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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
COMMISSION FILE NUMBER 0-20803
------------------------
BROADWING COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 74-2644120
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
1122 CAPITAL OF TEXAS HIGHWAY SOUTH, AUSTIN, TEXAS 78746-6426
(Registrant's telephone number, including area code): (512) 328-1112
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - ------------------- ------------------------
<S> <C>
12 1/2% Series B Junior Exchangeable Preferred Stock New York Stock Exchange
Due 2009 (par value $0.01 per share)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
All outstanding shares of the Registrant's common stock are owned by
Cincinnati Bell Inc. dba Broadwing Inc.
The aggregate market value of the Preferred Stock of the Registrant held by
non-affiliates of the Registrant on March 20, 2000 based on the closing price of
the Preferred Stock on the New York Stock Exchange on such date, was
$435,619,800.
The number of shares of Preferred Stock outstanding was 395,120 on
March 20, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Information Statement to be filed with the
Securities and Exchange Commission within 120 days of December 31, 1999.
- - --------------------------------------------------------------------------------
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<PAGE>
BROADWING COMMUNICATIONS INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I
Item 1. Business.................................................... 4
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 8
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 20
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 51
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 52
Item 11. Executive Compensation...................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 53
Item 13. Certain Relationships and Related Transactions.............. 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 54
Signatures............................................................ 59
</TABLE>
2
<PAGE>
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT
FORWARD-LOOKING STATEMENTS
"Forward-looking statements" have been included throughout this document.
These statements describe the Company's attempt to predict future events. The
words "believe," "anticipate," "expect," and similar expressions are used to
identify forward-looking statements. You should be aware that these
forward-looking statements are subject to a number of risks, assumptions, and
uncertainties, such as:
- Risks associated with our capital requirements and existing debt,
including the need to provide working capital for operations;
- Risks associated with increasing competition in the telecommunications
industry, including industry over-capacity and declining prices;
- Changes in laws and regulations that govern the telecommunications
industry; and
- Risks related to continuing our network expansion without delays including
the need to obtain permits and rights-of-way.
This list is only an example of some of the risks that may affect the
forward-looking statements. If any of these risks or uncertainties materialize
(or if they fail to materialize), or if the underlying assumptions are
incorrect, then actual results may differ materially from those projected in the
forward-looking statements. The Company undertakes no obligation to revise these
statements to reflect future events or circumstances.
3
<PAGE>
ITEM 1. BUSINESS
OVERVIEW
On November 9, 1999, Cincinnati Bell Inc. ("Cincinnati Bell", "Broadwing" or
"the Parent Company") acquired IXC Communications, Inc. through the merger of
IXC and a wholly owned subsidiary of Cincinnati Bell ("the Merger"), with IXC
surviving as a wholly owned subsidiary of CBI. IXC has since been renamed as
Broadwing Communications Inc. and the Parent Company is now doing business as
Broadwing Inc. A formal proposal to change the name of the Parent Company to
Broadwing Inc. is subject to a vote of Cincinnati Bell shareholders on
April 19, 2000.
As a result of the merger, all of the then outstanding shares of IXC common
stock were converted in a tax-free exchange into approximately 68.5 million
shares of Cincinnati Bell common stock, based on a fixed exchange ratio of
2.0976 shares of Cincinnati Bell stock for each share of IXC common stock. In
addition, IXC's 7 1/4% Convertible Preferred Stock and IXC's Depositary Shares
representing 1/20(th) of a share of IXC's 6 3/4% Convertible Preferred Stock
were converted into Cincinnati Bell 7 1/4% Convertible Preferred Stock and
Cincinnati Bell Depositary Shares representing 1/20(th) of a share of Cincinnati
Bell 6 3/4% Convertible Preferred Stock, respectively. Approximately five
million shares of IXC common stock that were owned by Cincinnati Bell at the
merger date are being accounted for as if retired and are not included in the
aforementioned total. All of the outstanding options, warrants and other equity
rights in IXC were converted into options, warrants and the rights to acquire
Cincinnati Bell common shares according to the same terms and conditions as the
IXC options, except that the exercise price and the number of shares issuable
upon exercise were divided and multiplied, respectively, by 2.0976.
Broadwing Communications Inc. and its subsidiaries (collectively referred to
as "IXC," "Broadwing Communications" or "the Company") is an Austin, Texas based
provider of telecommunications services. The Company utilizes an advanced
network of approximately 16,000 miles of fiber-optic transmission facilities to
provide private line, switched access, data transport, Internet-based and other
services to end user customers. Additionally, network capacity is leased (in the
form of indefeasible right-to-use agreements) to other telecommunications
providers and to Internet service providers.
Data services include private line services and data and Internet services.
Private line services represent the long-haul transmission of voice, data and
Internet traffic over dedicated circuits and are provided under bulk contracts
with customers. Additionally, the private line category includes revenues
resulting from indefeasible right-to-use ("IRU") agreements. IRU agreements
typically cover a fixed period of time and represent the lease of capacity or
network fibers. The Company currently maintains substantial excess network
capacity and believes that the sale of IRU agreements has no negative impact on
its ability to carry traffic for its wholesale and retail customers. IRU
agreements are a standard practice among the Company's competitors. Data and
Internet services represent the sale of high-speed data transport services such
as frame relay, Internet access, and Internet-based services such as Web hosting
and Web server collocation to customers. These revenues constituted a relatively
small (3.5%) portion of the Company's 1999 revenues. However, the Company
envisions a growing market for these types of services and it expects that the
data and Internet category will provide a greater share of the Company's
revenues in the future.
Voice services represent billed minutes per use for long distance switched
services, consisting of sales to both retail and wholesale customers. The
Company currently believes that the best opportunity for switched services
margin improvement lies with its retail customers. Accordingly, the Company is
de-emphasizing the sale of switched services to wholesale customers. Those
revenues declined 42.5% in 1999 versus 1998.
The centerpiece of the Company's assets is its next-generation, fiber-optic
network. This network is not yet fully constructed and will require significant
expenditures to complete and to maintain. The
4
<PAGE>
construction of this network relies on readily available materials and supplies
from an established group of vendors and relies on the ability to secure and
retain land and rights-of-way for the location of network facilities. The
Company may incur significant future expenditures in order to remove these
facilities upon expiration of these rights-of-way agreements. In order to
satisfy the Company's contractual commitments with respect to IRU agreements,
approximately 1,700 fiber route miles must still be constructed at an estimated
cost of $82 million.
Since the Company's revenues are conditioned primarily on carrying voice and
data traffic and the ratable recognition of contract revenues, its operations
follow no particular seasonal pattern. However, the Company does receive a
significant portion of its revenues from a relatively small group of
interexchange carriers that are capable of constructing their own network
facilities.
Prices and rates for the Company's service offerings are primarily
established through contractual agreements. Accordingly, the Company is
influenced by the marketplace conditions such as the number of competitors,
availability of comparable service offerings and the amount of fiber network
capacity available from these competitors. The Company is confident that it is
able to match these competitors on the basis of technology and is currently
pursuing dramatic improvement with regard to critical processes, systems and the
execution of its business strategy.
EMPLOYEES
At December 31, 1999, the Company employed approximately 2,200 people, of
whom 1,031 provided operational and technical services, 624 provided engineering
services and the balance were engaged in administration and marketing. These
employees are not represented by labor unions, and the Company considers
employees relations to be good. The Company has not experienced any work
stoppages.
RISK FACTORS
INCREASED COMPETITION COULD COMPROMISE PROFITABILITY AND CASH FLOW
The Company faces competition from well-managed and well-financed companies
such as Level 3 Communications, Qwest Communications International, Global
Crossings, and Williams Communications. These companies have similarly equipped
fiber networks, are well-financed, and have enjoyed certain competitive
advantages over the Company in the past. The Company's failure to successfully
compete against these competitors could compromise its ability to continue
construction of its network, which would have a material adverse effect on its
business, financial condition and results of operations.
Competition from other national providers could also impact the Company. The
current and planned fiber network capacity of these and the aforementioned
competitors could result in decreasing prices even as the demand for
high-bandwidth services increases. Most of these competitors have announced
plans to expand, or are currently in the process of expanding, their networks.
Increased network capacity and traffic optimization could place downward
pressure on prices, thereby making it difficult for the Company to maintain
profit margins.
INSUFFICIENCY OF CASH FLOW FOR PLANNED INVESTING AND FINANCING ACTIVITIES
WILL RESULT IN A SUBSTANTIAL AMOUNT OF INDEBTEDNESS
The Company is committed to the expansion of its nationwide fiber-optic
network, and the continued construction of this network will result in a
significant amount of capital expenditures in the near term. These initiatives
will require a considerable amount of funding in the future, aggregating to
approximately $1.3 billion over the next three years. Since the Company does not
expect to generate sufficient cash flow to provide for these investing
activities, it is dependent on the Parent Company for funding. In order to
provide for these cash requirements, the Parent Company has obtained a
5
<PAGE>
$2.1 billion credit facility from a group of 24 banking and non-banking
institutions. The Parent Company anticipates that it will substantially increase
its indebtedness in 2000 under this credit facility in order to provide for net
operating losses, to fund its capital investment program, and to refinance
existing debt.
The Company will not be able to provide for its anticipated growth without
the Parent Company borrowing from this credit facility. The ability to borrow
from this credit facility is predicated on the Parent Company's ability to
satisfy certain debt covenants that have been negotiated with lenders. Failure
to satisfy these debt covenants could severely constrain the Parent Company's
ability to borrow from the credit facility without receiving a waiver from these
lenders. If the Company was unable to continue the construction of its
fiber-optic network, current and potential customers could be lost to
competitors, which would have a material adverse effect on its business,
financial condition and results of operations.
NETWORK EXPANSION IS DEPENDENT ON ACQUIRING AND MAINTAINING RIGHTS-OF-WAY
AND PERMITS
The expansion of the Company's network also depends on acquiring
rights-of-way and required permits from railroads, utilities and governmental
authorities on satisfactory terms and conditions and on financing such
expansion. In addition, after the network is completed and required rights and
permits are obtained, the Company cannot guarantee that it will be able to
maintain all of the existing rights and permits. If the Company were to fail to
obtain rights and permits or were to lose a substantial number of rights and
permits, it would have a material adverse effect on its business, financial
condition and results of operations.
REGULATORY INITIATIVES MAY IMPACT THE COMPANY'S PROFITABILITY
The Company, along with another of Parent Company's subsidiaries, is subject
to regulatory oversight of varying degrees at the state and federal levels.
Regulatory initiatives that would put either subsidiary at a competitive
disadvantage or mandate lower rates for its services could result in lower
overall profitability and cash flow for the Parent Company, and thereby increase
its reliance on borrowed funds. This could potentially compromise the expansion
of the Company's national fiber-optic network, which would have a material
adverse effect on its business, financial condition and results of operations.
ITEM 2. PROPERTIES
The principal properties of the Company consist of: (i) its nationwide fiber
optic network completed or under construction, and (ii) the coast-to-coast
microwave system consisting of microwave transmitters, receivers, towers and
antennae, auxiliary power equipment, transportation equipment, equipment
shelters and miscellaneous components. Generally, fiber optic system and
microwave relay system components are standard commercial products available
from a number of suppliers.
The Company's principal offices are located in Austin, Texas and consist of
three separate leased offices. The leases for these facilities expire at
different times varying from July 2002 to July 2005. The Company also subleases
former office space in two other locations in Austin. The sublease payments
satisfy the monthly rental obligations under the original leases. The Company
also leases approximately 55 other offices located throughout the United States
for sales and administration of its switched long distance and data/Internet
businesses.
The Company leases sites for its switches in various metropolitan locations
under lease agreements that expire between 2000 and 2005. Five of the Company's
13 voice switches are leased under capital leases from DSC Finance Corporation
over a five-year term. In order to build the network, the Company has entered
into approximately 387 site, conduit, right-of-way and storage leases. These
sites are located across the United States, with lease terms ranging from 5 to
25 years.
6
<PAGE>
The gross investment in fiber-optic transmission facilities and other
property and equipment, in millions of dollars, at December 31, 1999 and 1998
was as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------- -----------
1999 1998
-------- -----------
<S> <C> <C>
Land and rights of way.................................. $ 150.3 $ 4.0
Buildings and leasehold improvements.................... 253.8 39.0
Transmission system..................................... 972.7 905.7
Furniture, fixtures, vehicles and other................. 129.7 12.2
Fiber usage rights...................................... 40.6 98.9
Construction in process................................. 207.1 133.9
-------- --------
Total................................................. $1,754.2 $1,193.7
======== ========
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is included in Note 14 of the Notes to
Financial Statements that are contained in Item 8, "Financial Statements and
Supplementary Data".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 29, 1999, the Company held a special meeting of its stockholders.
The stockholders of the Company approved two proposals. The stockholders
approved a proposal to adopt a merger agreement among Cincinnati Bell Inc.,
Ivory Merger, Inc. (a subsidiary of Cincinnati Bell Inc.), and the Company
pursuant to which the Company became a subsidiary of Cincinnati Bell and each
outstanding share of the Company common stock, excluding any shares of stock
held by the parties to the merger agreement, was converted into the right to
receive 2.0976 common shares of Cincinnati Bell common stock. This proposal was
approved, with 29,277,958 common shares (99.8%) voting to adopt the merger
agreement, 56,826 common shares (0.2%) voting against adoption of the merger
agreement, and 8,855 common shares abstaining from and broker non-votes in
connection with the proposal. The stockholders also approved a proposal to adopt
an agreement governing the Company's internal reorganization between the Company
and a wholly owned subsidiary of the Company, involving a merger of the Company
and a wholly owned subsidiary of the Company, which took place immediately
before the merger of the Company and Cincinnati Bell Inc. This proposal was also
approved, with 29,263,888 common shares (99.8%) voting to approve the internal
reorganization, 48,091 common shares (0.2%) voting against approval of the
internal reorganization, and 31,660 common shares abstaining from and broker
non-votes in connection with the proposal. These were the only items submitted
for a vote of security holders during this special meeting.
In December 1999, the Company furnished an Information Statement to the
stockholders of the Company pursuant to Rule 14c-2 under the Securities Exchange
Act of 1934 in connection with an amendment (the "Amendment') to the Restated
Certificate of Incorporation, as amended (the "Restated Certificate"), of the
Company to change the name of the Company from IXC Communications, Inc. to
Broadwing Communications Inc. The Amendment was approved by the Board of
Directors of the Company and by Cincinnati Bell, the holder of all of the
outstanding shares of common stock of the Company, by written consent in lieu of
a meeting pursuant to Section 228(a) of the Delaware General Corporation Law
(the "DGCL"). The Information Statement also served as notice to stockholders of
an action taken by less than unanimous written consent as required by
Section 228(d) of the DGCL. The Information Statement was mailed on or about
December 20, 1999 to persons who were stockholders of record on December 2,
1999.
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
At December 31, 1999, all of the Company's common stock was held by
Cincinnati Bell. As such, there is no established public trading market for this
common stock.
DIVIDEND POLICY
The Company has never paid any cash dividends on its common stock. Dividends
on the Company's 12 1/2% Junior Exchangeable Preferred Stock (the "Preferred
Stock") are payable quarterly at the annual rate of 12 1/2% of the aggregate
liquidation preference (which amounted to $401.7 million at December 31, 1999,
including accrued dividends of approximately $6.6 million). Previously, the
Company had elected to pay dividends in additional shares of the Preferred
Stock. Effective February 15, 2000, the Company elected to switch to a cash
payment option for the Preferred Stock rather than issue additional shares of
the Preferred Stock.
8
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected historical financial data. The
historical financial data has been derived from the audited Consolidated
Financial Statements. The selected historical financial data set forth below is
qualified in its entirety by, and should be read in conjunction with, Item 1,
"Business"; Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations"; and our Consolidated Financial Statements, related
notes thereto and other financial information included herein.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------------ -----------
PERIOD FROM
YEAR ENDED DECEMBER 31, PERIOD FROM NOV. 10 TO
----------------------------------------- JAN. 1 TO NOV. 9 DEC. 31
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- ---------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net operating revenue................... $154.7 $282.0 $521.6 $ 668.6 $ 568.2 $ 99.0
Operating income (loss)................. 3.4 (19.9) (49.5) (30.8) (214.1) (46.5)
Loss before extraordinary item.......... (2.4) (44.2) (99.2) (95.5) (281.0) (38.9)
Extraordinary gain (loss)(2)............ (1.7) -- (67.0) (6.6)
Net income (loss)....................... (4.2) (44.2) (99.2) (162.5) (281.0) (45.5)
Other Financial Data(3):
EBITDA.................................. $ 22.5 $ 16.0 $ 23.2 $ 90.7 $ (8.8) $ 0.2
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------------- --------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and cash equivalents...................... $ 8.4 $ 64.1 $155.9 $ 264.8 $ 56.2
Total assets................................... 365.7 485.3 968.9 1,748.2 5,147.2
Total debt and capital lease obligations....... 302.8 305.6 320.7 693.0 603.3
Redeemable preferred stock..................... -- -- 403.4 447.9 418.2
Stockholders' equity (deficit)................. 23.5 75.3 (18.7) (72.5) 2,463.6
</TABLE>
- - ------------------------
(1) On November 9, 1999 (the "merger date"), the Company completed a merger with
a wholly owned subsidiary of Cincinnati Bell. This merger was accounted for
as a purchase business combination and, accordingly, purchase accounting
adjustments, including goodwill, have been pushed down and are reflected in
the Company's financial statements subsequent to the merger date. The
financial statements for periods before the merger date were prepared using
the Company's historical basis of accounting and are designated as
"Predecessor." The comparability of operating results for the Predecessor
periods and the period from November 10, 1999 to December 31, 1999 are
affected by the purchase accounting adjustments.
(2) Extraordinary losses of $1.7 million in 1995, $67.0 million in 1998 and
$6.6 million in 1999 relate to the early extinguishment of debt and were
recorded net of tax.
(3) EBITDA represents operating income before depreciation, amortization, merger
and other infrequent costs, and restructuring expenses. EBITDA does not
represent cash flow for the periods presented and should not be considered
as an alternative to net earnings (loss) as an indicator of the Company's
operating performance or as an alternative to cash flows as a source of
liquidity, and may not be comparable with EBITDA as defined by other
companies.
9
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report and the related consolidated financial statements and
accompanying notes contain certain forward-looking statements that involve
potential risks and uncertainties. The Company's future results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed herein.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to review or update these forward-looking statements or to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
As previously discussed, a wholly owned subsidiary of Cincinnati Bell merged
with the Company as of November 9, 1999 and the Company became a wholly-owned
subsidiary of Cincinnati Bell. For purposes of the following discussion of
results of operations, the financial information for the Predecessor period has
been combined with the financial information for the period from November 10,
1999 to December 31, 1999. The comparability of operating results for the
Predecessor periods and the period encompassing push down accounting are
affected by the purchase accounting adjustments.
CONSOLIDATED OVERVIEW
Broadwing Communications Inc. ("the Company") is a leading provider of
telecommunications transmission and switched long-distance services with a
coast-to-coast fiber optic network containing approximately 16,000 fiber route
miles at December 31, 1999. The Company utilizes its advanced fiber-optic
network to provide data and voice services. Data services consist of private
line services, indefeasible right-to-use ("IRU") agreements, data and Internet
services. Voice services represents long distance switched services provided to
resellers and retail business customers. Additions to the network continue to be
constructed. The Company provides two main products through its network, using
both wholesale and retail channels. Data products include: the lease of
dedicated circuits that customers use to transmit data and voice, providing
frame relay and ATM-based data services, Web hosting and co-location of Web
servers. Long distance switched services represents the transmission of voice
traffic over the network through the Company's switches. In addition, the
Company reported other revenues of $27.3 million in 1999 and $19.8 million in
1998 related to sales of options in fibers that were jointly owned with another
carrier. This revenue was reported net of the basis in those options.
The Data business represented 49.1%, 35.1% and 31.1% of the Company's
revenue in 1999, 1998 and 1997, respectively. The Data business is comprised of
private line services and data/Internet services. In the private line business,
service agreements with customers are generally IRUs for existing capacity or
for dark fiber (where up-front payments are received), or long-term leases of
capacity which provide for monthly payment due in advance on a fixed-rate per
circuit basis. The contracts are priced according to capacity, length of circuit
and the term of the contract. Leasing private lines is increasingly competitive
as other carriers build and expand their networks. The data and Internet
business includes frame relay and ATM-based services, Web hosting and Web server
collocation services. The largest component of cost for Data products is the
expense of leasing off-net capacity from other carriers to meet specific
customer needs, which cannot currently be met on the Company's network due to
capacity or geographic constraints. The Company also enters into exchange
agreements with other carriers to exchange either capacity or dark fiber usage.
Some of the original exchanges of fiber for capacity were accounted for at the
fair value of the capacity exchanged, resulting in non-cash revenue and expense
in equal amounts over the term of the agreements. From 1997 through 1999, the
Company has reported $14.0 million to $19.1 million in revenue and expense
relating to these original exchange agreements.
10
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Voice services represented approximately 46.8%, 62.0% and 68.9% of total
revenue in 1999, 1998 and 1997, respectively. Long distance switched service is
sold on a per-call basis with the customer being charged by the minute of use
("MOU"). These services are sold on a wholesale basis to other resellers and on
a retail basis to small and medium size businesses. Payment for the services is
due monthly after services are rendered. Rates vary with the duration of the
call, day and time of day, and whether the call is intrastate, interstate or
international in its destination. Historically, rates have declined due to
competition and reduced variable access costs. The main source of costs for long
distance switched services is access costs from local exchange carriers ("LEC"
or "LECs") and other providers and the expense of leasing off-net capacity from
other carriers. The LEC access charges have both a usage and a fixed-rate
component and vary according to the local access transport area in which calls
originate and terminate. The usage portion of the costs has decreased, driven by
mandated reductions by the Federal Communications Commission ("FCC"). Long
distance network leasing costs are incurred to carry traffic where the Company's
network does not currently reach. These costs are expected to decline as
existing traffic is transferred from acquired companies onto the Company's
network. However, since the Company cannot feasibly expand its network to all
areas of the country, these costs will not be fully eliminated. The long
distance switched services business is highly competitive, resulting in a
continuing reduction of wholesale and retail rates.
