after substantial completion of the Shell
Improvements (as defined on Exhibit B) or (ii) August 23, 1999 (the
"COMMENCEMENT DATE"), and ending August 22, 2005 (the "TERM", which
defined term shall include all renewals and extensions of the Term, if
any). Notwithstanding the foregoing if the Commencement Date does not
occur on August 23, 1999, then the Term shall end seventy-two (72)
months after the Commencement Date.
2. Paragraph 4 of Exhibit B to the Lease is hereby replaced in
its entirety by the following:
If completion of the Initial Improvements is delayed beyond August 23,
1999 for any reason other than Landlord's failure to substantially
complete construction of the Shell Improvements on or before June 23,
1999, then, notwithstanding any provision to the contrary in this
Lease, Tenant's obligation to pay Basic Rent and Tenant's Proportionate
Share of Operating Expenses hereunder shall commence on August 23,
1999. If the Premises are not ready for occupancy and the Initial
Improvements are not substantially
1
<PAGE> 22
completed on August 23, 1999 due to Landlord's failure to timely complete the
Shell Improvements, then the Commencement Date shall be sixty (60) days after
Landlord delivers the Premises in Shell Condition.
3. Except as defined differently herein or the context clearly requires
otherwise, all capitalized terms used in this Amendment shall have the meanings
ascribed to them under the Lease. Except as expressly amended hereby, the Lease
shall remain unchanged and in full force and effect, and is hereby ratified by
Landlord and Tenant.
EXECUTED as of the date first written above.
TENANT:
IXC COMMUNICATIONS SERVICES, INC.
By: /s/ Stuart Coppens
--------------------------------------
Name: Stuart Coppens
Title: VP
Approved as to form
Legal dept. ALJ
LANDLORD:
KRAMER 34 HP, LTD.
By: 2800 Industrial Inc., General Partner
By: /s/ R.E. Anderson
---------------------------------
Richard E. Anderson
Vice President
2
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-01-1999
<CASH> 147,576
<SECURITIES> 0
<RECEIVABLES> 86,481
<ALLOWANCES> 43,780
<INVENTORY> 0
<CURRENT-ASSETS> 251,903
<PP&E> 1,733,312
<DEPRECIATION> 313,095
<TOTAL-ASSETS> 2,219,531
<CURRENT-LIABILITIES> 533,063
<BONDS> 450,815
483,273
2
<COMMON> 376
<OTHER-SE> (224,196)
<TOTAL-LIABILITY-AND-EQUITY> 2,219,531
<SALES> 0
<TOTAL-REVENUES> 489,377
<CGS> 0
<TOTAL-COSTS> 319,453
<OTHER-EXPENSES> 339,362
<LOSS-PROVISION> 69,986
<INTEREST-EXPENSE> 30,645
<INCOME-PRETAX> (223,158)
<INCOME-TAX> (1,818)
<INCOME-CONTINUING> (225,485)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (225,485)
<EPS-BASIC> (7.43)
<EPS-DILUTED> (7.43)
</TABLE>