MERGER WITH CINCINNATI BELL INC. AND RESTRUCTURING AND OTHER
On November 9, 1999, the Company merged with a wholly-owned subsidiary of
Cincinnati Bell and became a wholly-owned subsidiary of Cincinnati Bell. The
Merger was accounted for as a purchase business combination and, accordingly,
purchase accounting adjustments including goodwill were pushed down and
reflected in the Company's financial statements after November 9, 1999. The
financial statements for periods before November 9, 1999 were prepared using
IXC's historical basis of accounting and are designated as "Predecessor." The
comparability of operating results before and after the Merger are affected by
the purchase accounting adjustments.
Cincinnati Bell's cost to acquire the Company has been preliminarily
allocated to the assets and liabilities assumed according to their estimated
fair values and are subject to adjustment when additional information concerning
asset and liability valuations is finalized. Property, plant and equipment was
recorded at fair market value based on preliminary appraisal results, and useful
lives were assigned to the assets. The excess of cost over the fair value
assigned to the net assets acquired was recorded as goodwill and is being
amortized using the straight-line method over 30 years.
Included in the allocation of the cost to acquire the Company are
restructuring costs associated with initiatives to integrate operations of the
Company with its Parent Company. The restructuring costs accrued in 1999
included the costs of involuntary employee separation benefits related to 263
employees of the Company. As of December 31, 1999, approximately 1% of the
employee separations had been completed for a total cash expenditure of $0.2
million. The restructuring plans also included costs associated with the closure
of a variety of technical and customer support facilities, the decommissioning
of certain switching equipment, and the termination of contracts with vendors.
The Company expects that most of these restructuring actions will be complete by
December 31, 2000, and will result in cash outlays of $7.5 million in 2000.
ACQUISITION TRANSACTIONS
Prior to the Merger, the Company made several acquisitions that resulted in
goodwill and other intangibles being recorded in the Company's financial
statements. Effective with this Merger, all previously acquired goodwill and
other intangibles were preliminarily revalued as part of purchase accounting.
11
<PAGE>
During the period from March to June 1998, the Company acquired four
Internet businesses to expand the data and Internet product offerings: (1) Data
Place, a supplier of complete network systems integration solutions to
businesses: (2) NTR Corporation, a company that offers custom back office
support to wholesale customers and Internet dial-up services to retail
customers: (3) NEI, an Internet consulting company: and (4) SMARTNAP, a company
that provides aggregated Internet access, collocation of Web servers, routers
and end-site managed connectivity. None of these acquisitions are considered
material to the Company's revenue or net income.
On May 10, 1999, the Company acquired a retail long distance reseller,
Coastal Telecom Limited Company, and other related companies under common
control ("Coastal"), for a purchase price of approximately $110 million. This
acquisition was treated as a purchase for accounting purposes and, as such,
results of operations for the Company include Coastal after the acquisition
date. This acquisition is described more fully in Note 3 of the Notes to
Financial Statements that are contained in Item 8 of this report.
Further discussion of the Company's acquisition of Eclipse and the
acquisition of the Company by Broadwing follows in Note 3 and Note 2,
respectively, of the Notes to Financial Statements that are contained in Item 8
of this report.
INVESTMENTS
MARCA-TEL
The Company has an indirect investment equal to 30.0% of Marca-Tel S.A. de
C.V. (Marca-Tel) resulting from its ownership of 65.4% of Progress
International, LLC ("Progress") which, in turn, owns 45.8% of Marca-Tel. The
remaining 54.2% of Marca-Tel is owned by a Mexican individual, Formento Radio
Beep, S.A. de C.V. ("Radio Beep") and Siemens S.A. de C.V ("Siemens"). The other
owner of Progress is Westel International, Inc. ("Westel"). Beginning with the
fourth quarter of 1998, the investment in Marca-Tel was reduced to zero, as the
amount of cumulative equity losses recognized was equal to the amount of cash
invested. Due to the zero investment balance, no further losses have been
recorded relating to Marca-Tel. Recognition of losses relating to Marca-Tel will
be suspended unless and until that company begins reporting net income and all
of the suspended losses have been redeemed. This investment was accounted for
using the equity method.
STORM
In 1997, the Company formed Storm Telecommunications, Ltd. ("Storm") as a
joint venture with Telenor Carrier Services AS ("Telenor"), the Norwegian
national telephone company, to provide telecommunication services to carriers
and resellers in Europe. The joint venture was owned 40% by the Company, 40% by
Telenor and 20% by Clarion Resources Communications Corporation, a U.S.-based
telecommunications company in which Telenor owns a controlling interest. This
investment was accounted for using the equity method. During the third quarter
of 1999, the Company determined that it wanted to exit this joint venture to
concentrate on its domestic business. In February 2000, the Company sold its
investment in Storm, plus amounts it was due relating to the joint venture, for
$14.4 million.
APPLIED THEORY
In May 1998, the Company acquired a 34% investment in Applied Theory
Communications, Inc. ("Applied Theory"), a New York-based Internet service
provider. In 1998 and 1999, the Company invested $65 million in Applied Theory.
In 1999, Applied Theory made an initial public offering, diluting the Company's
ownership percentage. After acquiring more shares of common stock in 1999, the
Company now has a 27.6% investment in Applied Theory. This investment is
accounted for using the equity method.
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<PAGE>
UNIDIAL
In December 1997, the Company formed Unidial Communications Services, LLC,
("Unidial"), a joint venture with Unidial, Inc. to sell Unidial products over
the Company's network. The Company sold its investment in this joint venture to
Unidial in July 1999. During 1999, the Company recorded equity losses of
$10.9 million relating to its portion of the net losses of the joint venture and
the loss from the sale of its investment in the joint venture. This investment
was accounted for using the equity method.
DCI TELECOMMUNICATIONS, INC.
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.
Due to a decline in the financial condition of DCI that is considered permanent,
the Company wrote down its investment in DCI to $1.6 million. The Company owns
less than 20% of DCI and does not have significant influence over its
operations.
PSINET TRANSACTION
In February 1998, the Company consummated an agreement to provide PSINet
with an IRU for 10,000 miles of OC-48 transmission capacity on our network over
a 20-year period in exchange for approximately 20.4 million shares of PSINet
common stock (including an adjustment for PSINet's 2-for-1 stock split in
February 2000) with a guaranteed value of $240 million within two years of
providing PSINet with the capacity covered in the agreement. In January 1999,
the value of the PSINet stock exceeded the guaranteed $240 million threshold,
thereby eliminating PSINet's obligation to make additional payments to us. Upon
delivery of the transmission capacity to PSINet, the Company will begin to
receive a maintenance fee that is expected to increase to approximately
$11.5 million per year once the full capacity is delivered. The Company
initially accounted for its investment in PSINet using the equity method and
recorded its share of PSINet's operating losses. The Company began accounting
for this investment on the cost basis at the beginning of the third quarter of
1998 when it was determined that the Company could no longer exercise
significant influence over PSINet's operating and financial policies. This
determination was made because the Company's equity interest in PSINet was below
20% and it no longer had a representative with a seat on PSINet's board of
directors.
FIBER SALES AND IRUS
The Company has entered into various agreements to sell fiber and capacity
usage rights. Sales of these rights are recorded as unearned revenue and are
included in other current and other non-current liabilities in the accompanying
consolidated balance sheets, when the fiber or capacity is accepted by the
customer. Revenue is recognized over the terms of the related agreements. In
1999, the Company received approximately $262.5 million in cash these sales but
recognized only $12.2 million as revenue.
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<PAGE>
FINANCING TRANSACTIONS
Since 1996, when the Company's common stock was initially offered to the
public, it has engaged in the following financing transactions (dollars in
millions):
<TABLE>
<CAPTION>
DATE AMOUNT DESCRIPTION
- - ---- -------- ------------------------------------------
<S> <C> <C>
July, 1996............. $ 95.8 Sale of common stock
April, 1997............ $100.0 Sale of 7 1/4% convertible preferred stock
July, 1997............. $ 28.0 NTFC credit facility
August, 1997........... $300.0 Sale of 12 1/2% exchangeable preferred
stock
April and May, 1998.... $155.0 Sale of 6 3/4% convertible preferred stock
April, 1998............ $450.0 Sale of 9% senior subordinated notes
October, 1998.......... $600.0 Secured $200 million term loan (with $150
million revolving credit facility and
$250 million uncommitted special purpose
loan facility)
June and July, 1999.... $111.8 Forward sale of six million shares of
PSINet common stock
May, 1999.............. $ 40.0 Assume $10 million notes as part of merger
with Coastal and enter into $30 million
credit facility
September, 1999........ $310.0 $310 million credit facility guaranteed by
Cincinnati Bell
</TABLE>
Of the indebtedness amounts described above, only the $450 million in 9%
senior subordinated notes, the 12 1/2% exchangeable preferred stock, the common
stock owned by the Parent Company, the forward sale of the PSINet common stock
and a portion of the note assumed in the merger with Coastal remain outstanding
as of the date of this report. In January 2000, $404 million of the 9% senior
subordinated notes were redeemed through a tender offer due to the change of
control terms in the bond indenture.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
REVENUES
Revenues of $667.2 million were nearly equivalent to the $668.6 million in
revenues recorded in the prior year. Voice revenues decreased 25% to
$102.3 million, due to a 26% decrease in billed minutes of use resulting from
the Company's strategic decision to de-emphasize the wholesale switched services
business. This was nearly offset by an increase in Data revenues, increasing 40%
to $93.4 million in the current year. Within the Data category, the 35% increase
in private line revenues, or $78.9 million, was largely the result of additional
capacity available for use on the Company's network, including a $17.6 million
increase in service and maintenance revenue associated with indefeasible right
to use (IRU) agreements. Data and Internet revenue increased $14.5 million, or
161%, to $23.5 million due largely to revenues contributed by the Internet
companies acquired by the Company in 1998. Other revenues of $27.3 million
represented a 38% increase and resulted from the sale of options on fiber usage
rights that are jointly owned with another carrier.
COSTS AND EXPENSES
Cost of providing services declined $6.2 million, or 1%, due mainly to a
$23 million decrease in access costs resulting from the decision to de-emphasize
the wholesale switched services business and increased usage of the Company's
own network in order to carry voice and data traffic. This was
14
<PAGE>
partially offset by a $17 million, or 16%, increase in transmission lease
expense. Consequently, the Data business experienced a 3.3 percentage point
improvement in its gross margin due to additional private line revenue being
carried on the Company's network.
Selling, general and administrative expenses increased $104.2 million, or
72%, to $248.7 million in 1999. This increase was due in part to increased
staffing required to support, sell and market the expanded fiber-optic network
and the addition of employees associated with the Coastal acquisition. Total
employee headcount increased by nearly 600 in 1999, 60% of which were for sales
positions and 40% of which were for network operations.
The EBITDA loss of $8.6 million in 1999 represented a $99.3 million decline
as compared to the prior year, and was attributable to the increase in selling,
general and administrative expenses described above.
Depreciation and amortization costs of $194.4 million represented an
$80.8 million increase, a 71% increase from the previous year. This increase was
attributable to the expansion of the fiber-optic network, with more than
$600 million in fixed assets being added in 1999. Furthermore, the write-up of
the Company's assets as part of purchase accounting in the merger with
Cincinnati Bell resulted in amortization expense being applied to more than
$2.7 billion in goodwill and other intangibles recorded at the time of the
merger.
Restructuring expense increased $19.8 million over the prior year. In the
second quarter of 1999, the Company recorded a charge of approximately
$13.1 million to exit certain operations in the switched wholesale business. The
restructuring charge consisted of severance and 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
restructuring activities are expected to be substantially completed by June 30,
2000. Due to the Merger, it was determined that the Company 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. Consequently, 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 a reduction in the lease pay off requirement.
In the third quarter of 1999, the Company recorded a charge of approximately
$8.3 million relating to the restructuring of the organization and exiting
certain foreign operations. The plan was developed by the previous Chief
Executive Officer after reviewing the Company's operations. The workforce
reduction of 15 employees included management, administrative and foreign sales
personnel. The employees were notified of this program during July and August of
1999. These restructuring activities are expected to be substantially completed
by September 30, 2000.
Interest income declined 33% to $9.6 million in 1999. This reduction was due
to lower levels of cash on hand during 1999 as spending to build the network
depleted the funding received in the prior year.
Interest expense of $43.7 million represented a $12 million, or 38%,
increase over the prior year due to higher average debt levels carried by the
Company until the Merger date (at the time of the Merger, debt and capitalized
leases were $282.5 million higher than at December 31, 1998).
Equity losses from unconsolidated subsidiaries declined 34% to
$21.8 million in 1999 as losses incurred in 1998 for Marca-Tel and PSINet did
not occur in 1999. This reduction was partially offset by the losses and write
off of the Company's investment in the Unidial joint venture. The Company's
investment in Marca-Tel was written down to zero in 1998 with no further
significant additional funding required; consequently, no losses were recorded
on this investment in 1999. The Company began accounting for its investment in
PSINet as an available-for-sale marketable security at the beginning of
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<PAGE>
the third quarter of 1998 when it was determined that the Company could no
longer exercise significant influence over PSINet's operating and financial
policies. This determination was made because the Company's equity interest in
PSINet was below 20% and it no longer had a representative with a seat on
PSINet's board of directors.
Other income and expense resulted in a loss of $12.8 million, a
$13.0 million decrease from the prior year. This was attributable to a
$12.8 million write down in the fair market value of the Company's investment in
DCI in the second quarter of 1999.
Extraordinary items related to the early extinguishment of debt affected
results for each year. In 1999, costs related to the early extinguishment of the
Company's debt because of the merger resulted in a $6.6 million charge, net of
taxes. In 1998, the Company recorded an after-tax extraordinary charge of
$67.0 million relating to the April 1998 redemption of its 12 1/2% Senior Notes
due 2005.
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
REVENUES
Net operating revenue for 1998 increased 28.2% to $668.6 million from
$521.6 million in 1997. This improvement came mainly from increases in private
line revenue and switched long distance revenue. The private line improvement of
$63.8 million was driven by the activation of services relating to an agreement
with a significant Internet service provider. The long distance switched
services revenue improvement was driven from both retail and wholesale
customers. With respect to switched wholesale, minutes of use increased 33% from
three billion in 1997 to four billion in 1998. The remaining revenue improvement
came partially from the Data business largely due to the acquisition of the four
Internet businesses in mid-1998 and partially from the sale of options on fiber
usage rights that are jointly owned with another carrier.
COSTS AND EXPENSES
Cost of providing services principally consists of access charges paid to
LECs and transmission lease costs to transmit calls in areas not covered by our
network. These costs increased $37.6 million, or 9.5%, to $433.3 million in
1998. This increase is comprised of higher transmission lease expenses due to
the Company's leasing of dedicated circuits necessary in order to accommodate
customer contracts. The transmission lease expense increase represents 28.3% of
the total increase in this category. Higher access costs contributed
$4.4 million of the overall increase in this category and was the result of the
increased minutes of use in 1998. The final $4.9 million of the increase is due
to data and Internet costs related to the higher revenue in 1998. Our gross
margin, excluding the $19.8 million in other revenue, improved to 33.2% in 1998
from 24.1% in 1997. This improvement is due to the large increase in private
line revenue, largely carried on our network, and to the FCC-mandated decreases
in access costs that occurred in mid-1997 through mid-1998.
Selling, general and administrative expenses increased 40.7% from 1997 to
$144.5 million in 1998. This increase is due to incremental staffing required to
support the larger network and revenue base, particularly in retail operations.
The Company experienced significant increases in expanding its information
technology infrastructure and retail sales infrastructure.
EBITDA of $90.7 million in 1998 represented a $67.5 million improvement over
1997, as the higher revenues described were accompanied by somewhat higher costs
of providing services and selling, general and administative expense.
16
<PAGE>
Depreciation and amortization increased 64.3% to $113.6 million in 1998.
These higher costs are principally the result of more of the expanded network
being placed in service and depreciated throughout 1998 than throughout 1997.
Amortization expense increased due to the amortization of goodwill relating to
our Internet-related acquisitions in 1998. These costs are expected to continue
increasing in future periods as the Company invests in equipment and fiber to
support new higher capacity routes.
Interest income increased 84.6% to $14.3 million in 1998 due to the larger
amount of cash on hand in 1998 versus 1997 and interest earned on notes
receivable from customers in 1998. Cash on hand was higher during 1998 due to
the sale of the $155 million in 6 3/4% Convertible Preferred Stock in March and
April 1998, the sale of the $450 million of 9% Senior Subordinated Notes in
April 1998, and the draw-down of $200 million of the $600 credit facility in
October 1998, offset by the early redemption of the 12 1/2% Senior Notes in
April 1998.
Interest expense was unchanged at $31.7 million year over year as the
increased outstanding debt was offset by lower interest rates on the 9% Senior
Subordinated Notes and the $600 million credit facility and the redemption of
the 12 1/2% senior notes in April 1998.
Equity losses from unconsolidated subsidiaries increased 38.6% to
$33.0 million in 1998, as the Company recorded $15.9 million of losses from our
indirect investment in Marca-Tel. Although the loss on Marca-Tel was lower in
1998 than in 1997, the inclusion of equity losses from PSINet contributed to the
overall increase in 1998. The Company suspended the recording of losses on
Marca-Tel in the fourth quarter of 1998 because our investment in Marca-Tel had
dropped below zero and will continue to suspend recognition of these losses
unless and until Marca-Tel begins reporting net income and all suspended losses
have been recovered. Also, the method of accounting for the Company's investment
in PSINet was changed at the beginning of the third quarter of 1998 from the
equity method to the cost method because the Company no longer had significant
influence over the financial or operating policies of PSINet. Other joint
ventures held by the Company also reported operating losses in 1998
The extraordinary loss of $67.0 million recorded net of tax in 1998 relates
to charges associated with the early extinguishment of the 12 1/2% senior notes
in April 1998. There was no such charge in 1997.
As a result of the above, and a $36.6 million increase in preferred stock
dividends, the Company reported a net loss applicable to common shareholders of
$220.7 million in 1998, compared to $120.8 million in 1997. Higher dividends in
1998 are the result of the preferred stock issued during 1997 being outstanding
for a full year in 1998.
CAPITAL EXPENDITURES
The Company has spent significant amounts of capital to develop its
coast-to-coast fiber-optic network. Capital expenditures on a cash basis were
$604 million in 1999, and the Company estimates that it will incur more than
$600 million in capital spending in 2000 for fiber expansion and the deployment
of additional optronics and data switches required to increase capacity on its
network.
SEGMENT INFORMATION
In accordance with Statement of Financial Accounting Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information," the
Company began reporting its results by operating segment in 1998. Historically,
management has segregated the operations of the Company into three operating
segments: private line, switched long distance, and data and Internet. The
operations of the Company now comprise a single segment and are reported as such
to the Chief Executive Officer of the Parent Company, who functions in the role
of chief operating decision maker
17
<PAGE>
for the Company. Accordingly, the Company has restated segment results for prior
periods in order to conform to the current year presentation of operating
segments.
Current and prior year segment information also includes the operations of
Eclipse, which was acquired by the Company in a transaction accounted for as a
pooling of interests.
LIQUIDITY AND CAPITAL RESOURCES
Prior to 1996, the Company relied on cash flows from the operations of the
private line business to provide needed capital. Since 1996, the Company has
needed significant additional capital to finance the expansion of its network.
Prior to the merger, this capital has been raised primarily through the issuance
of debt and equity securities as well as through agreements for IRUs in fibers
or capacity sold to customers. Since the merger, the Company has relied on the
credit facility secured by the Parent Company in order to support its cash
deficit.
Cash provided by operating activities in 1999 decreased $43.0 million to
$159.3 million. The decrease was largely the result of lower operating income,
somewhat offset by collections on notes receivable and higher accounts payable
balances. The Company expects cash provided by operations to be positive on a
prospective basis, fueled by the sale of data services over the Company's
network.
Cash used in investing activities increased $196.0 million mainly due to a
$167.7 million increase in capital spending and an additional $50.6 million
spent on acquisitions in 1999, partially offset by a $25.3 million decrease in
funding for investments in unconsolidated subsidiaries. Increased capital
spending in 1999 had been planned as the Company expanded its network. The
reduction in funding for investments in unconsolidated subsidiaries was due to
the decision by management to concentrate on the Company's core business and
reduce its joint venture activity. The Unidial joint venture was sold in the
second quarter of 1999 and the Storm joint venture was sold in January 2000.
No further funding of joint ventures is anticipated at this time. The Company
expects to require significant amounts of cash for capital spending in 2000 and
thereafter.
Cash provided by financing activities decreased $80.0 million as
approximately $450 million in capital contributions and loans from the Parent
Company were more than offset by approximately $525 million less in debt and
equity issues in the current year. The Company expects to satisfy future
financing needs from the credit facility obtained by the Parent Company.
As of December 31, 1999, the Company had $56.2 million in cash and cash
equivalents. At the time of the Merger, the Company and Parent Company entered
into a $1.8 billion credit facility (subsequently amended to $2.1 billion) which
will be utilized to fund the combined companies.
In addition to cash on hand, the primary sources for cash over the next
12 months will be cash generated by operations, proceeds of fiber use sales and
proceeds from the credit facility discussed above. The primary uses of cash are
expected to be expansion of the network and working capital funding.
Capital spending in 2000 is projected to be $600 million, with an additional
$700 million in capital spending anticipated over the succeeding two-year period
(excluding any acquisitions that may occur).
The Company is required to make payments under various debt and capital
lease arrangements of $6.4 million, $4.1 million, and $135.4 million in 2000,
2001 and 2002, respectively (assuming the Company does not exercise its option
to settle the PSINet forward sale obligation with the six million PSINet common
shares pledged by the Company as part of the forward sale agreement). The
Company is also required to make minimum annual lease payments for facilities
and equipment used in operating its business. Operating lease payments on these
facilities and equipment of $41.9 million, $29.2 million, $22.5 million and
$19.8 million are anticipated in 2000, 2001, 2002 and 2003, respectively.
Additional
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<PAGE>
operating lease costs, as well as construction and installation agreements with
contractors are expected to be incurred in connection with the expansion of our
network.
In addition, quarterly dividend payments on the 12 1/2% preferred stock and
semi-annual interest payments on the remaining 9% subordinated notes and 12 1/2%
senior notes will also be required.
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 service debt are based on the following
assumptions as to future events: (i) there will be no significant delays with
respect to our network expansion; (ii) contractors and partners in cost-saving
arrangements will perform their obligations; (iii) rights-of-way can be obtained
in a timely, cost-effective basis; and (iv) the Company will continue to
increase traffic on its network. If these assumptions are incorrect, the
Company's ability to achieve satisfactory results could be adversely affected.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued Interpretation
No. 43 (FIN 43), an interpretation of Statement of Financial Accounting Standard
No. 66, "Accounting for Sales of Real Estate." FIN 43 clarifies the standards
for recognition of profit on all real estate sales transactions, including those
related to fiber optic cable that cannot be removed and used separately from the
real estate without incurring significant costs. This interpretation is
effective for all applicable transactions after June 30, 1999. FIN 43 does not
present a significant change from the Company's historical accounting for IRU
agreements. The accounting for sales of capacity IRUs is evolving and is
currently under consideration by accounting standards setters. Any change in
accounting standards may affect the timing and method of recognition of these
revenues and related costs.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards requiring that a derivative instrument be recorded in the
balance sheet as either an asset or liability, measured at its fair value.
SFAS 133 has been subsequently amended through the release of SFAS 137, which
provides for a deferral of the effective date of SFAS 133 to fiscal years
beginning after June 15, 2000. As a result, implementation of SFAS 133 is not
mandatory for the Company until January 1, 2001. Management is currently
assessing the impact of SFAS 133 on the Company's results of operations, cash
flows and financial position, although it does not hold or issue derivative
financial instruments for trading purposes or enter into interest rate
transactions for speculative purposes.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements". In
SAB 101, the SEC Staff expresses its views regarding the appropriate recognition
of revenue with regard to a variety of circumstances, some of which are of
particular relevance to the Company. The Company is currently evaluating SAB 101
to determine its impact on the financial statements.
CONTINGENCIES
In the normal course of business, the Company is subject to various
regulatory proceedings, lawsuits, claims and other matters. Such matters are
subject to many uncertainties and outcomes are not predictable with assurance.
Certain former members of the Company's board of directors, as well as
Cincinnati Bell Inc., have been named as a defendant in five stockholder class
action suits filed in the Delaware Court of Chancery (the Court). These suits
were filed in July 1999 and pertain to the recently completed merger with
Cincinnati Bell. The complaints allege, among other things, that the defendants
breached their fiduciary duties to the Company's former stockholders by failing
to maximize stockholder value in
19
<PAGE>
connection with entering into the Merger agreement and sought a court order
enjoining completion of the Merger. In an October 27, 1999 ruling, the Court
denied plaintiffs' request for a preliminary injunction. The Merger has since
closed and management believes that the performance of Cincinnati Bell's share
price has rendered plaintiffs' arguments moot. While these suits currently
remain outstanding and subject to further litigation, the Company does not
believe any of plaintiffs' arguments have merit and intends to continue
exploring all available options to bring this matter to a close, including
discussions toward a possible settlement.
A total of twenty-seven Equal Employment Opportunity Commission ("EEOC")
charges were filed beginning in September 1999 by current Broadwing
Telecommunications Inc. employees located in the Houston office (formerly
Coastal Telephone, acquired by the Company in May 1999) alleging sexual
harassment, race discrimination and retaliation. The Company is continuing its
investigation of these charges and is cooperating with the EEOC. Many employee
interviews have been conducted by the EEOC and discovery is ongoing at the
present time.
In the course of closing the Merger with Cincinnati Bell, the Company became
aware of possible non-compliance with reporting requirements under certain
federal environmental statutes. Since it was impossible to conduct a thorough
investigation of all facilities within the ten-day period required to take
advantage of the Environmental Protection Agency's (EPA) self-policing policy,
the Company, by letter dated November 8, 1999, elected to voluntarily disclose
its possible non-compliance to the EPA. By letter dated January 19, 2000, the
EPA determined that the "prompt disclosure" requirement of the self-policing
policy appears to have been satisfied and established a deadline of May 1, 2000
for the Company to complete its environmental audit of its facilities and report
any violations to the Agency. The Company intends to complete its environmental
audit of these facilities within the time frame established by the EPA and take
whatever corrective actions are indicated.
The Company believes that the resolution of such matters for amounts in
excess of those reflected in the consolidated financial statements would not
likely have a materially adverse effect on the Company's financial condition.
YEAR 2000 RISKS
The Company's Year 2000 preparations were completed as planned, and because
of this preparedness, major impacts to the Company and its customers were
avoided. Some degree of minor difficulty was experienced with regard to customer
payment issues, but these are considered insignificant and have been resolved or
are currently being resolved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Effective with the retirement of the revolving credit facility and with new
debt being assumed by the Parent Company, the Company is not currently subject
to market risk associated with changes in interest rates. The Company does not
hold or issue derivative financial instruments for trading purposes or enter
into interest rate transactions for speculative purposes.
Significantly all of the Company's revenue is derived from domestic
operations, so risk related to foreign currency exchange rates is considered
minimal.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Consolidated Financial Statements:
Report of Management...................................... 22
Reports of Independent Accountants........................ 23
Consolidated Balance Sheets............................... 26
Consolidated Statements of Operations and Comprehensive
Income (Loss)........................................... 27
Consolidated Statements of Shareholders' Equity
(Deficit)............................................... 28
Consolidated Statements of Cash Flows..................... 29
Notes to Consolidated Financial Statements................ 30
</TABLE>
Financial statements and financial statement schedules other than that
listed above have been omitted because the required information is contained in
the financial statements and notes thereto, or because such schedules are not
required or applicable.
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<PAGE>
REPORT OF MANAGEMENT
BROADWING COMMUNICATIONS INC.
The management of Broadwing Communications Inc. is responsible for the
information and representations contained in this report. Management believes
that the financial statements have been prepared in accordance with generally
accepted accounting principles and that the other information in this report is
consistent with those statements. In preparing the financial statements,
management is required to include amounts based on estimates and judgments that
it believes are reasonable under the circumstances.
In meeting its responsibility for the reliability of the financial
statements, management maintains a system of internal accounting controls, which
is continually reviewed and evaluated. Our internal auditors monitor compliance
with the system of internal controls in connection with their program of
internal audits. However, there are inherent limitations that should be
recognized in considering the assurances provided by any system of internal
accounting controls. Management believes that its system provides reasonable
assurance that assets are safeguarded and that transactions are properly
recorded and executed in accordance with management's authorization, that the
recorded accountability for assets is compared with the existing assets at
reasonable intervals, and that appropriate action is taken with respect to any
differences. Management also seeks to assure the objectivity and integrity of
its financial data by the careful selection of its managers, by organization
arrangements that provide an appropriate division of responsibility, and by
communications programs aimed at assuring that its policies, standards and
managerial authorities are understood throughout the organization.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants. Their audit was conducted in accordance with auditing
standards generally accepted in the United States.
/S/ KEVIN W. MOONEY
KEVIN W. MOONEY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Broadwing Communications Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive income (loss),
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Broadwing Communications Inc. and its subsidiaries
(the Company) at December 31, 1999, and the results of their operations and
their cash flows for the period from November 10, 1999 to December 31, 1999 and
for the period from January 1, 1999 to November 9, 1999 (Predecessor), in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Austin, Texas
March 8, 2000
23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Broadwing Communications, Inc.
We have audited the accompanying consolidated balance sheets of Broadwing
Communications, Inc. (formerly IXC Communications, Inc.) and its subsidiaries as
of December 31, 1998 and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the two years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
consolidated financial statements of Network Long Distance, Inc., (Network Long
Distance) which was combined with the Company on June 3, 1998, in a business
combination accounted for as a pooling of interests as described in Note 3 to
the consolidated financial statements, which statements reflect net losses
constituting ($4.6) million of the related 1997 consolidated financial statement
totals. Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to data included for
Network Long Distance is based solely on the reports of the other auditors. The
financial statements of Marca-Tel S.A. de C.V. (Marca-Tel), a corporation in
which the Company has an indirect interest, have been audited by other auditors
whose reports have been furnished to us; insofar as our opinion on the
consolidated financial statements relates to data included for Marca-Tel, it is
based solely on their report. In the consolidated financial statements, the
Company's equity in the net loss of Marca-Tel is stated at ($15.9) million and
($23.6) million, for 1998 and 1997, respectively.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors for
the periods indicated, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Broadwing Communications, Inc. and its subsidiaries at December 31, 1998, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Austin, Texas
February 28, 1999
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Network Long Distance, Inc.:
We have audited the accompanying consolidated balance sheets of Network Long
Distance, Inc. (a Delaware Corporation) and subsidiaries as of March 31, 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years ended March 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of National Teleservice,
Incorporated, a company acquired during the year ended March 31, 1998 in a
transaction accounted for as a pooling of interests. Such statements are
included in the consolidated financial statements of Network Long Distance,
Inc., and reflect total assets and total revenues of 28.1% and 30.6%,
respectively, of the related consolidated totals as of and for the year ended
March 31, 1997. These statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for National Teleservice, Incorporated, is based solely upon the
reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Network Long Distance, Inc. and
subsidiaries as of March 31, 1998, and the results of their operations and their
cash flows for the years ended March 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Jackson, Mississippi
May 18, 1998
25
<PAGE>
BROADWING COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 56.2 $ 264.8
Accounts receivable, net of allowance for doubtful accounts
of $36.0 in 1999 and $16.7 in 1998........................ 73.4 107.6
Current portion of notes receivable......................... 3.7 63.7
Note receivable from Westel................................. -- 9.4
Current deferred tax assets................................. 16.8 5.0
Prepaid expenses and other current assets................... 10.2 6.0
-------- --------
Total current assets...................................... 160.3 456.5
Property and equipment, net................................. 1,726.4 983.7
Goodwill and other intangibles, net......................... 2,561.3 54.2
Investments in marketable securities........................ 634.2 219.9
Investment in unconsolidated subsidiaries................... 61.0 9.5
Deferred charges and other non-current assets............... 4.0 24.4
-------- --------
Total assets.............................................. $5,147.2 $1,748.2
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current portion of long-term debt........................... $ 5.9 $ 14.0
Accounts payable--trade..................................... 95.6 33.6
Accrued service cost........................................ 47.7 43.2
Accrued employee benefits................................... 19.4 10.8
Taxes payable............................................... 61.1 23.7
Customer deposits........................................... 5.7 18.6
Current portion of unearned revenue......................... 47.9 33.6
Intercompany payable to Parent Company...................... 442.9 --
Other current liabilities................................... 57.1 19.2
-------- --------
Total current liabilities................................. 783.3 196.7
Long-term debt and capital lease obligations, less current
portion................................................... 597.4 679.0
Unearned revenue--noncurrent................................ 633.5 488.4
Deferred tax liability--noncurrent.......................... 178.4 6.8
Other noncurrent liabilities................................ 72.8 2.0
7 1/4% Junior Convertible Preferred Stock; $.01 par value;
authorized--3,000,000 shares of all classes of Preferred
Stock; no shares and 1,074,500 shares issued and
outstanding (aggregate liquidation preference of $107.5)
at December 31, 1999 and 1998, respectively............... -- 103.6
12 1/2% Junior Exchangeable Preferred Stock; $.01 par value;
authorized--3,000,000 shares of all classes of Preferred
Stock; 395,120 shares and 349,434 shares issued and
outstanding (aggregate liquidation preference of $395.1
and $354.9 including accrued dividends of $6.6 and $5.5)
at December 31, 1999 and 1998, respectively............... 418.2 344.2
Stockholders' equity (deficit):
6 3/4% Cumulative Convertible Preferred Stock, $.01 par
value; authorized--3,000,000 shares of all classes of
Preferred Stock; no shares issued and outstanding at
December 31, 1999 and 155,250 shares issued and
outstanding at December 31, 1998........................
Common Stock, $.01 par value; authorized--100,000,000
shares; 500,000 shares and 36,409,709 shares issued and
outstanding at December 31, 1999 and 1998,
respectively............................................ -- .4
Additional paid-in capital.................................. 2,424.6 253.4
Accumulated deficit......................................... (45.5) (326.3)
Accumulated other comprehensive income...................... 84.5 --
-------- --------
Total stockholders' equity (deficit)........................ 2,463.6 (72.5)
-------- --------
Total liabilities, redeemable preferred stock and
stockholders' equity (deficit)............................ $5,147.2 $1,748.2
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
BROADWING COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------- ------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 10 TO JANUARY 1 TO YEAR ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 9, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1997
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net operating revenues..................... $ 99.0 $ 568.2 $ 668.6 $521.6
Operating expenses:
Cost of providing services and products
sold................................... 60.7 366.4 433.3 395.7
Selling, general and administrative...... 38.1 210.6 144.5 102.7
Depreciation and amortization............ 46.7 147.6 113.6 69.1
Merger and other infrequent costs........ -- 37.9 8.0 3.6
Restructuring............................ -- 19.8 -- --
------ ------- ------- ------
Operating loss......................... (46.5) (214.1) (30.8) (49.5)
Interest income............................ .5 9.1 14.3 7.8
Interest expense........................... (6.7) (37.1) (31.7) (31.7)
Equity loss in unconsolidated entities..... (1.5) (20.3) (33.0) (23.8)
Other, net................................. -- (16.1) .2 --
------ ------- ------- ------
Loss before income taxes, minority interest
and extraordinary loss................... (54.2) (278.5) (80.9) (97.2)
(Provision) benefit for income taxes....... 15.3 (2.0) (13.9) (1.4)
Minority interest.......................... -- (.5) (.7) (.6)
------ ------- ------- ------
Loss before extraordinary loss............. (38.9) (281.0) (95.5) (99.2)
Extraordinary loss on early extinguishment
of debt, net of taxes.................... (6.6) -- (67.0) --
------ ------- ------- ------
Net loss................................... (45.5) (281.0) (162.5) (99.2)
Other comprehensive income
Unrealized gain on investments, net of
tax of $60.4 and $93.2, respectively... 90.5 157.1 -- --
Other financing costs, net of tax of
$4.0................................... (6.0) -- -- --
------ ------- ------- ------
Total other comprehensive income....... 84.5 157.1 -- --
------ ------- ------- ------
Comprehensive income (loss)................ $ 39.0 $(123.9) $(162.5) $(99.2)
====== ======= ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
BROADWING COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(SHARES IN THOUSANDS, DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
6 3/4%
10% CUMULATIVE
SENIOR SERIES 3 CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------- ------------------------- ------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- -------------- -------- -------------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996 (PREDECESSOR)......... 13 -- -- -- 33,817 $ .4 $ 138.1
Issuance of common stock... -- -- -- -- 1,187 -- 23.5
Stock option exercises..... -- -- -- -- 63 -- 2.0
Accretion of preferred
stock...................... -- -- -- -- -- -- (.7)
Preferred dividends paid in
kind and accrued........... -- -- -- -- -- -- (19.3)
Conversion of Series 3
Preferred Stock............ (12) -- -- -- 605 -- --
Other...................... -- -- -- -- (97) -- (.2)
Net loss................... -- -- -- -- -- -- --
--- -------------- ----- -------------- ------ -------------- --------
BALANCE AT DECEMBER 31,
1997 (PREDECESSOR)......... 1 -- -- -- 35,575 .4 143.4
Effect of pooling of
interests.................. -- -- -- -- -- -- --
Redemption of Series 3
Preferred Stock............ (1) -- -- -- -- -- (.7)
Issuance of common stock
for acquisitions........... -- -- -- -- 265 -- 14.5
Stock option exercises..... -- -- -- -- 594 -- 6.4
Issuance of preferred
stock...................... -- -- 155.2 -- -- -- 148.1
Preferred dividends paid in
kind and accrued........... -- -- -- -- -- -- (58.2)
Net loss................... -- -- -- -- -- -- --
--- -------------- ----- -------------- ------ -------------- --------
BALANCE AT DECEMBER 31,
1998 (PREDECESSOR)......... -- -- 155.2 -- 36,434 .4 253.4
=== ============== ===== ============== ====== ============== ========
Issuance of common stock
for acquisitions........... -- -- -- -- 699 -- 25.0
Issuance of warrants for
acquisitions............... -- -- -- -- -- -- 1.1
Stock option exercises..... -- -- -- -- 1,036 -- 22.1
Conversion of preferred
stock to common stock...... -- -- -- -- 46 -- --
Unrealized gain on
investments, net........... -- -- -- -- -- -- --
Preferred dividends paid in
kind and accrued........... -- -- -- -- -- -- (55.4)
Other...................... -- -- -- -- -- -- (0.1)
Net loss................... -- -- -- -- -- -- --
--- -------------- ----- -------------- ------ -------------- --------
BALANCE AT NOVEMBER 9, 1999
(PREDECESSOR).............. -- $ -- 155.2 $ -- 38,215 $ .4 $ 246.1
=== ============== ===== ============== ====== ============== ========
----------------------------------------------------------------------------------------------
BALANCE AT NOVEMBER 10,
1999 (COMPANY)............. -- $ -- -- $ -- 500 $ -- $2,190.4
Preferred dividends paid in
kind and accrued........... -- -- -- -- -- -- (6.6)
Contributed capital from
Parent Company resulting
from payoff of debt........ -- -- -- -- -- -- 240.8
Unrealized gain on
investments, net........... -- -- -- -- -- -- --
Other financing costs...... -- -- -- -- -- -- --
Net loss................... -- -- -- -- -- -- --
--- -------------- ----- -------------- ------ -------------- --------
BALANCE AT DECEMBER 31,
1999 (COMPANY)............. -- $ -- -- $ -- 500 $ -- $2,424.6
=== ============== ===== ============== ====== ============== ========
<CAPTION>
ACCUMULATED
OTHER STOCKHOLDERS'
ACCUMULATED COMPREHENSIVE EQUITY
DEFICIT INCOME (DEFICIT)
------------ -------------- -------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996 (PREDECESSOR)......... $ (63.2) $ -- $ 75.3
Issuance of common stock... -- -- 23.4
Stock option exercises..... -- -- 2.0
Accretion of preferred
stock...................... -- -- (.7)
Preferred dividends paid in
kind and accrued........... -- -- (19.3)
Conversion of Series 3
Preferred Stock............ -- -- --
Other...................... -- -- (.2)
Net loss................... (99.2) -- (99.2)
------- ------ --------
BALANCE AT DECEMBER 31,
1997 (PREDECESSOR)......... (162.4) -- (18.7)
Effect of pooling of
interests.................. (1.5) -- (1.5)
Redemption of Series 3
Preferred Stock............ -- -- (.7)
Issuance of common stock
for acquisitions........... -- -- 14.5
Stock option exercises..... -- -- 6.4
Issuance of preferred
stock...................... -- -- 148.1
Preferred dividends paid in
kind and accrued........... -- -- (58.2)
Net loss................... (162.5) -- (162.5)
------- ------ --------
BALANCE AT DECEMBER 31,
1998 (PREDECESSOR)......... (326.3) -- (72.5)
======= ====== ========
Issuance of common stock
for acquisitions........... -- -- 25.0
Issuance of warrants for
acquisitions............... -- -- 1.1
Stock option exercises..... -- -- 22.1
Conversion of preferred
stock to common stock...... -- -- --
Unrealized gain on
investments, net........... -- 157.1 157.1
Preferred dividends paid in
kind and accrued........... -- -- (55.4)
Other...................... -- -- (0.1)
Net loss................... (281.0) -- (281.0)
------- ------ --------
BALANCE AT NOVEMBER 9, 1999
(PREDECESSOR).............. $(607.3) $157.1 $ (203.7)
======= ====== ========
---------------------------------------------
BALANCE AT NOVEMBER 10,
1999 (COMPANY)............. $ -- $ -- $2,190.4
Preferred dividends paid in
kind and accrued........... -- -- (6.6)
Contributed capital from
Parent Company resulting
from payoff of debt........ -- -- 240.8
Unrealized gain on
investments, net........... -- 90.5 90.5
Other financing costs...... -- (6.0) (6.0)
Net loss................... (45.5) -- (45.5)
------- ------ --------
BALANCE AT DECEMBER 31,
1999 (COMPANY)............. $ (45.5) $ 84.5 $2,463.6
======= ====== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
BROADWING COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------- ------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 10 TO JANUARY 1 TO YEAR ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 9, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1997
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $(45.5) $(281.0) $(162.5) $(99.2)
Adjustments to reconcile net loss to cash provided by
(used in)
Operating activities:
Depreciation........................................... 30.3 125.4 92.8 51.9
Amortization........................................... 16.4 22.3 21.9 18.9
Provision for doubtful accounts and service credits.... 5.1 75.1 55.1 20.8
Non-cash merger-related costs.......................... -- -- 1.6 --
Equity in net loss of unconsolidated subsidiaries...... 1.5 20.3 33.0 23.8
Writedown of marketable securities..................... -- 16.1 -- --
Minority interest in net loss of subsidiaries.......... -- .5 .7 .6
Compensation expense on stock options and phantom
stock................................................ -- .3 .2 1.4
Extraordinary loss on early extinguishment of debt..... 6.6 -- 70.0 --
Changes in operating assets and liabilities, net of
effects of Acquisitions:
Accounts receivable.................................. 27.3 (49.9) (56.4) (70.5)
Notes Receivable from customers and IRU sales........ -- 65.1 50.7 --
Notes Receivable write-off........................... .2 6.4
Other current assets................................. (2.3) 4.4 (5.5) .9
Accounts payable--trade.............................. (2.9) 79.7 (24.8) 26.2
Accrued liabilities and accrued service costs........ -- (37.0) 2.5 15.9
Deferred income taxes................................ (15.3) -- -- (.4)
Deferred charges and other non-current assets........ 16.5 (5.1) (5.9) (30.5)
Unearned revenue..................................... 79.3 28.9 131.1 60.1
Other non-current liabilities........................ (29.4) -- (2.2) 1.9
------ ------- ------- ------
Net cash provided by (used in) operating
activities....................................... 87.8 71.5 202.3 21.8
------ ------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Release of funds from escrow under 12 1/2% Senior
Notes.................................................. -- -- -- 69.6
Deposit into escrow under 12 1/2% Senior Notes........... -- -- -- (18.1)
Purchases of property and equipment...................... (165.0) (479.1) (476.4) (315.9)
Acquisitions, net of cash acquired and common stock
issued................................................. -- (73.3) (22.7) (2.5)
Payments received from notes receivable.................. .2 .8 5.5 --
Proceeds from sale of property and equipment............. 4.0 (.3) 2.2 --
Investments in unconsolidated subsidiaries............... -- (6.2) (31.5) (35.5)
------ ------- ------- ------
Net cash used in investing activities.............. (160.8) (558.1) (522.9) (302.4)
------ ------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from Parent......................... 240.8 -- -- --
Proceeds from loan from Parent........................... 211.8 -- -- --
Proceeds from issuance of debt........................... -- 299.8 678.0 --
Net proceeds from sale of preferred stock................ -- -- 148.1 383.3
Principal payments on long-term debt and capital lease
obligations............................................ (387.1) (25.9) (367.8) (11.5)
Payments of debt issue costs............................. -- -- (18.1) --
Redemption of preferred stock............................ -- -- (.7) --
Payment of preferred dividends........................... -- (10.4) (13.7) --
Issuance of common stock: option exercises............... -- 22.0 5.2 .2
Other financing activities............................... -- -- -- .4
------ ------- ------- ------
Net cash provided by financing activities.......... 65.5 285.5 431.0 372.4
------ ------- ------- ------
Effect of change in year-end from merged entities........ -- -- (1.5) --
------ ------- ------- ------
Net increase in cash and cash equivalents................ (7.5) (201.1) 108.9 91.8
Cash and cash equivalents at beginning of period......... 63.7 264.8 155.9 64.1
------ ------- ------- ------
Cash and cash equivalents at end of period............... $ 56.2 $ 63.7 $ 264.8 $155.9
====== ======= ======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes........................................... $ (1.0) $ 2.3 $ 3.7 $ .5
====== ======= ======= ======
Interest, net of amounts capitalized................... $ 2.7 $ 41.0 $ 31.1 $ 30.6
====== ======= ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Broadwing Communications Inc. and its subsidiaries (collectively referred to
as "IXC", "Broadwing Communications" or "the Company") is an Austin, Texas based
provider of telecommunications services. The Company utilizes its advanced
fiber-optic network to provide private line, switched access, data transport,
Internet-based and other services to end user customers. Additionally, excess
network capacity is leased (in the form of indefeasible right-to-use agreements)
to other telecommunications providers and to Internet service providers.
BASIS OF PRESENTATION
The Company is a wholly owned subsidiary of Cincinnati Bell Inc.
("Cincinnati Bell" or "the Parent Company"), which is now doing business as
Broadwing Inc. On November 9, 1999 the Company was merged with a wholly owned
subsidiary of Cincinnati Bell ("the merger"). The merger was accounted for as a
purchase business combination and, accordingly, the preliminary purchase
accounting adjustments, including goodwill, have been pushed down and are
reflected in these financial statements subsequent to November 9, 1999. The
financial statements for periods ended before November 9, 1999 were prepared
using the Company's historical basis of accounting and are designated as
"Predecessor." The comparability of operating results for the Predecessor
periods and the period from November 10 to December 31, 1999 are affected by the
purchase accounting adjustments.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include accounts of the
Company and its wholly-owned and majority owned subsidiaries. Less-than-majority
owned subsidiaries and subsidiaries for which control is deemed to be temporary,
are accounted for using the equity method. For equity method investments, the
Company's share of income is calculated according to the Company's equity
ownership in the subsidiary. Any differences between the carrying amount of an
investment and the amount of the underlying equity in the net assets of the
equity investee are amortized over the expected life of the investment.
Significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
On June 3, 1998, the Company acquired Eclipse in a transaction accounted for
as a pooling of interests (See Note 3). All prior period consolidated financial
statements presented were restated to include the combined results of
operations, financial position and cash flows of Eclipse as though it had always
been a part of the Company. On May 10, 1999, the Company acquired Coastal
Telecom Limited Company and other related companies under common control
("Coastal") in a transaction accounted for as a purchase. The Company's results
subsequent to May 9, 1999 include Coastal.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market funds and all
investments with an initial maturity of three months or less. All cash
equivalents are recorded at cost and classified as available for sale.
30
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
NOTES RECEIVABLE
From time to time, the Company accepts interest-bearing notes from customers
and other debtors when payments are expected to be received over extended
periods. Amounts due on notes classified as current are expected to be received
within one year.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost (subject to fair market value
adjustments made as part of purchase accounting at the date of the merger with
Cincinnati Bell). Depreciation is provided using the straight-line method over
the estimated useful lives of the various assets, ranging from three to twenty
years. Maintenance and repairs are charged to operations as incurred. Property
and equipment recorded under capital leases is included with the Company's owned
assets. Amortization of assets recorded under capital leases is included in
depreciation expense. Costs associated with uncompleted portions of the fiber
optic network are classified as construction in progress in the accompanying
consolidated balance sheets. Upon completion, the costs will be classified as
transmission systems and depreciated over their useful lives.
Interest is capitalized as part of the cost of constructing the Company's
fiber optic network and for amounts invested in companies or joint ventures
accounted for using the equity method during pre-operating periods. Interest
capitalized during construction periods is computed by determining the average
accumulated expenditures for each interim capitalization period and applying an
average interest rate. Total interest capitalized during the years ended
December 31, 1999, 1998 and 1997 was $23.1 million, $16.2 million, and
$7.3 million, respectively.
The Company's property and equipment consisted of the following as of
December 31, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------- -----------
1999 1998
-------- -----------
<S> <C> <C>
Land and rights of way.................................. $ 150.3 $ 4.0
Buildings and leasehold improvements.................... 253.8 39.0
Transmission systems.................................... 972.7 905.7
Furniture, vehicles and other........................... 129.7 12.2
Fiber usage rights...................................... 40.6 98.9
Construction in process................................. 207.1 133.9
-------- --------
1,754.2 1,193.7
Less: Accumulated depreciation and amortization......... (27.8) (210.0)
-------- --------
Property and equipment, net........................... $1,726.4 $ 983.7
======== ========
</TABLE>
LONG-LIVED ASSETS, OTHER ASSETS AND GOODWILL
Deferred financing costs are costs incurred in connection with obtaining
long-term financing; such costs are amortized as interest expense over the terms
of the related debt agreements. Certain costs incurred with the connection of
customers to the switched long distance network were deferred and are amortized
on a straight-line basis over two years. The acquisition cost of retail customer
accounts obtained through an outside sales organization, including certain
transaction costs, were deferred and amortized over a period of three years.
Goodwill and other intangibles are recorded at cost and
31
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
amortized on a straight-line basis from 5 to 30 years. Accumulated amortization
on all intangible assets amounted to $15.7 million and $37.7 million at
December 31, 1999 and December 31, 1998 respectively.
The Company reviews its long-lived assets by comparing the undiscounted cash
flows estimated to be generated by those assets with the related carrying amount
of the assets. Upon an indication of an impairment, a loss is recorded if the
discounted cash flows projected for the assets is less than the assets' carrying
value.
REVENUES
Revenues are generally recognized as services are provided and are presented
net of provisions for service credits and bad debts. Private line voice and data
circuit revenues are generated primarily by providing capacity on the Company's
fiber optic and microwave transmission network at rates established under
long-term contractual arrangements or on a month-to-month basis after contract
expiration. Switched long-distance service revenues are generated primarily by
providing voice and data communication services; customers are billed monthly
after services are rendered. Data and Internet revenues are generated by
providing a number of services, including Internet service, Web hosting and
consulting. Customers are billed monthly, generally after the service is
provided.
Sales of indefeasible rights to use ("IRU") fiber or capacity are recorded
as unearned revenue at the earlier of the acceptance of the applicable portion
of the network by the customer or the receipt of cash. The revenue is recognized
over the life of the agreement as services are provided beginning on the date of
customer acceptance. Revenue related to the sale of options in fibers that were
jointly owned with another carrier was recorded net of the Company's basis in
the options.
FIBER EXCHANGE AGREEMENTS
In connection with its fiber optic network expansion, the Company has
entered into various agreements to purchase, sell or exchange fiber usage
rights. Purchases of fiber usage rights from other carriers are recorded at cost
as a separate component of property and equipment. The recorded assets are
amortized over the lesser of the term of the related agreement or the estimated
life of the fiber optic cable. Sales of fiber usage rights are recorded as
unearned revenue. Revenue is recognized over the terms of the related
agreements. Non-monetary exchanges of fiber usage rights (swaps of fiber usage
rights with other long distance carriers) are recorded at the cost of the asset
transferred or, if applicable, the fair value of the asset received. Agreements
to exchange fiber IRUs for capacity are recorded by recognizing the fair market
value of the revenue earned and expense incurred under the respective
agreements. Exchange agreements account for non-cash revenue and expense, in
equal amounts, of $19.1 million in 1999 and 1998, and $14.0 million in 1997.
INCOME TAXES
The provision for income taxes consists of an amount for taxes currently
payable and a provision for tax consequences deferred to future periods using
the liability method.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options under the intrinsic value
method. Pro forma disclosures of net income are presented as if the fair value
method had been applied.
32
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts for prior years have been reclassified to conform to the
current year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999 the Financial Accounting Standards Board issued Interpretation
No. 43 (FIN 43), an interpretation of Statement of Financial Accounting Standard
No. 66, "Accounting for Sales of Real Estate." FIN 43 clarifies the standards
for recognition of profit on all real estate sales transactions, including those
related to fiber optic cable that cannot be removed and used separately from the
real estate without incurring significant costs. This interpretation is
effective for all applicable transactions after June 30, 1999. FIN 43 does not
present a significant change from the Company's historical accounting for IRU
agreements. The accounting for sales of capacity IRUs is evolving and is
currently under consideration by accounting standard setters. Any change in
accounting literature may affect the timing and method of recognition of these
revenues and related costs.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards requiring that a derivative instrument be recorded in the
balance sheet as either an asset or liability, measured at its fair value.
SFAS 133 has been subsequently amended through the release of SFAS 137, which
provides for a deferral of the effective date of SFAS 133 to all fiscal years
beginning after June 15, 2000. As a result, implementation of SFAS 133 is not
mandatory for the Company until January 1, 2001. Management is currently
assessing the impact of SFAS 133 on the Company's results of operations, cash
flows and financial position, although it does not hold or issue derivative
financial instruments for trading purposes or enter into interest rate
transactions for speculative purposes.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements. In
SAB 101, the SEC Staff expresses its views regarding the appropriate recognition
of revenue with regard to a variety of circumstances, some of which are of
particular relevance to the Company. The Company is currently evaluating SAB 101
to determine its impact on the financial statements.
2. MERGER WITH CINCINNATI BELL INC. AND RESTRUCTURING
On November 9, 1999, the Company was acquired by Cincinnati Bell through the
merger of IXC and a wholly owned subsidiary of Cincinnati Bell, with IXC
surviving as a wholly owned subsidiary of Cincinnati Bell (the "Merger"). IXC
has since been renamed as Broadwing Communications Inc. and the Parent Company
is now doing business as Broadwing Inc. A formal proposal to change the name of
Cincinnati Bell to Broadwing Inc. is subject to a vote of Cincinnati Bell
shareholders on April 19, 2000.
33
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGER WITH CINCINNATI BELL INC. AND RESTRUCTURING (CONTINUED)
As a result of the Merger, all of the then outstanding shares of IXC common
stock were converted in a tax-free exchange into approximately 68.5 million
shares of Cincinnati Bell common stock, based on a fixed exchange ratio of
2.0976 shares of Cincinnati Bell stock for each share of IXC common stock. In
addition, IXC's 7 1/4% Convertible Preferred Stock and IXC's Depositary Shares
representing 1/20(th) of a share of IXC's 6 3/4% Convertible Preferred Stock
were converted into Cincinnati Bell 7 1/4% Convertible Preferred Stock and
Cincinnati Bell Depositary Shares representing 1/20(th) of a share of Cincinnati
Bell 6 3/4% Convertible Preferred Stock, respectively. Approximately five
million shares of IXC common stock that were owned by Cincinnati Bell at the
merger date are being accounted for as if retired and are not included in the
aforementioned total. All of the outstanding options, warrants and other equity
rights in IXC were converted into options, warrants and the rights to acquire
Cincinnati Bell common shares according to the same terms and conditions as the
IXC options, except that the exercise price and the number of shares issuable
upon exercise were divided and multiplied, respectively, by 2.0976.
The aggregate purchase price of $2.2 billion consisted of (all numbers
approximate): $0.3 billion in cash for the purchase of five million shares of
IXC stock from Trustees of General Electric Pension Trust; the issuance of
68 million shares of the Parent Company's common stock valued at $1.6 billion,
155,000 shares of 6 3/4% convertible preferred stock issued by the Parent
Company on our behalf and valued at $0.1 billion; and the issuance of
14 million options and warrants to purchase Parent Company common stock valued
at $0.2 billion.
The Parent Company accounted for the Merger according to the purchase method
of accounting, with the purchase price allocation being "pushed down" to the
Company's financial statements. The purchase price has been preliminarily
allocated to the assets and liabilities assumed according to their estimated
fair values and are subject to adjustment when additional information concerning
asset and liability valuations is finalized. Property, plant and equipment was
recorded at fair market value based on preliminary appraisal results, and useful
lives were assigned to the assets. The excess of cost over the fair value
assigned to the net assets acquired was recorded as goodwill and is being
amortized using the straight-line method over 30 years.
The purchase price was allocated to assets and liabilities based on their
respective fair values at the Merger date, as listed in the table below:
<TABLE>
<S> <C>
Property, Plant and Equipment............................... $ 207.0
Other intangibles........................................... 397.0
Debt........................................................ (168.0)
Deferred tax liabilities.................................... (113.0)
Other....................................................... 7.0
--------
Subtotal.................................................... 330.0
Goodwill.................................................... 2,187.5
--------
Total..................................................... $2,517.5
========
</TABLE>
34
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGER WITH CINCINNATI BELL INC. AND RESTRUCTURING (CONTINUED)
Included in the allocation of the cost to acquire the Company are
restructuring costs associated with initiatives to integrate operations of the
Company with its Parent Company. The restructuring costs accrued in 1999
included the costs of involuntary employee separation benefits related to 263
employees of the Company. As of December 31, 1999, approximately 1% of the
employee separations had been completed for a total cash expenditure of
$0.2 million. The restructuring plans also included costs associated with the
closure of a variety of technical and customer support facilities, the
decommissioning of certain switching equipment, and the termination of contracts
with vendors.
A summary of the exit liabilities recorded in the preliminary allocation of
purchase price is as follows:
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE ACTIVITY BALANCE
--------- -------- --------
MILLIONS OF DOLLARS
<S> <C> <C> <C>
Employee separations............................... $2.2 $0.2 $2.0
Facility closure costs............................. 2.1 -- 2.1
Relocation......................................... 0.2 -- 0.2
Other exit costs................................... 3.2 -- 3.2
---- ---- ----
Total accrued restructuring costs.................. $7.7 $0.2 $7.5
==== ==== ====
</TABLE>
The Company expects that most of these restructuring actions will be
complete by December 31, 2000, and will result in cash outlays of $7.5 million
in 2000.
3. ACQUISITIONS
COASTAL TELECOM LIMITED COMPANY ACQUISITION
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 purchase price amounted to approximately
$110 million and was paid with a combination of $73.2 million of cash (including
approximately $10 million paid for working capital items), $10 million of notes
payable, $25.0 million of IXC common stock, and warrants to purchase 75,000
shares of IXC common stock. Assets acquired included approximately $103 million
of goodwill and approximately $7 million of property and equipment. In
connection with the acquisition the Company completed a credit facility with a
commercial bank pursuant to which Eclipse, a wholly owned subsidiary, borrowed
$27 million and used the proceeds to fund a portion of the Coastal purchase
price. All amounts due under this facility were satisfied, and this credit
facility was terminated, coincident with the Merger.
ECLIPSE MERGER
On June 3, 1998, the Company completed the acquisition of Eclipse through a
merger of a Company subsidiary with Eclipse by exchanging approximately
4.1 million shares of its common stock for all of the outstanding common stock
of Eclipse. Each share of Eclipse common stock was exchanged for .2998 shares of
the Company's common stock. In addition, outstanding Eclipse stock options were
converted at the same exchange factor into options to purchase shares of the
Company's common stock.
The merger constituted a tax-free reorganization and has been accounted for
as a pooling of interests. Accordingly, all prior period consolidated financial
statements have been restated to include
35
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
the combined results of operations, financial position and cash flows of Eclipse
as though it had always been a part of the Company. Prior to the merger, Eclipse
utilized a March 31 fiscal year end. For purposes of the combined results of
operations for the year ended December 31, 1997, the amounts include Eclipse's
historical results of operations for the years ended March 31, 1998. In order to
report cash flow for 1998, a $1.5 million adjustment is included in the 1998
statements of stockholders' equity (deficit) and cash flows, representing
Eclipse's first quarter 1998 net income, which is in both the beginning retained
earnings balance and the fiscal 1998 net income amount. There were no
transactions between Eclipse and the Company prior to the merger; however,
certain reclassifications, primarily related to the presentation of certain
excise taxes and bad debt provisions, were made to conform Eclipse's accounting
policies to those of the Company. The results of operations for the separate
companies and the combined amounts presented in the restated consolidated
financial statements follow (in millions):
<TABLE>
<CAPTION>
BROADWING
COMMUNI-
ECLIPSE CATIONS ADJUSTMENTS COMBINED
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
1997 (PREDECESSOR)
Operating revenue.................. $105.8 $420.7 $(4.9) $521.6
Operating expenses................. 110.2 465.9 (5.0) 571.2
Net income (loss).................. (4.6) (94.6) -- (99.2)
</TABLE>
In connection with the merger, the Company recorded in 1998 a charge of
$8.0 million for merger related costs, including professional services
associated with the merger, termination costs associated with duplicate
functions, costs of exiting excess office space, and the write-off of duplicate
equipment and software.
OTHER ACQUISITIONS
Prior to its merger with the Company, Eclipse had entered into several
business combinations and customer base acquisitions. Certain of those
combinations were accounted for using the pooling of interests method, and the
results of operations of the acquired businesses are included herein for all
periods presented. The results of operations of other businesses acquired
through purchase transactions are included herein for only the periods
subsequent to their respective purchase. No pro forma financial information for
any of the business combinations has been presented in these consolidated
financial statements as the revenues, results of operations, and assets of the
previously acquired businesses are not material.
4. MARKETABLE SECURITIES
PSINET INVESTMENT
The Company's investment in PSINet consists of 21.6 million shares after
adjusting for their February 2000 two-for-one stock split. This investment had a
fair market value of approximately $631.7 million as of December 31, 1999. Of
the total fair value, $240.0 million was recorded as unearned revenue because it
represented the sale of an IRU to PSINet. 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
36
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. MARKETABLE SECURITIES (CONTINUED)
accompanying Consolidated Statement of Operations (the unrealized gain prior to
the Merger with Cincinnati Bell was included in the allocation of purchase
price).
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 six million shares of the PSINet common stock. This
amount is accounted for as notes payable and is collateralized by these six
million shares of PSINet common stock owned by the Company. Each forward-sale
obligation for three million shares of PSINet stock may be settled at specified
dates in the first and second quarter of 2002 for a maximum amount of three
million shares of PSINet stock, or, at the Company's option, the equivalent
value in cash. Since it is the Company's current intention to settle these
obligations in PSINet stock, the carrying amount of the liability is
marked-to-market each period with an offsetting adjustment to the "unrealized
gain on investments" caption within other comprehensive income.
DCI TELECOMMUNICATIONS
In November 1998, the Company entered into an agreement to acquire
4.25 million shares of 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 is pursuing the remedies to which it is entitled under
the November 1998 agreement. Due to a decline in the financial condition of DCI
that is considered permanent, the Company wrote down its investment in DCI by
$16.1 million to $1.5 million. This writedown was recorded in other
income/expense during the pre-Merger period in 1999.
5. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
MARCA-TEL
As of December 31, 1999, the Company holds an indirect investment equal to
30.0% of Marca-Tel S.A. de C.V. (Marca-Tel) as a result of its ownership of
65.4% of Progress International, LLC ("Progress") which, in turn, owns 45.8% of
Marca-Tel. The remaining 54.2% of Marca-Tel is owned by a Mexican individual,
Formento Radio Beep, S.A. de C.V. ("Radio Beep") and Siemens S.A. de C.V
("Siemens"). The other owner of Progress is Westel International, Inc.
("Westel"). At December 31, 1998, the Company was owed $9.4 million by Westel,
the Company's partner in Progress. The note was secured by a portion of 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. Because of that forfeiture, the Company now owns 65.4% of
Progress.
UNIDIAL
In December 1997, the Company announced a joint venture with UniDial
Communications to sell UniDial products exclusively over the Company's network.
The Company owned 20% of the joint venture, which was known as UniDial
Communications Services, LLC ("Unidial"). 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
37
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (CONTINUED)
from making any further capital contributions to Unidial. During 1999, the
Company reported losses totaling approximately $10.9 million related to equity
losses and the sale of its investment in Unidial. As of December 31, 1999, the
Company's investment in Unidial has been written down to zero.
STORM TELECOMMUNICATIONS, LTD..
In October 1997, Storm Telecommunications, Ltd. ("Storm") was formed. Storm
was a joint venture with Telenor Global Services AS ("Telenor"), a subsidiary of
the Norwegian national telephone company, to provide telecommunication services
to carriers and resellers in Europe. The joint venture was owned 40% by Telenor,
40% by the Company and 20% by Clarion Resources Communications Corporation, an
U.S.-based telecommunications company in which Telenor owned a controlling
interest. In February 2000, the Company sold its investment in Storm, plus
amounts due it relating to the joint venture, for $14.4 million.
APPLIED THEORY, INC.
In May 1998, the Company purchased a 34% interest in Applied Theory
Communications, Inc., a New York-based Internet Service Provider. Applied
Theory, Inc. was formed in 1996 to provide high quality Internet services for
the New York state research and education community. In 1999, Applied Theory
made an initial public offering, diluting the Company's ownership percentage.
After acquiring additional shares of common stock in 1999, the Company now has a
27.6% interest in Applied Theory.
Investments in and advances to unconsolidated subsidiaries accounted for
using the equity method are as follows at December 31, 1999 and 1998 (in
millions):
<TABLE>
<CAPTION>
BALANCE OF INVESTMENTS
CURRENT AND ADVANCES
OWNERSHIP -----------------------
INTEREST AT COMPANY PREDECESSOR
DECEMBER 31, --------- -----------
1999 1999 1998
------------- --------- -----------
<S> <C> <C> <C>
Marca-Tel S.A. de C.V....................... 30.0% $ -- $(11.8)
Applied Theory, Inc......................... 27.6% 61.0 10.7
Unidial Communications, Services, LLC....... 0% -- 7.9
Storm Telecommunications Ltd................ 0% -- 2.7
----- ------
Total..................................... $61.0 $ 9.5
===== ======
</TABLE>
38
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (CONTINUED)
The combined results of operations and financial position from all the
investees accounted for using the equity method during 1999 as well as the
Company's share of their income (loss) are summarized below (in millions):
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- ---------------------------------
PERIOD FROM PERIOD FROM
NOV 10 TO JAN 1 1999
DEC 31 TO NOV 9,
1999 1999 1998 1997
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
IXC's share of losses from
equity-method investees.............. $(1.5) $(20.3) $(23.5) $(23.8)
IXC's share of loss from PSINet
investment........................... -- -- (9.5) --
----- ------ ------ ------
Losses from equity-method
invesments........................... $(1.5) $(20.3) $(33.0) $(23.8)
===== ====== ====== ======
</TABLE>
PSINET TRANSACTION
The Company initially accounted for its investment in PSINet using the
equity method and recorded its share of PSINet's operating losses. The Company
began accounting for this investment on the cost basis at the beginning of the
third quarter of 1998 when it was determined that the Company could no longer
exercise significant influence over PSINet's operating and financial policies.
This determination was made because the Company's equity interest in PSINet was
below 20% and it no longer had a representative with a seat on PSINet's board of
directors.
At December 31, 1999, the Company's recorded investment in PSINet was
approximately $631.7 million.
6. RESTRUCTURING CHARGE
In the second quarter of 1999, the Company recorded a charge of
approximately $13.9 million to exit certain operations in the switched wholesale
business. The restructuring charge consisted of severance and 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 restructuring activities are expected to be substantially
complete by June 30, 2000. Due to the Merger, it was determined that the
combined 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 a reduction
in the lease pay off requirement.
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 prior to the Merger, by the
previous Chief Executive Officer, after reviewing the Company's operations. The
workforce reduction of 15 employees 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.
39
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RESTRUCTURING CHARGE (CONTINUED)
Activity in the accrued restructuring liabilities recorded in the second and
third quarters of 1999 are as follows (in millions):
<TABLE>
<CAPTION>
ACCRUED AT
RESTRUCTURING DECEMBER 31,
CHARGE UTILIZATIONS ADJUSTMENTS 1999
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
SECOND QUARTER:
Severance..................... $ 2.8 $1.6 $ -- $1.2
Network Decommissioning....... 3.9 .4 1.2 2.3
Terminate contractual
obligations and exit
facilities.................. 6.4 1.8 .4 4.2
----- ---- ---- ----
Total Restructuring Costs..... $13.1 $3.8 $1.6 $7.7
===== ==== ==== ====
THIRD QUARTER:
Severance..................... $ 7.5 $4.6 $ -- $2.9
Terminate contractual
obligations and exit
facilities.................. .8 .3 -- .5
----- ---- ---- ----
Total Restructuring Costs..... $ 8.3 $4.9 $ -- $3.4
===== ==== ==== ====
</TABLE>
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following at
December 31, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------- -----------
1999 1998
-------- -----------
<S> <C> <C>
Amounts due under Revolving Credit Facility............. $ -- $200.0
9% Senior Subordinated Notes............................ 450.0 450.0
NTFC Credit Facility.................................... -- 23.8
12 1/2% Senior Notes.................................... .8 .8
Capital lease obligations............................... 11.3 16.1
PSINet Forward Sale..................................... 133.9 --
Other debt.............................................. 7.3 2.3
------ ------
Total long-term debt and capital lease obligations.... $603.3 $693.0
Less current portion.................................... 5.9 14.0
------ ------
Long-term debt and capital lease obligations............ $597.4 $679.0
====== ======
</TABLE>
9% SENIOR SUBORDINATED NOTES
In 1998, the Company issued $450.0 million of 9% senior subordinated notes
due 2008 ("the 9% notes"). The 9% notes are general unsecured obligations and
are subordinate in right of payment to all existing and future senior
indebtedness and other liabilities of the Company's subsidiaries. The indenture
related to the 9% notes requires us to comply with various financial and other
covenants and restricts the Company from incurring certain additional
indebtedness. In January 2000, $404 million of the 9% senior subordinated notes
were redeemed through a tender offer due to the change of control terms in the
bond indenture.
40
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
PSINET FORWARD SALE
The Company's investment in PSINet consists of 21.6 million shares after
adjusting for PSINet's February 2000 two-for-one stock split. 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 six million shares of the PSINet common stock. This amount is
accounted for as notes payable and is collateralized by these six million shares
of PSINet common stock. Each forward-sale obligation for three million shares of
PSINet stock may be settled at specified dates in the first and second quarter
of 2002 for a maximum amount of three million shares of PSINet stock, or at the
Company's option, the equivalent value in cash. Since the Company intends to
settle these obligations in PSINet stock, the carrying amount of the liability
is marked-to-market each period with an offsetting adjustment to "other
financing costs" within other comprehensive income.
OTHER
Pursuant to our May 10, 1999 acquisition of Coastal Telecom Limited Company,
the Company assumed $10 million in notes payable, of which $7.8 million is still
outstanding at December 31, 1999.
Additionally, $.8 million remains outstanding on the 12 1/2% senior notes
(original indebtedness of $285.0 million) that were largely eliminated through a
tender offer in 1998.
Amounts previously outstanding on the revolving credit facility and the NTFC
credit facility were retired as part of the Merger. This early extinguishment of
debt resulted in an extraordinary charge of $6.6 million, net of tax, during the
post-Merger period of November 10, 1999 to December 31, 1999.
The Company has acquired certain facilities and equipment using capital
leases. The gross amount of assets recorded under capital leases at
December 31, 1999 and 1998 (capital leases and associated accumulated
depreciation was revalued at the Merger date) was $11.8 million and
$41.7 million, respectively. The related accumulated depreciation was
$1.2 million and $25.0 million at December 31, 1999 and 1998, respectively.
Annual maturities of long term debt and minimum payments under capital
leases for the five years after December 31, 1999 are as follows (in millions):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES TOTAL
--------- -------- --------
<S> <C> <C> <C>
2000.............................................. $ -- $ 6.4 $ 6.4
2001.............................................. -- 4.1 4.1
2002.............................................. 133.9 1.5 135.4
2003.............................................. -- .4 .4
2004.............................................. -- -- --
Thereafter........................................ 458.1 -- 458.1
------ ----- ------
592.0 12.4 604.4
Less amounts related to Interest.................. -- 1.1 1.1
------ ----- ------
592.0 11.3 603.3
Less Current Portion.............................. -- 5.9 5.9
------ ----- ------
$592.0 $ 5.4 $597.4
====== ===== ======
</TABLE>
41
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
In January 2000, $404 million of the 9% senior subordinated notes due 2008
described above were redeemed through a tender offer as a result of the change
of control terms of the bond indenture. As a result, the Company will record an
extraordinary charge for the debt extinguishment of approximately $4.4 million,
net of taxes, in the first quarter of 2000.
8. REDEEMABLE PREFERRED STOCK
In 1997, the Company issued $400 million in redeemable preferred stock,
consisting of 300,000 shares of 12 1/2% Junior Exchangeable Preferred Stock due
2009 and 1,000,000 shares of 7 1/4% Junior Convertible Preferred Stock due 2007.
Respectively, these preferred stock issues had liquidation preferences of $1,000
and $100 per share and amounted to a carrying value of $344.2 million and
$103.6 million at December 31, 1998. These preferred stocks were not included in
stockholders' equity because they are mandatorily redeemable. The 7 1/4%
preferred stock was retired coincident with the Merger and replaced by similar
preferred stock issued by the Parent Company. Accordingly, the Company no longer
reflects the 7 1/4% preferred stock on its consolidated balance sheet.
9. STOCKHOLDERS' EQUITY
6 3/4 CUMULATIVE CONVERTIBLE PREFERRED STOCK
In 1998, the Company sold 155,250 shares of 6 3/4% cumulative convertible
preferred stock for gross proceeds of $155.3 million. At December 31, 1998, this
preferred stock was reflected on the consolidated balance sheet with a par value
of $2,000 with the remainder included in additional paid-in capital. This
preferred stock issue was retired coincident with the Merger and replaced by a
similar preferred stock issued by the Parent Company. Accordingly, the Company
no longer reflects this preferred stock issue on its consolidated balance sheet.
COMMON STOCK
As of December 31, 1998, approximately 36.4 million shares of the Company's
common stock were issued and outstanding. In July 1999, the Parent Company
acquired 300,000 shares of the Company's common stock as the first step in the
Merger. In August 1999, this was followed by an additional purchase of
approximately 4.7 million shares of the Company's common stock (both purchases
were from General Electric Pension Trust). Upon consummation of the Merger, the
remaining 32.6 million shares of the Company's common stock held by its
shareholders were exchanged for approximately 68.5 million shares of the Parent
Company common stock issued in the Merger. The Company now has outstanding
500,000 common shares that are owned entirely by the Parent Company.
ADDITIONAL PAID-IN CAPITAL AND ACCUMULATED DEFICIT
The Company's previous paid-in capital and accumulated deficit were
eliminated at the date of the Merger. At December 31, 1998, amounts appearing in
the consolidated balance sheet reflect the pre-merger activity of the Company.
At December 31, 1999, the additional paid-in capital balance of approximately
$2.4 billion reflects the consideration paid by the Parent Company for the
Company in the Merger. The accumulated deficit balance of $45.5 million at
December 31, 1999 reflects the activities of the Company subsequent to the
November 9, 1999 Merger date.
42
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK BASED COMPENSATION
Prior to the Merger, the Company maintained incentive plans for selected
employees. The Company's plans included non-qualified stock options issued at
prices equal to the fair market value of the Company's common stock at the date
of grant which expire upon the earlier of 10 years from the date of grant or
termination of employment, death, or disability. Effective with the Merger,
options outstanding under the Company's plans were converted into options to
acquire Cincinnati Bell common stock, with the number of shares and exercise
price being adjusted in accordance with the exchange ratio of 2.0976 established
in the Merger Agreement. All outstanding options under the Company's plans
became exercisable and fully vested upon the change in control except for those
options issued under the 1998 Plan. The majority of options issued under the
1998 Plan maintained the original vesting schedule. A few selected option grants
to executives became exercisable and fully vested according to their agreements.
The Company adopted several stock option plans that provide for the issuance
of non-qualified or incentive stock options to employees and directors. Options
under these plans are generally awarded at the discretion of the Board of
Directors and generally are awarded with exercise prices at least equal to the
fair market value of the underlying common stock at the date of grant. Certain
options granted in 1996 under one plan were granted at an exercise price less
than fair market value, resulting in the recognition of additional compensation
expense of $0.1 million, $0.1 million, and $0.2 million in 1999, 1998 and 1997,
respectively. Options generally expire after ten years and vest over periods
ranging from three to five years. In the event of a change in control, certain
of the options outstanding will vest fully.
In 1996 the Company adopted a phantom stock plan (the Directors Plan),
pursuant to which $20,000 per year of outside director's fees for certain
directors was deferred and treated as if it were invested in shares of the
Company's common stock. At the Merger date, this plan was eliminated and all
amounts due were paid. Prior to 1998, no shares of common stock were actually
purchased and the participants received cash benefits equal to the value of the
shares that they were deemed to have purchased under the Director's Plan.
Distribution of benefits generally was to occur three years after the deferral.
Compensation expense was determined based on the market price of the shares
deemed to have been purchased and was charged to expense over the related
period. In 1999, 1998, and 1997, the Company recognized $0.3 million,
$0.1 million and $0.1 million, respectively, as compensation expense related to
the Director's Plan. The Company amended the Directors' Plan in 1998 to allow
benefits to be paid in either cash or shares of common stock.
Prior to the pooling-of-interests transaction Eclipse granted stock options
to various parties from time to time. The terms and conditions of the Eclipse
options, including exercise prices and option expiration periods, were set by
Eclipse's board of directors. In connection with the Eclipse merger, all
outstanding Eclipse options were converted into substitute options at an
exchange rate of .2998 IXC option for each Eclipse option. Such substitute
options provided for substantially the same terms and conditions as the original
Eclipse options. Under the terms of a stock option agreement with a former
officer of a subsidiary of Eclipse a $1.1 million charge for compensation was
recorded in fiscal 1997.
The Company accounts for employee stock options under APB 25 and only makes
fair value disclosures of option grants. The fair value disclosures assumes that
fair value of option grants was calculated at the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rates of 6.4% in 1999, 5.6% in 1998, and 5.2%--6.4% in 1997; no
dividend yield; volatility of .874 in 1999, .804 in 1998, and .551 in 1997 (for
Eclipse options, fair value was calculated assuming a volatility factor of .376
in 1997); and expected option lives of 4 years.
43
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Pro forma loss
information is as follows (in millions except for weighted average exercise
price):
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------
YEAR ENDED
PERIOD FROM DECEMBER 31,
JAN 1-NOV 9, -------------------
1999 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Pro forma loss applicable to common stockholders....... $(293.5) $(237.0) $(125.6)
</TABLE>
Stock option activity and related information for the period from
November 10, 1999 to December 31, 1999, January 1, 1999 to November 9, 1999 and
the years ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(MILLIONS) PRICE (MILLIONS) PRICE (MILLIONS) PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period........... 5.4 $27.50 3.1 $17.12 2.0 $11.90
Granted...................................... 3.5 $37.99 3.2 $34.34 1.3 $25.43
Exercised.................................... (.5) $15.90 (.6) $ 8.87 (.1) $11.22
Forfeited.................................... (1.0) $29.93 (.3) $25.01 (.1) $24.16
------ ------ ------
Outstanding at end of period................. 7.4 $32.76 5.4 $22.71 3.1 $17.12
------ ------ ------
Exercisable at end of period................. 2.3 1.1 1.0
====== ====== ======
Weighted average fair value of options
granted during the period.................. $25.08 $21.96 $14.67
------ ------ ------
</TABLE>
The following table summarizes outstanding options at November 9, 1999 by
price range:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- - ---------------------------------------- -----------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS RANGE OF EXERCISE CONTRACTUAL OPTIONS EXERCISE
(MILLIONS) EXERCISE PRICES PRICE LIFE (MILLIONS) PRICE
- - ---------- ---------------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
2.0 $ 3.01 to $26.00 $18.22 7.9 .9 $14.57
1.6 $26.25 to $33.94 $30.87 8.6 1.0 $30.21
2.6 $34.00 to $38.63 $38.51 9.6 .1 $36.49
1.2 $38.75 to $59.88 $47.36 8.6 .3 $47.96
--- ---
7.4 $ 3.01 to $59.88 $32.76 8.8 2.3 $25.97
=== ===
</TABLE>
10. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and trade receivables. The
Company places its cash equivalents in quality investments with reputable
financial institutions.
44
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS (CONTINUED)
The Company may be subject to credit risk due to concentrations of
receivables from companies that are telecommunications providers, Internet
service providers, and cable television companies. The Company performs ongoing
credit evaluations of customers' financial condition and typically does not
require significant collateral.
A relatively small number of customers account for a significant amount of
the Company's total revenues. Revenues from the Company's ten largest customers
accounted for approximately 38%, 42% and 49% of total revenues in 1999, 1998 and
1997, respectively.
11. INCOME TAXES
Significant components of the benefit (provision) for income taxes
attributable to current operations are as follows (in millions):
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------- ----------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 10 TO JANUARY 1 TO
DECEMBER 31, NOVEMBER 9,
1999 1999 1998 1997
-------------- ------------ -------- --------
<S> <C> <C> <C> <C>
CURRENT:
Federal............................................ $(12.9) $ -- $ (7.1) $ --
State.............................................. (4.5) (2.1) (6.8) (1.8)
------ ----- ------ -----
Total Current.................................... (17.4) (2.1) (13.9) (1.8)
------ ----- ------ -----
DEFERRED:
Federal............................................ 28.7 -- -- .4
State.............................................. 4.0 -- -- --
------ ----- ------ -----
Total deferred................................... 32.7 -- -- .4
------ ----- ------ -----
Benefit (provision) for income taxes............... $ 15.3 $(2.1) $(13.9) $(1.4)
====== ===== ====== =====
</TABLE>
The following is a reconciliation of the income tax benefit (provision)
attributable to continuing operations computed at the U.S. federal statutory tax
rate to the income tax benefit (provision) computed using the Company's
effective tax rate for each respective period (in millions):
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------- ----------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 10 TO JANUARY 1 TO
DECEMBER 31, NOVEMBER 9,
1999 1999 1998 1997
-------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Tax benefit at federal statutory rate............... $19.0 $ 96.4 $ 28.3 $ 34.1
State income tax benefit (provision)................ (.3) 11.3 (.3) 3.7
Change in valuation allowance....................... -- (108.6) (39.7) (37.5)
Goodwill amortization............................... (3.2) -- -- --
Other differences................................... (.2) (1.2) (2.2) (1.7)
----- ------- ------ ------
Benefit (provision) for income taxes................ $15.3 $ (2.1) $(13.9) $ (1.4)
===== ======= ====== ======
</TABLE>
45
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in millions):
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------- -----------
1999 1998
-------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards.......................... $ 126.2 $ 22.1
Investment in unconsolidated subsidiaries................. 27.7 42.6
Deferred revenue.......................................... 193.9 97.6
Other..................................................... 39.7 25.4
------- -------
Gross deferred tax assets............................... 387.5 187.7
Valuation allowance..................................... -- (123.3)
------- -------
Net deferred tax asset.................................... $ 387.5 $ 64.4
------- -------
DEFERRED TAX LIABILITIES:
Depreciation and amortization............................. $(384.4) $ (65.2)
Unrealized gain on investments............................ (160.5) --
Other liabilities......................................... (4.2) (1.0)
------- -------
Gross deferred tax liabilities............................ (549.1) $ (66.2)
------- -------
Net deferred tax liabilities............................ $(161.6) $ (1.8)
======= =======
AS RECORDED IN THE CONSOLIDATED BALANCE SHEETS:
Current deferred tax assets............................... $ 16.8 $ 5.0
Noncurrent deferred tax liability......................... (178.4) (6.8)
------- -------
Gross deferred tax liabilities........................ $(161.6) $ (1.8)
======= =======
</TABLE>
The Company recorded gross deferred tax assets of approximately
$346.3 million and gross deferred tax liabilities of approximately
$484.3 million upon completion of the Merger. Tax loss carryforwards will
generally expire between 2001 and 2018. U.S. tax laws limit the annual
utilization of tax loss carryforwards of acquired entities. These limitations
should not materially impact the utilization of the tax carryforwards.
As a result of the Merger, the Company released 100% of its valuation
allowance in conjunction with the purchase accounting adjustments. Such a
reduction results from a determination that it is more likely than not that all
of the Company's deferred tax assets will be realized in a post-Merger
environment.
12. RELATED PARTY TRANSACTIONS
A law firm, of which a former director and stockholder of the Company was a
principal, provided certain legal services to the Company in the amount of
approximately $4.1 million in 1999, $3.3 million in 1998 and $4.3 million in
1997.
46
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company pays interest on amounts borrowed from its Parent Company at a
rate of 7.84%. As of December 31, 1999, the Company had outstanding loans of
$442.9 million from its Parent Company.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE: The carrying amounts reported in
the balance sheets for accounts receivable and accounts payable approximate fair
value.
NOTES RECEIVABLE: The carrying amounts reported in the balance sheet for
notes receivable approximate fair value because of the short-term nature of the
notes and because their interest rates are comparable to current rates.
MARKETABLE SECURITIES: The fair values of marketable securities are based
on quoted market prices.
LONG-TERM DEBT: the fair value is estimated based on year-end closing
market prices of the Company's debt and of similar liabilities. The carrying
amounts at December 31, 1999 and 1998 were $597.4 million and $679.0 million,
respectively, which approximates fair market value. Long-term debt also includes
the forward sale of six million shares of PSINet common stock, as further
described in Note 7. The Company is adjusting the carrying amount of this
liability as required by the forward sale agreement. The carrying amount of this
obligation at December 31, 1999 was $133.9 million.
PREFERRED STOCK: The fair value of the 12 1/2% Exchangeable Preferred Stock
is $435.5 million, and is based on the trading value of this instrument at
December 31, 1999.
47
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
INTEREST RATE RISK MANAGEMENT: Effective with the retirement of the
revolving credit facility and with new debt being assumed by the Parent Company,
the Company is not currently subject to market risk associated with changes in
interest rates. The Company does not hold or issue derivative financial
instruments for trading purposes or enter into interest rate transactions for
speculative purposes.
14. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Lease expense relating to facilities, equipment and transmission capacity
leases, excluding amortization of fiber exchange agreements, was approximately
$146.6 million, $120.5 million and $99.1 million for the years ending
December 31, 1999, 1998, and 1997, respectively.
At December 31, 1999, the total minimum annual rental commitments under
noncancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES CAPITAL LEASES
--------- --------------
MILLIONS OF DOLLARS
<S> <C> <C>
2000.................................................. $ 41.9 $ 6.4
2001.................................................. 29.2 4.1
2002.................................................. 22.5 1.5
2003.................................................. 19.8 .4
2004.................................................. 7.8 --
Thereafter............................................ 10.4 --
------ -----
Total................................................. $131.6 12.4
======
Amount representing interest.......................... 1.1
-----
Present value of net minimum lease payments........... $11.3
=====
</TABLE>
COMMITMENTS
In order to satisfy the contractual commitments that the Company has entered
into with respect to IRU agreements, approximately 1,700 fiber route miles must
be constructed at an approximate cost of $82 million.
CONTINGENCIES
In the normal course of business, the Company is subject to various
regulatory proceedings, lawsuits, claims and other matters. Such matters are
subject to many uncertainties and outcomes are not predictable with assurance.
Certain former members of the Company's board of directors, as well as
Cincinnati Bell Inc., have been named as a defendant in five stockholder class
action suits filed in the Delaware Court of Chancery (the Court). These suits
were filed in July 1999 and pertain to the recently completed merger with
Cincinnati Bell. The complaints allege, among other things, that the defendants
breached their fiduciary duties to the Company's former stockholders by failing
to maximize stockholder value in connection with entering into the Merger
agreement and sought a court order enjoining completion of
48
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the Merger. In an October 27, 1999 ruling, the Court denied plaintiffs' request
for a preliminary injunction. The Merger has since closed and management
believes that the performance of Cincinnati Bell's share price has rendered
plaintiffs' arguments moot. While these suits currently remain outstanding and
subject to further litigation, the Company does not believe any of plaintiffs'
arguments have merit and intends to continue exploring all available options to
bring this matter to a close, including discussions toward a possible
settlement.
A total of twenty-seven Equal Employment Opportunity Commission ("EEOC")
charges were filed beginning in September 1999 by current Broadwing
Telecommunications Inc. employees located in the Houston office (formerly
Coastal Telephone, acquired by the Company in May 1999) alleging sexual
harassment, race discrimination and retaliation. The Company is continuing its
investigation of these charges and is cooperating with the EEOC. Many employee
interviews have been conducted by the EEOC and discovery is ongoing at the
present time.
In the course of closing the Merger, the Company became aware of possible
non-compliance with reporting requirements under certain federal environmental
statutes. Since it was impossible to conduct a thorough investigation of all
facilities within the ten-day period required to take advantage of the
Environmental Protection Agency's (EPA) self-policing policy, the Company, by
letter dated November 8, 1999, elected to voluntarily disclose its possible
non-compliance to the EPA. By letter dated January 19, 2000, the EPA determined
that the "prompt disclosure" requirement of the self-policing policy appears to
have been satisfied and established a deadline of May 1, 2000 for the Company to
complete its environmental audit of its facilities and report any violations to
the Agency. The Company intends to complete its environmental audit of these
facilities within the time frame established by the EPA and take whatever
corrective actions are indicated.
The Company believes that the resolution of such matters for amounts in
excess of those reflected in the consolidated financial statements would not
likely have a materially adverse effect on the Company's financial condition.
15. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance for doubtful accounts and service
credits was as follows (in millions):
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD REVENUE DEDUCTIONS END OF PERIOD
- - ----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Period from November 10 to December 31, 1999..... $45.3 $ 5.1 $14.4 $36.0
- - -------------------------------------------------------------------------------------------------------
Period from January 1 to November 9, 1999........ $16.7 $53.3 $24.7 $45.3
Year ended December 31, 1998..................... $13.1 $55.2 $51.6 $16.7
Year ended December 31, 1997..................... $ 6.4 $20.7 $14.0 $13.1
</TABLE>
16. QUARTERLY RESULTS (UNAUDITED)
The following table presents certain unaudited quarterly financial
information for each quarter in 1998 and 1999. This information was prepared on
the same basis as the audited financial statements appearing elsewhere in this
Form 10-K. The operating results for any quarter are not necessarily indicative
of results for any future period. The Company may experience substantial
fluctuations in
49
<PAGE>
BROADWING COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. QUARTERLY RESULTS (UNAUDITED) (CONTINUED)
quarterly results in the future as a result of various factors, including
customer turnover, price competition and the success of the Company's customers.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------------------------------------- ---------
1999 QUARTER ENDED
1998 QUARTER ENDED -----------------------------------------------------
----------------------------------------- OCT 1- NOV 10-
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30 NOV 9 DEC 31
-------- -------- -------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenue....... $157.6 $ 155.9 $185.3 $169.8 $161.4 $ 157.9 $170.1 $ 78.8 $ 99.0
Operating expenses:
Cost of providing
services.................. 107.9 107.6 110.0 107.8 104.8 108.3 106.4 46.9 60.7
Selling, general and
administrative............ 29.4 30.0 40.1 45.1 51.8 61.0 66.3 31.5 38.1
Depreciation and
amortization.............. 20.2 22.6 34.8 36.0 36.3 39.5 50.7 21.1 46.7
Restructuring............... -- -- -- -- -- 13.1 6.7 -- --
Merger and other infrequent
costs (credits)........... (.1) 7.7 .5 (.1) .1 12.8 1.1 23.9 --
Operating income (loss)... $ .2 $ (12.0) $ -- (19.0) $(31.6) $ (76.8) $(61.1) $(44.6) $(46.5)
Net loss.................. $(17.9) $(102.5) $(15.3) $(26.8) $(42.2) $(114.2) $(69.1) $(55.5) $(45.5)
</TABLE>
17. SEGMENT REPORTING
In accordance with Statement of Financial Accounting Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information", the
Company began reporting its results by operating segment in 1998. Historically,
management has segregated the operations of the Company into three operating
segments: private line, switched long distance, and data and Internet. The
operations of the Company now comprise a single segment and are reported as such
to the Chief Executive Officer of the Parent Company, who functions in the role
of chief operating decision maker for the Company. Accordingly, the Company has
restated segment results for prior periods in order to conform to the current
year presentation of operating segments.
Current and prior year segment information also includes the operations of
Eclipse, which was acquired by the Company in a transaction accounted for as a
pooling of interests.
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company appointed PricewaterhouseCoopers LLP to audit its books of
account and other records for the fiscal year ending December 31, 1999 and
dismissed its previous accountants, Ernst & Young LLP. This action was taken in
connection with the Merger with Cincinnati Bell, and was approved by the
Company's Board of Directors. This action was reported on in a Form 8-K filed by
the Company on November 16, 1999. The Company has had no disagreements with
PricewaterhouseCoopers LLP or Ernst & Young LLP during the periods reported in
these financial statements.
51
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth in the table below are the names, ages (as of March 20, 2000) and
current offices held by all executive officers and the sole director of the
Company.
<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITION WITH COMPANY OFFICER SINCE
- - ---- -------- --------------------- -------------
<S> <C> <C> <C>
Richard G. Ellenberger................ 47 Chief Executive Officer and Director 1999
Richard S. Pontin..................... 46 President and Chief Operations Officer 1999
Kevin W. Mooney....................... 41 Chief Financial Officer 1999
Thomas Schilling...................... 36 Senior Vice President-Finance 1999
Jeffrey C. Smith...................... 48 Chief Legal/Administrative Officer 1997
David A. Torline...................... 50 Chief Information Officer 1999
Mark W. Peterson...................... 45 Treasurer 1999
Thomas E. Taylor...................... 53 Secretary 1999
Dominick J. DeAngelo.................. 57 President, Internet Data Services 1999
</TABLE>
Executive officers of the Company are elected by and serve at the discretion
of the Board. None of the executive officers has any family relationship to any
nominee for director or to any other executive officer of the Company. Set forth
below is a brief description of the business experience for the previous five
years of all non-director executive officers.
RICHARD G. ELLENBERGER, Chief Executive Officer and sole Director of the
Company since November 9, 1999; President and Chief Executive Officer of
Broadwing Inc. since March 1, 1999; Chief Operating Officer of Broadwing Inc.
since September 1, 1998; President and Chief Executive Officer of Cincinnati
Bell Telephone from June 1997 to April 1999; Chief Executive Officer of
XLConnect, 1996-1997; President, Business Services of MCI Telecommunications,
1995-1996; Senior Vice President, Worldwide Sales of MCI Telecommunications,
1994-1995; Senior Vice President, Branch Operations of MCI Telecommunications,
1993-1994; Vice President, Southeast Region of MCI Telecommunications,
1992-1993.
RICHARD S. PONTIN, President and Chief Operating Officer of the Company
since November 1999; President and Chief Operating Officer of Cincinnati Bell
Telephone, April 1999 to November 1999; Vice President, Engineering & Operations
of Nextel Communications, 1997 to 1999; Vice President, National Accounts, MCI
Communications, 1996; Vice President Data Services, MCI Communications,
1994-1996; Vice President, Global Alliances, MCI Communications, 1992-1994.
KEVIN W. MOONEY, Chief Financial Officer of the Company since November 9,
1999; Executive Vice President and Chief Financial Officer of the
Broadwing Inc. since September 1, 1998; Senior Vice President and Chief
Financial Officer of Cincinnati Bell Telephone since January 1998; Vice
President and Controller of Cincinnati Bell Inc., September 1996 to
January 1998; Vice President of Financial Planning and Analysis of Cincinnati
Bell Inc., January 1994 to September 1996; Director of Financial Planning and
Analysis of Cincinnati Bell Inc., 1990-1994.
THOMAS SCHILLING, Senior Vice President of Finance of the Company since
December 1999; Chief Financial Officer of AutoTrader.com from November 1998 to
December, 1999; Managing Director of MCI Systemhouse from March 1997, to
November 1998; Director of Finance from MCI Business Markets Division from
November 1995 to March 1997.
JEFFREY C. SMITH, Chief Legal/Administrative Officer of the Company since
November 1999; Senior Vice President of IXC Communications, Inc. from
September 1997 until November 1999; Vice President, General Counsel and
Secretary of IXC Communications, Inc. from January 1997 until September 1997;
Vice President Planning and Development for Times Mirror Training, a subsidiary
of
52
<PAGE>
Times Mirror, from August 1994 to December 1996. Served in a variety of legal
capacities, including five years as General Counsel to the Baltimore Sun
newspaper and Associate General Counsel and Assistant Secretary at Time Mirror
from 1985 through August 1994.position being. Prior to 1985, employed for seven
years in private law practice as a trial and business attorney.
DAVID A. TORLINE, Chief Information Officer of Broadwing Communications and
Broadwing Inc. since November 1999; Vice President., Information Technology of
Cincinnati Bell Telephone from January 1995 to November 1999; President,
Cincinnati Bell Supply, a subsidiary of Broadwing Inc., from October 1992 to
January 1995; Director, Corporate Development of Cincinnati Bell Inc., from
October 1989 to October 1992.
MARK W. PETERSON, Treasurer of Broadwing Communications Services Inc. and
Vice President and Treasurer of Cincinnati Bell Inc. since March, 1999; Vice
President and Assistant Treasurer of Sprint Corporation since July, 1996; Senior
Advisor of Barents Group LLC, a subsidiary of KPMG Peat Marwick since
August 1994; Vice President-Risk Management of Enron Corporation since
July 1991.
THOMAS E. TAYLOR, General Counsel and Secretary of the Company since
November 9, 1999; General Counsel and Secretary of Broadwing Inc. since
September 1998; Senior Vice President and General Counsel of Cincinnati Bell
Telephone from August 1996 to present; Partner at law firm of Frost & Jacobs
from July 1987 to August 1996.
DOMINICK J. DEANGELO, President, Internet Data Services of Broadwing
Communications Services, Inc. since November 1999; Senior Vice President,
Product Management of IXC Communications from April 1999 until November, 1999;
Senior Vice President, Marketing, Data Products and Services of IXC
Communications, Inc. from July 1998 to April 1999; Vice President, Internet
Services of Sprint Corporation ("Sprint") from January 1997 to May 1998; Vice
President, Data Voice Product Management at Sprint from December 1995 to January
1997; Assistant Vice President, Data Service at Sprint from January 1993 to
December 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Company's
Information Statement to be filed with the Commission within 120 days after
December 31, 1999, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Company's
Information Statement to be filed with the Commission within 120 days after
December 31, 1999, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Company's
Information Statement to be filed with the Commission within 120 days after
December 31, 1999, and is incorporated herein by reference.
53
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Exhibits identified in parenthesis below, on file with the Securities and
Exchange Commission ("Commission") are incorporated herein by reference as
exhibits hereto:
<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 Broadwing Communications Inc., as amended
(incorporated by reference to Exhibit 3.2 of Form 10-Q for
the quarter ended September 30, 1999 and filed on
January 7, 2000, file number 1-5367).
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, Telecom
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")).
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------------------- -----------
<C> <S>
4.6 First Supplemental Indenture dated as of October 23, 1997,
among IXC Communications, Inc., the Guarantors, IXC
International, Inc. and IBJ Shroder 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).
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")).
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------------------- -----------
<C> <S>
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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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>
56
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------------------- -----------
<C> <S>
10.17 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 (incorporated by reference to Exhibit 10.21 of IXC
Communication, Inc.'s Form 10-Q/A for the quarter ended
September 30, 1999 filed with the Commission on
January 7, 2000 (the "January 7, 2000 10-Q/A").
10.18 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
(incorporated by reference to Exhibit 10.22 to the
January 7, 2000 10-Q/A).
10.19 Credit Agreement dates as of November 9, 1999, among
Cincinnati Bell Inc. and IXC Communications Services, Inc.
as Borrowers, Cincinnati Bell Inc. as Parent Guarantor,
the Initial Lenders, Initial Issuing Banks and Swing Line
Banks named therein, Bank of America, N.A. as Syndication
Agent, Citicorp USA, Inc. as Administrative Agent, Credit
Suisse First Boston and The Bank of New York, as
Co-Documentation Agents, PNC Bank, N.A., as Agent and
Salomon Smith Barney Inc. and Banc of America Securities
LLC, as Joint Lead Arrangers (incorporated by reference to
Exhibit 10.1 of Cincinnati Bell Inc.'s Form 8-K dated
November 9, 1999 and filed with the Commission on
November 12, 1999).
10.20 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
Communications Inc.'s Amendment No. 1 to Registration
Statement on S-4 filed with the Commission on
December 15, 1997 (File No. 333-37157).
10.21 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).
10.22 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 of IXC
Communications Inc.'s Form 10-K dated March 26, 1999 and
filed with the Commission on March 31, 1999).
10.23+ Letter regarding termination of employment of Benjamin Scott
dated August 24, 1999.
10.24+ Employment Agreement dated as of November 9, 1999, by and
between Broadwing Communications, Inc. and Dominick J.
DeAngelo.
21.1+ Subsidiaries of Broadwing Communications Inc.
24.1+ Power of Attorney
27.1+ Financial Data Schedule.
</TABLE>
- - ------------------------
+ Filed herewith.
57
<PAGE>
(B) REPORTS ON FORM 8-K.
Form 8-K, date of report October 13, 1999, reporting that certain sections
of the Company's merger agreement with Cincinnati Bell Inc. had been amended in
response to a decision of the Delaware Court of Chancery in the case of Phelps
Dodge Corporation vs. Cyprus Amax Minerals Company. The Company's merger
agreement with Cincinnati Bell Inc. was previously filed in a Form 8-K, date of
report July 26, 1999.
Form 8-K, date of report October 22, 1999, reporting on the Company's
results of operations for the three months ended September 30, 1999.
Form 8-K, date of report October 28, 1999, reporting that the Company and
PSINet Inc. announced an agreement for the Company to provide PSINet with
approximately 14,000 miles of fiber backbone on its coast-to-coast fiber optic
network.
Form 8-K, date of report November 2, 1999, reporting that shareholders of
Cincinnati Bell Inc. and the Company approved proposals clearing the way for
Cincinnati Bell Inc. to acquire the Company.
Form 8-K, date of report November 23, 1999, reporting that the Company's
merger with Cincinnati Bell Inc. was successfully completed on November 9, 1999.
Form 8-K, date of report November 23, 1999 reporting that in connection with
the Company's merger with Cincinnati Bell Inc. that the Company dismissed its
accountants, Ernst & Young LLP and replaced them with PricewaterhouseCoopers
LLP, Cincinnati Bell Inc.'s existing accountants.
58
<PAGE>
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.
<TABLE>
<S> <C> <C>
BROADWING COMMUNICATIONS INC.
March 28, 2000 By /s/ KEVIN W. MOONEY
------------------------------------------
Kevin W. Mooney
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - --------- ----- ----
<C> <S> <C>
/s/ RICHARD G. ELLENBERGER Principal Executive
------------------------------------------- Officer; Chief Executive March 28, 2000
Richard G. Ellenberger Officer and Director
/s/ KEVIN W. MOONEY Chief Financial Officer,
------------------------------------------- Principal Financial and March 28, 2000
Kevin W. Mooney Accounting Officer
</TABLE>
59
<PAGE>
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>
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.
2
<PAGE>
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>
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>
the payment thereof. Each such annual dividend shall be fully cumulative and
shall accrue from day to day (whether or not declared) from the first day of
each period in which such dividend may be payable as herein provided, except
that the first annual dividend with respect to each share of Series Preferred
Stock shall accrue from the Original Issue Date of such share or such other date
as determined by the Board, except that dividends with respect to each share of
Series 3 Preferred Stock shall accrue from August 14, 1992. Dividends, when, as
and if declared, shall be payable in cash.
(b) The holder of each outstanding fractional
share of Series Preferred Stock shall be entitled to a ratably proportionate
amount of all dividends accruing with respect to each outstanding share of
Series Preferred Stock with the same Original Issue Date and all such dividends
with respect to each such outstanding fractional share shall be fully cumulative
and shall accrue (whether or not declared) and shall be payable in the same
manner and at such times as provided for in Section 1(a).
(c) All dividends paid with respect to the
outstanding shares of Series Preferred Stock pursuant to Section 1(a) shall be
paid pro rata to the holders of each class entitled thereto. Each Series 1
Preferred Stock holder's pro rata share of such dividends shall be calculated by
multiplying the total dividends to be paid by the percentage of (i) the
aggregate accrued but unpaid dividends to the date such payment is made on all
issued and outstanding shares of Series 1 Preferred Stock represented by (ii)
the aggregate accrued but unpaid dividends to the date such payment is made on
all shares (including fractional shares) of Series 1 Preferred Stock held by
such holder, and no more. Each Series 3 Preferred Stock holder's pro rata share
of such dividends shall be calculated by multiplying the total dividends to be
paid by the percentage of (i) the aggregate accrued but unpaid dividends to the
date such payment is made on all issued and outstanding shares of Series 3
Preferred Stock represented by (ii) the aggregate accrued but unpaid dividends
to the date such payment is made on all shares (including fractional shares) of
Series 3 Preferred Stock held by such holder, and no more.
2. Liquidation Rights of Series Preferred Stock:
(a) In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the holders
of outstanding shares of Series Preferred Stock shall be entitled to be paid out
of the assets of the Corporation available for distribution to its stockholders,
whether such assets are capital, surplus, or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in respect
of the outstanding shares of any other Preferred Stock of the Corporation or
Common Stock of the Corporation, an amount equal to $1,000 per share of Series
Preferred Stock then outstanding, plus all accrued but unpaid dividends thereon
to the date such payment is actually made, and no more. If upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the assets to be distributed among the holders of the outstanding shares of
Series Preferred Stock shall be insufficient to permit the payment to such
stockholders of the full preferential amounts set forth above, then
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<PAGE>
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>
(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>
(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>
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>
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>
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>
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>
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>
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>
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>
(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>
Preference of such share payable quarterly (each such quarterly period being
herein called a "Dividend Period"). In addition to the dividends described in
the preceding sentence, holders of outstanding shares of Convertible Preferred
Stock which are Transfer Restricted Securities will be entitled to additional
dividends (the "Additional Dividends"), when, as and if declared by the Board of
Directors of the Company, out of funds legally available therefor, with respect
to the shares of Convertible Preferred Stock, which Additional Dividends shall
accrue as follows if any of the following events occur (each such event in
clauses (A) and (B) below being herein called a "Registration Default"): (A) if
by August 31, 1997, the Shelf Registration Statement has not been declared
effective by the Commission; or (B) if after the Shelf Registration Statement is
declared effective (1) the Shelf Registration Statement thereafter ceases to be
effective; or (2) the Shelf Registration Statement or the related prospectus
ceases to be usable (in each case except as permitted below) in connection with
resales of Transfer Restricted Securities in accordance with and during the
periods specified herein because either (I) any event occurs as a result of
which the related prospectus forming part of such Shelf Registration Statement
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or (II) it shall be
necessary to amend such Shelf Registration Statement or supplement the related
prospectus, to comply with the Securities Act or the Exchange Act or the
respective rules thereunder.
Additional Dividends shall accrue on the shares of Convertible Preferred
Stock which are Transfer Restricted Securities from and including the date on
which any such Registration Default shall occur, to but excluding the date on
which all such Registration Defaults have been cured, at a rate of 7 3/4% per
annum.
A Registration Default referred to in clause (B) of paragraph (c)(i) shall be
deemed not to have occurred and be continuing in relation to the Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to the Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be
3
<PAGE>
declared effective to permit Holders to use the related prospectus or (y) other
material events with respect to the Company that would need to be described in
the Shelf Registration Statement or the related prospectus and (ii) in the case
of clause (y), the Company proceeds promptly and in good faith to amend or
supplement the Shelf Registration Statement and related prospectus to describe
such events unless the Company has determined in good faith that there are
material legal or commercial impediments in doing so; provided, however, that in
any case if such Registration Default occurs for a continuous period in excess
of 45 days, Additional Dividends shall be payable in accordance with the
immediately preceding paragraphs of this paragraph (c)(i) from the day such
Registration Default initially occurs until such Registration Default is cured.
Any amounts of Additional Dividends due pursuant to clauses (A) or (B) of
this paragraph (c)(i) or pursuant to the proviso contained in the preceding
sentence will be payable on the regular dividend payment dates with respect to
the Convertible Preferred Stock and on the same terms and conditions and subject
to the same limitations as pertain at such time for the payment of regular
dividends. The amount of Additional Dividends will be determined by multiplying
the applicable Additional Dividends rate by the aggregate liquidation preference
of the outstanding shares of Convertible Preferred Stock, multiplied by a
fraction, the numerator of which is the number of days such Additional Dividend
rate was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months), and the denominator of which is 360.
All dividends on the Convertible Preferred Stock, including Additional
Dividends, to the extent accrued, shall be cumulative, whether or not earned or
declared, on a daily basis from the Issue Date or, in the case of additional
shares of Convertible Preferred Stock issued in payment of a dividend, from the
date of issuance of such additional shares of Convertible Preferred Stock, and
shall be payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each a "Dividend Payment Date"), commencing on June
30, 1997 to holders of record on the March 15, June 15, September 15 and
December 15 immediately preceding the relevant Dividend Payment Date. Any
dividend on the Convertible Preferred Stock payable pursuant to this paragraph
(c)(i) on or prior to March 31, 1999 shall be, at the option of the Company,
payable (1) in cash or (2) through the issuance of a number of additional shares
4
<PAGE>
(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>
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>
(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>
"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
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<PAGE>
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>
(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>
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>
provided, however, that no such special meeting shall be called if the next
annual meeting of stockholders of the Company is to be held within 60 days after
the voting power to elect directors shall have become vested, in which case such
meeting shall be deemed to have been called for such next annual meeting. If
such meeting shall not be called by a proper officer of the Company within 20
days after personal service to the secretary of the Company at its principal
executive offices, then the Holders of record of at least 25% of the outstanding
shares of Convertible Preferred Stock or the holders of 25% of the shares of
Parity Stock upon which like rights have been confirmed and are exercisable may
designate in writing one of their members to call such meeting at the expense of
the Company, and such meeting may be called by the person so designated upon the
notice required for the annual meetings of stockholders of the Company and shall
be held at the place for holding the annual meetings of stockholders. Any holder
of Convertible Preferred Stock or such Parity Stock so designated shall have,
and the Company shall provide, access to the lists of holders of Convertible
Preferred Stock and the holders of such Parity Stock to be called pursuant to
the provisions hereof. If no special meeting of the Holders of Convertible
Preferred Stock and the holders of such Parity Stock is called as provided in
this paragraph (f)(ii), then such meeting shall be deemed to have been called
for the next annual meeting of stockholders of the Company or special meeting of
the holders of any other capital stock of the Company.
(C) At any meeting held for the purposes of electing directors at which the
Holders of Convertible Preferred Stock (together with the holders of Parity
Stock upon which like rights have been conferred and are exercisable) shall have
the right, voting together as a separate class, to elect directors as aforesaid,
the presence in person or by proxy of the holders of at least a majority in
voting power of the outstanding shares of Convertible Preferred Stock (and such
Parity Stock) shall be required to constitute a quorum thereof.
(D) Any vacancy occurring in the office of a director elected by the Holders
of Convertible Preferred Stock (and such Parity Stock) may be filled by the
remaining director elected by the Holders of Convertible Preferred Stock (and
such Parity Stock) unless and until such vacancy shall be filled by the Holders
of Convertible Preferred Stock (and such Parity Stock).
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<PAGE>
(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>
(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>
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.
15
<PAGE>
(iv) The Conversion Price shall be adjusted from time to time by the Company
as follows:
(1) If the Company shall hereafter pay a dividend or make a distribution in
Common Stock to all holders of any outstanding class or series of Common Stock
of the Company, the Conversion Price in effect at the opening of business on the
date following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the Record Date
(as defined in paragraph (g)(iv)(7)) fixed for such determination and the
denominator shall be the sum of such number of outstanding shares and the total
number of shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business on the
day following the Record Date. If any dividend or distribution of the type
described in this paragraph (g)(iv)(i) is declared but not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.
(2) If the Company shall offer or issue rights or warrants to all holders of
its outstanding Common Stock entitling them to subscribe for or purchase Common
Stock at a price per share less than the Current Market Price (as defined in
paragraph (g)(iv)(7)) on the Record Date fixed for the determination of
shareholders entitled to receive such rights or warrants, the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect at the opening of business on the
date after such Record Date by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on the
Record Date plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock subject to such
rights or warrants would purchase at such Current Market Price and of which the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the Record Date plus the total number of additional shares
of Common Stock subject to such
16
<PAGE>
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>
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
18
<PAGE>
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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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
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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
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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
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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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(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
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<PAGE>
"ex" date for such other event shall be adjusted by multiplying such closing
price by the reciprocal of the fraction by which the Conversion Price is so
required to be adjusted as a result of such other event and (C) if the "ex" date
for the issuance or distribution requiring such computation is prior to the day
in question, after taking into account any adjustment required pursuant to
clause (A) or (B) of this proviso, the closing price for each trading day on or
after such "ex" date shall be adjusted by adding thereto the amount of any cash
and the fair market value (as determined by the Board of Directors in a manner
consistent with any determination of such value for purposes of paragraphs
(g)(iv)(4) or (5), whose determination shall be conclusive and described in a
resolution of the Board of Directors) of the evidence of indebtedness, shares of
capital stock or assets being distributed applicable to one Common Stock as of
the close of business on the day before such "ex" date. For purposes of any
computation under paragraph (g)(vi), the Current Market Price on any date shall
be deemed to be the average of the daily closing prices per share of Common
Stock for such day and the next two succeeding trading days; provided, however,
that, if the "ex" date for any event (other than the tender offer requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
paragraph (g)(iv)(1), (2), (3), (4), (5) or (6) occurs on or after the
Expiration Time for the tender or exchange offer requiring such computation and
prior to the day in question, the closing price for each trading day on and
after the "ex" date for such other event shall be adjusted by multiplying such
closing price by the reciprocal of the fraction by which the Conversion Price is
so required to be adjusted as a result of such other event. For purposes of this
paragraph, the term "ex" date (I) when used with respect to any issuance or
distribution, means the first date on which the Common Stock trades regular way
on the relevant exchange or in the relevant market from which the closing price
was obtained without the right to receive such issuance or distribution, (II)
when used with respect to any subdivision or combination of Common Stock, means
the first date on which the Common Stock trades regular way on such exchange or
in such market after the time at which such subdivision or combination becomes
effective and (III) when used with respect to any tender or exchange offer means
the first date on which the Common
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<PAGE>
Stock trades regular way on such exchange or in such market after the
Expiration Time of such offer. Notwithstanding the foregoing, whenever
successive adjustments to the Conversion Price are called for pursuant to this
paragraph (g)(iv), such adjustments shall be made to the Current Market Price as
may be necessary or appropriate to effectuate the intent of this paragraph
(g)(iv) and to avoid unjust or inequitable results, as determined in good faith
by the Board of Directors.
"fair market value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Record Date" shall mean, with respect to any dividend, distribution or other
transaction or event in which the holders of Common Stock have the right to
receive any cash, securities or other property or in which the Common Stock (or
other applicable security) is exchanged for or converted into any combination of
cash, securities or other property, the date fixed for determination of
shareholders entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by statute, contract or
otherwise).
(8) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this paragraph
(g)(iv)(8) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this paragraph
(g)(iv)(8) shall be made by the Company and shall be made to the nearest cent or
to the nearest one-hundredth of a share, as the case may be. No adjustment need
be made for a change in the par value or no par value of the Common Stock.
(9) Whenever the Conversion Price is adjusted as herein provided, the Company
shall promptly file with the Transfer Agent an Officers' Certificate setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Promptly after delivery of
such certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the
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<PAGE>
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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shares of Common Stock of the Company into which such share of Convertible
Preferred Stock might have been converted immediately prior to such
consolidation, merger, conveyance or transfer, assuming such holder of Common
Stock of the Company failed to exercise his rights of election, if any, as to
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer (provided that, if the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer is not the same for each share of
Common Stock of the Company in respect of which such rights of election shall
not have been exercised ("nonelecting share"), then for the purpose of this
paragraph (g)(v) the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer by each
nonelecting share shall be deemed to be the kind and amount so receivable per
share by a plurality of the nonelecting shares). Such securities shall provide
for adjustments which, for events subsequent to the effective date of the
triggering event, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this paragraph (g)(v). The above provisions of this
Section shall similarly apply to successive consolidations, mergers, conveyances
or transfers.
(vi) In case:
(1) the Company shall declare a dividend (or any other distribution) on its
Common Stock payable otherwise than in cash out of its earned surplus; or
(2) the Company shall authorize the granting to all holders of its Common
Stock of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(3) of any reclassification of the Common Stock of the Company (other than a
subdivision or combination of its outstanding Common Stock), or of any
consolidation or merger to which the Company is a party and for which approval
of any shareholders of the Company is required, or the sale or transfer of all
or substantially all the assets of the Company; or
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(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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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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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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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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(H) Cancellation or Adjustment of Global Convertible Preferred Stock. At such
time as all beneficial interests in Global Convertible Preferred Stock have
either been exchanged for Certificated Convertible Preferred Stock, redeemed,
repurchased or canceled, such Global Convertible Preferred Stock shall be
returned to DTC for cancellation or retained and canceled by the Transfer Agent.
At any time prior to such cancellation, if any beneficial interest in Global
Convertible Preferred Stock is exchanged for Certificated Convertible Preferred
Stock, redeemed, repurchased or canceled, the number of shares of Convertible
Preferred Stock represented by such Global Convertible Preferred Stock shall be
reduced and an adjustment shall be made on the books and records of the Transfer
Agent with respect to such Global Convertible Preferred Stock, by the Transfer
Agent or DTC, to reflect such reduction.
(I) Obligations with Respect to Transfers and Exchanges of Convertible
Preferred Stock. (1) To permit registrations of transfers and exchanges, the
Company shall execute and the Transfer Agent shall authenticate Certificated
Convertible Preferred Stock and Global Convertible Preferred Stock as required
pursuant to the provisions of this paragraph (iii).
(2) All Certificated Convertible Preferred Stock and Global Convertible
Preferred Stock issued upon any registration of transfer or exchange of
Certificated Convertible Preferred Stock or Global Convertible Preferred Stock
shall be the valid obligations of the Company, entitled to the same benefits
under this Certificate of Designation as the Certificated Convertible Preferred
Stock or Global Convertible Preferred Stock surrendered upon such registration
of transfer or exchange.
(3) Prior to due presentment for registration of transfer of any shares of
Convertible Preferred Stock, the Transfer Agent and the Company may deem and
treat the person in whose name such shares of Convertible Preferred Stock are
registered as the absolute owner of such Convertible Preferred Stock and neither
the Transfer Agent nor the Company shall be affected by notice to the contrary.
(4) No service charge shall be made to a Holder for any registration of
transfer or exchange upon surrender of any Convertible Preferred Stock
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Certificate at the office of the Transfer Agent maintained for that purpose.
However, the Company may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Convertible Preferred Stock
Certificates.
(5) Upon any sale or transfer of shares of Convertible Preferred Stock
(including any Convertible Preferred Stock represented by a Global Convertible
Preferred Stock Certificate) pursuant to an effective registration statement
under the Securities Act, pursuant to Rule 144 under the Securities Act or
pursuant to an opinion of counsel reasonably satisfactory to the Company that no
legend is required:
(A)in the case of any Certificated Convertible Preferred Stock, the Transfer
Agent shall permit the holder thereof to exchange such Convertible
Preferred Stock for Certificated Convertible Preferred Stock that does not
bear the legend set forth in paragraph (iii)(G) above and rescind any
restriction on the transfer of such Convertible Preferred Stock; and
(B)in the case of any Global Convertible Preferred Stock, such Convertible
Preferred Stock shall not be required to bear the legend set forth in
paragraph (iii)(G) above but shall continue to be subject to the
provisions of paragraph (iii)(D) hereof; provided, however, that with
respect to any request for an exchange of Convertible Preferred Stock that
is represented by Global Convertible Preferred Stock for Certificated
Convertible Preferred Stock that does not bear the legend set forth in
paragraph (iii)(G) above in connection with a sale or transfer thereof
pursuant to Rule 144 (and based upon an opinion of counsel if the Company
so requests), the Holder thereof shall certify in writing to the Transfer
Agent that such request is being made pursuant to Rule 144 (such
certification to be substantially in the form of Exhibit C hereto).
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(iv) Replacement Certificates. If a mutilated Convertible Preferred Stock
certificate is surrendered to the Transfer Agent or if the Holder of a
Convertible Preferred Stock certificate claims that the Convertible Preferred
Stock certificate has been lost, destroyed or wrongfully taken, the Company
shall issue and the Transfer Agent shall countersign a replacement Convertible
Preferred Stock certificate if the reasonable requirements of the Transfer Agent
and of Section 8-405 of the Uniform Commercial Code as in effect in the State of
New York are met. If required by the Transfer Agent or the Company, such Holder
shall furnish an indemnity bond sufficient in the judgment of the Company and
the Transfer Agent to protect the Company and the Transfer Agent from any loss
which either of them may suffer if a Convertible Preferred Stock certificate is
replaced. The Company and the Transfer Agent may charge the Holder for their
expenses in replacing a Convertible Preferred Stock certificate.
(v) Temporary Certificates. Until definitive Convertible Preferred Stock
certificates are ready for delivery, the Company may prepare and the Transfer
Agent shall countersign temporary Convertible Preferred Stock certificates.
Temporary Convertible Preferred Stock certificates shall be substantially in the
form of definitive Convertible Preferred Stock certificates but may have
variations that the Company considers appropriate for temporary Convertible
Preferred Stock certificates. Without unreasonable delay, the Company shall
prepare and the Transfer Agent shall countersign definitive Convertible
Preferred Stock certificates and deliver them in exchange for temporary
Convertible Preferred Stock certificates.
(vi) Cancellation. (A) In the event the Company shall purchase or otherwise
acquire Certificated Convertible Preferred Stock, the same shall thereupon be
delivered to the Transfer Agent for cancellation.
(B) At such time as all beneficial interests in Global Convertible Preferred
Stock have either been exchanged for Certificated Convertible Preferred Stock,
redeemed, repurchased or canceled, such Global Convertible Preferred Stock shall
thereupon be delivered to the Transfer Agent for cancellation.
(C) The Transfer Agent and no one else shall cancel and destroy all
Convertible Preferred Stock certificates surrendered for transfer, exchange,
replacement
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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>
"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>
"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>
"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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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:
Year in which redemption
occurs Percentage
------ ----------
2002.................................. 106.250%
2003.................................. 105.000
2004.................................. 103.750
2005.................................. 102.500
2006.................................. 101.250
2007 and thereafter................... 100.000
(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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
30
Company, (B) make any loans or advances to the Company or (C) transfer any of
its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue
Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this paragraph (l)(iv) or this clause
(3) or contained in any amendment to an agreement referred to in clause
(1) or (2) of this paragraph (l)(iv) or this clause (3); provided,
however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable to the holders of Exchangeable Preferred
Stock than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such predecessor agreements;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
<PAGE>
31
(5) in the case of clause (C) above, restrictions contained in IRU
Agreements, security agreements or mortgages securing Indebtedness or
other obligations of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such
security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(7) any such encumbrance or restriction contained
in the PSINet Agreement.
(v) Limitation on Affiliate Transactions. (A) The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
(1) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (2) the Company delivers to the Transfer
Agent (I) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $1,000,000 a resolution of the Board of Directors set
forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (1) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (II) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $10,000,000, other than transactions with GE Capital
Communication and Excluded PSINet Transactions, an opinion as to the fairness to
the Company or such Restricted Subsidiary of such Affiliate Transaction from a
financial point of view issued by an investment banking firm of national
standing.
<PAGE>
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>
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
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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
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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.
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37
The Transfer Agent shall authenticate and deliver: (1) 300,000
shares of Initial Exchangeable Preferred Stock for original issue and (2)
300,000 shares of Series B Stock for issue only in a Registered Exchange Offer
pursuant to the Registration Rights Agreement, in each case upon a written order
of the Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. In addition, the Transfer
Agent shall authenticate and deliver, from time to time, Additional Shares for
original issue upon order of the Company signed by two Officers or by an Officer
or either an Assistant Treasurer or Assistant Secretary of the Company. Such
orders shall specify the number of shares of Exchangeable Preferred Stock to be
authenticated and the date on which the original issue of Exchangeable Preferred
Stock is to be authenticated and whether the Exchangeable Preferred Stock is to
be Initial Exchangeable Preferred Stock or Series B Stock.
The Transfer Agent may appoint an authenticating agent
reasonably acceptable to the Company to authenticate the Exchangeable Preferred
Stock. Unless limited by the terms of such appointment, an authenticating agent
may authenticate Exchangeable Preferred Stock whenever the Transfer Agent may do
so. Each reference in this Certificate of Designation to authentication by the
Transfer Agent includes authentication by such agent. An authenticating agent
has the same rights as the Transfer Agent or agent for service of notices and
demands.
(iii) Transfer and Exchange. (A) Transfer and Exchange of
Certificated Exchangeable Preferred Stock. When Certificated Exchangeable
Preferred Stock is presented to the Transfer Agent with a request to register
the transfer of such Certificated Exchangeable Preferred Stock or to exchange
such Certificated Exchangeable Preferred Stock for an equal number of shares of
Certificated Exchangeable Preferred Stock of other authorized denominations, the
Transfer Agent shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the
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38
Certificated Exchangeable Preferred Stock surrendered for transfer or exchange:
(1) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Transfer
Agent, duly executed by the Holder thereof or its attorney duly authorized
in writing; and
(2) in the case of Transfer Restricted Securities that are
Certificated Exchangeable Preferred Stock, are being transferred or
exchanged pursuant to an effective registration statement under the
Securities Act or pursuant to clause (I) or (II) below, and are
accompanied by the following additional information and documents, as
applicable:
(I) if such Transfer Restricted Securities are being delivered
to the Transfer Agent by a Holder for registration in the name of
such Holder, without transfer, a certification from such Holder to
that effect in substantially the form of Exhibit B hereto; or
(II) if such Transfer Restricted Securities are being
transferred to the Company or to a "qualified institutional buyer"
("QIB") in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with Rule
144 or Regulation S under the Securities Act, a certification to
that effect (in
substantially the form of Exhibit B hereto).
(B) Restrictions on Transfer of Certificated Exchangeable
Preferred Stock for a Beneficial Interest in Global Exchangeable Preferred
Stock. Certificated Exchangeable Preferred Stock may not be exchanged for a
beneficial interest in Global Exchangeable Preferred Stock except upon
satisfaction of the requirements set forth below. Upon receipt by the Transfer
Agent of Certificated Exchangeable Preferred Stock, duly endorsed or accompanied
<PAGE>
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>
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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60
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends) of such Subsidiary (which will constitute Indebtedness
Incurred by such Subsidiary and not Indebtedness Incurred by such Person);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indebtedness to Operating Cash Flow Ratio" means, as of any date of
determination, the ratio of (a) the aggregate principal amount of all
outstanding Indebtedness of a Person and its Restricted Subsidiaries as of such
date on a consolidated basis, plus the aggregate liquidation preference of all
outstanding Preferred Stock of the Restricted Subsidiaries of such Person as of
such date (excluding any such Preferred Stock held by such Person or a Wholly
Owned Restricted Subsidiary of such Person), plus the
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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
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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.
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"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).
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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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
4
By:
Name:
Title:
[Seal]
By:
Name:
Title:
<PAGE>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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.
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<PAGE>
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>
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:
REDEMPTION
YEAR RATE
- - ---- -------
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%
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>
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>
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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<PAGE>
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
-7-
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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:*
<PAGE>
*
----- (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.)
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<PAGE>
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
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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.
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<PAGE>
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.
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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>
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
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<PAGE>
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
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<PAGE>
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>
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>
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>
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>
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:
Name State of Incorporation
---- ----------------------
IXC Merger Sub, Inc. Delaware
IXC Communications, Inc. Delaware
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>
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>
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>
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:
Name State of Incorporation
---- ----------------------
Ivory Merger Inc. Delaware
IXC Communications, Inc. Delaware
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>
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
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF MERGER OF
IXC COMMUNICATIONS, INC.
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. A Certificate of Merger was filed with the Secretary of State of the State
of Delaware on November 9, 1999 at 11:01 a.m. which contains an inaccurate
record of the corporate action taken therein, and said Certificate of
Merger requires correction as permitted by subsection (f) of Section 103
of the General Corporation Law of the State of Delaware.
3. The inaccuracy in said Certificate of Merger is as follows:
The amendment to the Restated Certificate of Incorporation of IXC
Communications, Inc. provided for in Paragraph Fourth of said Certificate of
Merger (i) refers to an amendment to the first sentence of Article FOURTH of the
Restated Certificate of Incorporation rather than an amendment to the second
sentence of Paragraph A of Article FOURTH of the Restated Certificate of
Incorporation and (ii) fails to delete Paragraph C of said Article FOURTH.
4. Paragraph Fourth of the Certificate of Merger is corrected to read as
follows:
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 (a) the second sentence of Paragraph A
of Article FOURTH thereof reads in its entirety 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) shares of preferred stock, par
value $.01 per share" and (b) Paragraph C of said Article FOURTH is deleted,
and, as so amended, such Restated Certificate of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
IXC Communications, Inc. has caused this Certificate of Correction to be signed
by its authorized officer this 19th day of November, 1999.
By: Thomas E. Taylor
Name: Thomas E. Taylor
Title: Vice President of Communications
<PAGE>
SIXTH 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 Richard G. Ellenberger is the duly elected and acting
Chief Executive Officer of IXC Communications, Inc., a
Delaware corporation (the "Corporation").
2. Article FIRST of the Restated Certificate of Incorporation of
the Corporation is amended to read in full as follows: "FIRST:
The name of the corporation is "Broadwing Communications Inc."
(the "Corporation")."
3. This Sixth Amendment to the Restated Certificate of
Incorporation has been duly adopted and approved in accordance
with the applicable provisions of Sections 228 and 342 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Richard G. Ellenberger, its Chief Executive Officer this 12th day of
January, 2000.
IXC COMMUNICATIONS, INC.
By: /s/ Richard G. Ellenberger
--------------------------
Richard G. Ellenberger,
Chief Executive Officer
<PAGE>
EXHIBIT 3.2
BYLAWS OF BROADWING 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 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.
<PAGE>
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 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
2
<PAGE>
do all such lawful acts and things as are 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 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 or organization
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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 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
meting, a majority of the
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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. DIRECTOR'S 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.
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 a person at such meeting.
ARTICLE III
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COMMITTEES OF THE BOARD
SECTION 3.01. APPOINTMENT OF EXECUTIVE COMMITTEE. The Board of Directors
may form 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 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.
SECITON 3.03. POWERS OF THE 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 require it, except that the Executive Committee shall not have
power or authority in reference to:
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(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 replacing any resolution of the Board of Directors which
by its terms is not so amendable or repealable.
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 or
third parities 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
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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.
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 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
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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 this 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 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.
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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 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 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 of the Secretary of the corporation shall prescribe.
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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; and, in general, perform all the duties
incident to the officer 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 at the Board of Directors of 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 authorized by these Bylaws, no officer or
agent or employee shall have
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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 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
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Chairman of the Board or 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 cancellation, the date of cancellation. 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 officer 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 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
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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 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
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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 of the 31st day of December in
each year unless changed by resolution of the Board of Directors.
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
complete action, suit or proceeding in which such person was or is a party or is
threatened to be made 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 Bylaws,
agreement, vote of the stockholders or disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions in 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
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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, 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 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
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AMENDMENTS
Any Bylaw (including these Bylaws) may be adopted, amended or replaced by
the Board of Directors in any manner not inconsistent with the laws of the State
of Delaware or the Certificate of Incorporation.
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Exhibit 10.23
[IXC COMMUNICATIONS, INC. LETTERHEAD]
August 24, 1999
Benjamin L. Scott
16009 Fontaine Avenue
Austin, TX 78734
Re: Termination of Employment
Dear Ben:
This letter agreement (the "Agreement") will memorialize our agreement
concerning the termination of your employment with IXC Communications, Inc. (the
"Company"). By this letter, the Company and you agree that your employment will
terminate as of the close of business on November 30, 1999 (the "Effective
Date"), and that the termination will be a termination without "Cause" for the
purposes of the Employment Agreement dated as of September 9, 1997 (the
"Employment Agreement") and the Non-Qualified Stock Option Agreement dated as of
October 9, 1997 (the "Original Option Agreement").
Until the Effective Date, you will continue to receive your base
compensation under Section 2.1(b) of your Employment Agreement and your benefits
under Section 2.2 of the Employment Agreement. You will be paid for 17 unused
but accrued vacation days through May 27, 1999 and agree to use on or before the
Effective Date all vacation days from May 27, 1999 through the Effective Date
which would otherwise accrue.
You hereby cancel the options to purchase 94,800 shares of Company stock
granted to you pursuant to a Non-Qualified Stock Option Agreement dated October
7, 1998 and such options are now canceled, null and void and of no further force
and effect. You also waive any rights to receive any additional options to
purchase shares of Company stock.
You confirm that certain economic interests in Storm Telecommunications,
Inc. and/or its subsidiaries and controlled affiliates, including an interest
under a phantom stock plan, were received in connection with your employment
with the Company and that all such interests belong to the Company. You further
agree to execute any documentation the Company reasonably requests in order to
effect a transfer of such interests to the Company.
As a material inducement to each party to enter into this Agreement, each
party (the "releasing party") hereby irrevocably and unconditionally releases,
acquits and forever discharges the other and each of the other's (as applicable)
past, present and future owners, stockholders, predecessors, successors,
assigns, agents, insurers, directors, officers, employees, representatives,
attorneys, parents, divisions, subsidiaries, affiliates (and agents, insurers,
directors, officers,
<PAGE>
Benjamin L. Scott
August 24, 1999
Page 2
employees, representatives and attorneys of such parent companies, divisions,
subsidiaries and affiliates), and all persons acting by, through, under or in
concert with any of them (collectively hereinafter referred to as "Releasees"),
from any and all charges, complaints, claims, liabilities, obligations,
promises, agreements, controversies, expenses (including attorneys' fees and
costs actually incurred) of any nature whatsoever, known or unknown, suspected
or unsuspected (collectively, "Claims"), including, but not limited to, any
Claims arising out of alleged violations of any contracts, express or implied,
any covenant of good faith and fair dealing, express or implied, any obligation
for compensation, lost wages, lost benefits, unused accrued vacation or any
other expectation of remuneration or benefit, including but not limited to, any
tort or any legal restrictions on the right to terminate employees, or any
federal state or other governmental statute, regulation or ordinance which the
releasing party now has, owns or holds, or claims to have, own or hold, or which
the releasing party at any time heretofore had, owned or held, or claimed to
have had, owned or held, against each or any of the Releasees. The foregoing
notwithstanding, nothing in this Agreement shall be construed to constitute a
release by the Company or you of any claim for breach by the other party of any
provision of this Agreement.
Nothing in this Agreement shall affect your right to receive severance
benefits under Section 2.6(a)(i) of the Employment Agreement, your rights under
Section 2.6(d) of the Employment Agreement or your rights under Section 4.1 of
the Employment Agreement. Nothing in this Agreement shall affect any of your
rights to any vested benefits, including, without limitation, under the
Company's 401(k) plan. Nothing in this Agreement shall amend or modify the terms
of Section 2.4 of the Employment Agreement, except you expressly waive your
rights under Section 2.4 (g) of the Employment Agreement. The Company hereby
acknowledges that, pursuant to the original terms of Section 2.4(e) of the
Employment Agreement and Section 3(d)(i) of the Original Option Agreement, the
termination of your employment will cause all the stock options to purchase
500,000 shares granted to you under your Employment Agreement and the Original
Option Agreement to be immediately exercisable (that is, they all "vest").
Nothing in this Agreement shall affect any of the indemnification rights which
you may have as an officer, former officer, director, or former director of the
Company under the Company's by laws, certified of incorporation or applicable
law.
The parties acknowledge that they may discover facts different from, or in
addition to, those which are known or believed to be true concerning the matters
on which this Agreement is based and agree that this Agreement shall be and
remain effective notwithstanding any different or additional facts. It is the
intent of the parties hereto to fully settle and discharge all claims which now
exist, may exist or have existed. The parties therefore expressly relinquish and
waive all rights that they have, may have or may claim to have under any statute
of any jurisdiction similar in nature to California Civil Code Section 1542,
which reads:
<PAGE>
Benjamin L. Scott
August 24, 1999
Page 3
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
This Agreement shall not in any way be construed as an admission by any
party that such party has acted wrongfully with respect to any other party or
other person, or that any party has any rights whatsoever against any other
party or other person, and each party specifically disclaims any liability to,
or wrongful acts against, the other party or any other person on the part of
such party, or on the part of such party's officers, employees or agents, or
such party's affiliated or related entities or their officers, employees or
agents.
The Company and you each acknowledges having had an opportunity to receive
advice of counsel with regard to the decision to execute this Agreement and has
carefully read and considered this Agreement and fully understands the extent
and impact of its provisions, and has executed this Agreement voluntarily and
without coercion, undue influence, threats or intimidation of any kind or type
whatsoever.
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but which together shall constitute one and the same
instrument.
Please execute this letter below and return the originals to me to
indicate your agreement to, and acceptance of, the foregoing.
Very truly yours,
IXC COMMUNICATIONS, INC.
By:_______________________________
Its:______________________________
ACCEPTED AND AGREED TO: __________________________________
BENJAMIN L. SCOTT
<PAGE>
Exhibit 10.24
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Broadwing
Communications Services Inc. ("Emplolyer"), and Dominick J. DeAngelo
("Employee"). For purposes of this Agreement, the "Effective Date" is November
9, 1999.
Employer and Employee agree as follows:
1. Employment. By this Agreement, Employer and Employee set forth the terms of
Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer
are canceled as of the Effective Date.
2. Term of Agreement. The term of this Agreement initially shall be the one year
period commencing on the Effective Date. On the first anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. Duties.
A. Employee will serve as President-National Data Market or in such
other equivalent capacity as may be designated by the Chief Executive Officer of
Employer. Employee will report to the President - Broadwing Communications
Services Inc. or to such other officer as the Chief Executive of Employer may
direct.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of Section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties, consistent with the
provisions of Section 3.A, as are reasonably assigned to Employee by the
President - Broadwing Communications Services Inc.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places as
are necessary in the performance of Employee's duties.
<PAGE>
4. Compensation.
A. Employee shall receive a base salary (the "Base Salary") of at least
$245,100 per year, payable not less than frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $122,550, subject
to proration for a partial year for each year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. Expenses. All reasonable and necessary expenses incurred by Employee in the
course of the performance of Employee's duties to Employer shall be reimbursable
in accordance with Employer's then current travel and expense policies.
6. Benefits.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, which are made available to
similarly situated officers of Employer.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 200,000 common shares of Employer under Employer's 1997 Long Term
Incentive Plan. In each year of this Agreement after 1999, Employee will be
granted stock options under Employer's 1997 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
7. Confidentiality. Employer and its Affiliates are engaged in the
telecommunications industry within the U.S. Employee acknowledges that in the
course of employment with the Employer, Employee will be entrusted with or
obtain access to information proprietary to the Employer and its Affiliates with
respect to the following (all of which information is referred to hereinafter
collectively as the "Information"); the organization and management of Employer
and its Affiliates; the names, addresses, buying habits, and other special
information regarding
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<PAGE>
past, present and potential customers, employees and suppliers of Employer and
its Affiliates; customer and supplier contracts and transactions or price lists
of Employer, it Affiliates and their suppliers; products, services, programs and
processes sold, licensed or developed by the Employer or its Affiliates;
technical data, plans and specifications, present and/or future development
projects of Employer and its Affiliates; financial and/or marketing data
respecting the conduct of the present or future phases of business of Employer
and its Affiliates; computer programs, systems and/or software; ideas,
inventions, trademarks, business information, know-how, processes, improvements,
designs, redesigns, discoveries and developments of Employer and its Affiliates;
and other information considered confidential by any of the Employer, its
Affiliates or customers or suppliers of Employer, its Affiliates. Employee
agrees to retain the Information in absolute confidence and not to disclose the
Information to any person or organization except as required in the performance
of Employee's duties for Employer, without the express written consent of
Employer; provided that Employee's obligation of confidentiality shall not
extend to any Information which becomes generally available to the public other
than as a result of disclosure by Employee.
8. New Developments. All ideas, inventions, discoveries, concepts, trademarks,
or other developments or improvements, whether patentable or not, conceived by
the Employee, alone or with others, at any time during the term of Employee's
employment, whether or not during working hours or on Employer's premises, which
are within the scope of or related to the business operations of Employer or its
Affiliates ("New Developments"), shall be and remain the exclusive property of
Employer. Employee shall do all things reasonably necessary to ensure ownership
of such New Developments by Employer, including the execution of documents
assigning and transferring to Employer, all of Employee's rights, title and
interest in and to such New Developments, and the execution of all documents
required to enable Employer to file and obtain patents, trademarks, and
copyrights in the United States and foreign countries on any of such New
Developments.
9. Surrender of Material Upon Termination. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee will immediately surrender to Employer all of the property
and other things of value in his possession or in the possession of any person
or entity under Employee's control that are the property of Employer or any of
its Affiliates, including without any limitation all personal notes, drawings,
manuals, documents, photographs, or the like, including copies and derivatives
thereof, relating directly or indirectly to any confidential information or
materials or New Developments, or relating directly or indirectly to the
business of Employer or any of its Affiliates.
10. Remedies.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its
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<PAGE>
Affiliates herein are of a special, unique and extraordinary character, and that
the breach of any provision of this Agreement by Employee will cause Employer
irreparable injury and damage, and consequently the Employer shall be entitled
to, in addition to all other remedies available to it, injunctive and equitable
relief to prevent a breach of Sections 7, 8, 9, 11 and 12 of this Agreement and
to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A, the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9
U.S.C.ss. 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitation
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the Employment
Dispute Resolution Rules of the American Arbitration Association ("AAA") except
to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA rules
and the requirements that Employee must pay a filing fee for which the Employer
has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of a
Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel. Each
party will have 10 days from the transmittal date in which to strike up to two
names, number the remaining names in order of preference and return the list to
the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and will
set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
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<PAGE>
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist and
affirmative relief, compensatory, liquidated and punitive damages and reasonable
attorney's fees, and will not include reinstatement or promotion. If the
arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary benefit
each derives from arbitration is avoiding the delay and costs normally
associated with litigation. Therefore, neither party will be entitled to conduct
any discovery prior to the arbitration hearing except that: (i) Employer will
furnish Employee with copies of all non-privileged documents in Employee's
personnel file; (ii) if the claim is for discharge, Employee will furnish
Employer with records of earnings and benefits relating to Employee's subsequent
employment (including self-employment) and all documents relating to Employee's
efforts to obtain subsequent employment; (iii) the parties will exchange copies
of all documents they intend to introduce as evidence at the arbitration hearing
at least 10 days prior to such hearing; (iv) Employee will be allowed (at
Employee's expenses) to take the depositions, for a period not to exceed four
hours each, of two representatives of Employer, and Employer will be allowed (at
its expense) to depose Employee for a period not to exceed four hours; and (v)
Employer or Employee may ask the arbitrator to grant additional discovery to the
extent permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is to
use the deposition in lieu of the witness testifying at the hearing and the
witness is, in good faith, unavailable to testify in person at the hearing due
to poor health, residency and employment more than 50 miles from the hearing
site, conflicting travel plans or other comparable reason.
(j) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits herein
will be considered a waiver and release by that party with respect to any claim
subject to arbitration under this Agreement.
(k) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(l) Except as provided in Section 10.A., neither party will
commence or pursue any litigation on any claim that is or was subject to
arbitration under this Agreement.
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<PAGE>
(m) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. Covenant Not to Compete. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the one year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venture, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee in any business activity in
competition with Employer. This restriction will be limited to the geographical
area where Employer is then engaged in such competing business activity or to
such other geographical area as a court shall find reasonably necessary to
protect the goodwill and business of the Employer.
During the one-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee f Employer and that Employee will not divert or
change, or attempt to divert or change, any such relationship to the detriment
of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the one-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not , without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year f Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
12. Goodwill. Employee will not disparage Employer or any of its Affiliates in
any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally, or
with any of their customers, suppliers or employees. Employer will not disparage
Employee.
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<PAGE>
13. Termination.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans/), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating party
to the other.
(iii) Upon termination of this Agreement on account of
Terminating disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death of the
Employee, provided, however, that the Employee's estate shall be paid Employee's
accrued compensation hereunder, whether Base Salary, Bonus or otherwise, to the
date of death.
C. Employer may terminate this Agreement immediately, upon written notice to
Employee, for Cause. For purposes of this Agreement, Employer shall have "Cause"
to terminate this Agreement only if Employer's Board of Directors determines
that there has been fraud, misappropriation or embezzlement on the part of
Employee.
D. Employer may terminate this Agreement immediately, upon written notice to
Employee, for any reason other than those set forth in Sections 13.A., B. and
C.; provided, however, that Employer shall have no right to terminate under this
Section 13.D. within one year after a Change in Control. In the event of a
termination by Employer under this Section 13.D., Employer shall, within five
days after the termination, pay Employee an amount equal to one times the sum of
the annual Base Salary rate in effect at the time of termination plus the Bonus
target in effect at the time of termination. For the remainder of the Current
Term, Employer
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<PAGE>
shall continue to provide Employee with medical, dental, vision and life
insurance coverage comparable to the medical, dental, vision and life insurance
coverage in effect for Employee immediately prior to the termination; and, to
the extent that Employee would have been eligible for any post-retirement
medical, dental, vision or life insurance benefits from Employer if Employee had
continued in employment through the end of the Current Term, Employer shall
provide such post-retirement benefits to Employee after the end of the Current
Term. For purposes of any stock option or restricted stock grant outstanding
immediately prior to the termination, Employee's employment with Employer shall
not be deemed to have terminated until the end of the Current Term. In addition,
Employee shall be entitled to receive, as soon as practicable after termination,
an amount equal to the sum of (i) any forfeitable benefits under any qualified
or nonqualified pension, profit sharing, 401(k) or deferred compensation plan of
Employer or any Affiliate which would have vested prior to the end of the
Current Term if Employee's employment had not terminated plus (ii) if Employee
is participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end of
the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the one year period beginning at the time of
termination. For purposes of this Section 13.D. and Section 13.E., "Change in
Control" means a change in control as defined in Employer's 1997 Long Term
Incentive Plan.
E. This Agreement shall terminate automatically in the event that there
is a Change in Control and Employee's employment with Employer is actually or
constructively terminated by Employer within one year after the Change in
Control for any reason other than those set forth in Sections 13.A., B. and C.
For purposes of the preceding sentence, a "constructive" termination of
Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to one times the sum of the annual Base Salary rate in effect at the time
of termination plus the Bonus target in effect at the time of termination, all
stock options shall become immediately exercisable (and Employee shall be
afforded the opportunity to exercise them). For the remainder of the Current
Term, Employer shall continue to provide Employee with medical, dental, vision
and life insurance coverage comparable to the medical, dental, vision and life
insurance coverage in effect for Employee immediately prior to the termination;
and, to the extent that Employee would have been eligible for any
post-retirement medical, dental, vision or life insurance benefits from Employer
if Employee had continued in employment through the end of the Current Term,
Employer shall provide such post-retirement benefits to Employee after the end
of the Current Term. Employee's accrued benefit under any nonqualified pension
or deferred compensation plan maintained by Employer or any Affiliate shall
become immediately
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<PAGE>
vested and nonforfeitable and Employee also shall be entitled to receive a
payment equal to the sum of (i) any forfeitable benefits under any qualified
pension or profit sharing or 40l(k) plan maintained by Employer or any Affiliate
plus (ii) if Employee is participating in a qualified or nonqualified defined
benefit plan of Employer or any Affiliate at the time of termination, an amount
equal to the present value of the additional benefits which would have accrued
for Employee under such plan if Employee's employment had not terminated prior
to the end of the Current Term and if Employee's annual Base Salary and Bonus
target had neither increased nor decreased after the termination. Finally, to
the extent that Employee is deemed to have received an excess parachute payment
by reason of the Change in Control, Employer shall pay Employee an additional
sum sufficient to pay (i) any taxes imposed under section 4999 of the code plus
(ii) any federal, state and local taxes applicable to any taxes imposed under
section 4999 of the Code. For purposes of this Section 13.E., "Current Term"
means the one year period beginning at the time of termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus earned for the year preceding the
year in which the termination occurs and any nonforfeitable amounts payable
under any employee plan), all further compensation under this Agreement shall
terminate.
H. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. Assignment. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights and
duties of Employee arising under this Agreement, and the Agreement itself, are
non-assignable by Employee.
15. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, and if delivered personally or by certified
mail to Employee at Employee's place of residence as then recorded on the books
of Employer or to Employer at its principal office.
16. Waiver. No waiver or modification of this Agreement or the terms contained
herein shall be valid unless in writing and duly executed by the party to be
charged therewith. The waiver by
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<PAGE>
any party hereto of a breach of any provision of this Agreement by the other
party shall not operate or be construed as a waiver of any subsequent breach by
such party.
17. Governing Law. This agreement shall be governed by the laws of the State of
Ohio.
18. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no other
contracts, agreements or understandings, whether oral or written, existing
between them except as contained or referred to in this Agreement.
19. Severability. In case any one or more of the provisions of this Agreement is
held to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or other enforceability shall not affect any other provisions
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provisions have never been contained herein.
20. Successors and Assigns. Subject to the requirements of Paragraph 14 above,
this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. Confidentiality of Agreement Terms. The terms of this Agreement shall be
held in strict confidence by Employee and shall not be disclosed by Employee to
anyone other than Employee's spouse, Employee's legal counsel, and Employee's
other advisors, unless required by law. Further, except as provided in the
preceding sentence, Employee shall not reveal the existence of this Agreement or
discuss its terms with any person (including but not limited to any employee of
Employer or its Affiliates) without the express authorization of the President
of Employer. To the extent that the terms of this Agreement have been disclosed
by Employer, in a public filing or otherwise, the confidentiality requirements
of this Section 21 shall no longer apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
IXC Communications, Inc.
Chief Executive Officer
By: /s/Richard G. Ellenberger
Richard G. Ellenberger
EMPLOYEE
/s/Dominick J. DeAngelo
Dominick J. DeAngelo
<PAGE>
Subsidiaries of the Registrant
(as of February 29, 2000)
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation
- - ---------- -------------
<S> <C>
Broadwing Communications Inc. Delaware
(formerly IXC Communications, Inc.)
Broadwing Communications Services Inc. Delaware
(formerly IXC Communications Services, Inc.)
Broadwing Telecommunications Inc. Delaware
(formerly Eclipse Telecommunications, Inc.)
Atlantic States Microwave Transmission Company Nevada
Broadwing Communications Services of Virginia Inc. Virginia
(formerly IXC Communications Services of Virginia, Inc.)
Central States Microwave Transmission Company Ohio
<PAGE>
Subsidiaries of the Registrant (continued)
(as of February 29, 2000)
Delaware Capital Provisioning, Inc. Delaware
DPNET, Inc. Delaware
Eastern Telecom of Washington D.C., Inc. Virginia
IXC Business Services LLC Delaware
IXC International, Inc. Delaware
IXC Internet Services, Inc. Delaware
IXC Leasing LLC Delaware
IXC Merger Sub, Inc. Delaware
Mutual Signal Corp. New York
Mutual Signal Corporation of Michigan New York
Mutual Signal Holding Corporation Delaware
Network Advanced Services, Inc. Louisiana
Network Evolutions, Inc. Virginia
Progress International, LLC Texas
Rio Grande Transmission, Inc. Delaware
Telecom Engineering, Inc. Texas
The Data Place, Inc. Delaware
Tower Communication System Corp. Ohio
West Texas Microwave Company Texas
Western States Microwave Transmission Company Nevada
Marca Tel S.A. de C.V. Mexico
</TABLE>
<PAGE>
POWER OF ATTORNEY
WHEREAS, Broadwing Communications Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is an officer and a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of March, 2000.
/s/ Richard G. Ellenberger
--------------------------
Richard G. Ellenberger
Officer and Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 28th day of March, 2000, personally appeared before me Richard
G. Ellenberger, to me known and known to me to be the person described in and
who executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 28th day of March, 2000.
/s/ Susan McClarnon
--------------------------
Notary Public
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