<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)*
DIGITAL LIGHTWAVE, INC.
- --------------------------------------------------------------------------------
(NAME OF ISSUER)
Common Stock, $.0001 par value
- --------------------------------------------------------------------------------
(TITLE OF CLASS OF SECURITIES)
253855 10 0
- --------------------------------------------------------------------------------
(CUSIP NUMBER)
Robert E. Freitas, Esq.
Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS)
February 9, 2000
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(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
(Continued on following pages)
- ---------------------------
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect for the subject class of securities and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the act (however, see the
Notes).
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CUSIP NO. SCHEDULE
253855 10 0 13D
- --------------------
---------------------------------------------------------------------
(1) NAMES OF REPORTING PERSONS Dr. Bryan J. Zwan
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [ ]
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS PF
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(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS [ ]
IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION United States
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NUMBER OF SHARES (7) SOLE VOTING POWER 18,441,750
(Subject to the Memorandum of Understanding
described in Item 4(d). 3,365,000 of which
shares are subject to forward sale agreements
and pledge agreements. See Item 4(a). 2,000,000
of which shares are subject to a legal dispute.
See Item 6.)
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OWNED (8) SHARED VOTING POWER 0
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BY EACH REPORTING (9) SOLE DISPOSITIVE POWER 18,441,750
(3,365,000 of which shares are subject to a
forward sale agreements and pledge agreements.
See Item 4(a). 2,000,000 of which shares are
subject to a legal dispute. See Item 6.)
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PERSON WITH (10) SHARED DISPOSITIVE POWER 0
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(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 18,441,750
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(12) CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 68.3%
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(14) TYPE OF REPORTING PERSON IN
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2
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CUSIP NO. SCHEDULE
253855 10 0 13D
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(1) NAMES OF REPORTING PERSONS ZG Nevada Limited Partnership
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [ ]
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS OO
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(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS [ ]
IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION Nevada
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NUMBER OF SHARES (7) SOLE VOTING POWER 15,441,750
(Subject to the Memorandum of Understanding
described in Item 4(d). 2,365,000 of which
shares are subject to forward sale agreements
and pledge agreements. See Item 4(a).)
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OWNED (8) SHARED VOTING POWER 0
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BY EACH REPORTING (9) SOLE DISPOSITIVE POWER 15,441,750
(2,365,000 of which shares
are subject to forward sale
agreements and pledge agreements.
See Item 4(a).)
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PERSON WITH (10) SHARED DISPOSITIVE POWER 0
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(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 15,441,750
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(12) CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 57.2%
---------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON PN
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3
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CUSIP NO. SCHEDULE
253855 10 0 13D
- --------------------
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(1) NAMES OF REPORTING PERSONS ZG Nevada, Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
---------------------------------------------------------------------
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [ ]
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS 00
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(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS [ ]
IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION Nevada
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NUMBER OF SHARES (7) SOLE VOTING POWER 15,441,750
(Subject to the Memorandum of Understanding
described in Item 4(d). 2,365,000 of which
shares are subject to forward sale agreements
and pledge agreements. See Item 4(a).)
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OWNED (8) SHARED VOTING POWER 0
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BY EACH REPORTING (9) SOLE DISPOSITIVE POWER 15,441,750
(2,365,000 of which shares are
subject to forward sales agreements
and pledge agreements. See Item 4(a).)
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PERSON WITH (10) SHARED DISPOSITIVE POWER 0
--------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 15,441,750
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(12) CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 57.2%
---------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON CO
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4
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ITEM 1. SECURITY AND ISSUER
-------------------
This Amendment No. 2 to Schedule 13D ("Amendment") relates to the Common
Stock, $.0001 par value per share ("Common Stock") of Digital Lightwave, Inc.
(the "Issuer"). The principal executive offices of the Issuer are located at
15550 Lightwave Drive, Clearwater, Florida, 33760.
ITEM 2. IDENTITY AND BACKGROUND
-----------------------
(A, B, C AND F) This Amendment is being filed by (i) Dr. Bryan J. Zwan,
(ii) ZG Nevada Limited Partnership, a limited partnership formed under the laws
of the State of Nevada ("ZG Partnership") and (iii) ZG Nevada, Inc. a Nevada
corporation ("ZG Inc."). ZG Inc. is the sole general partner of ZG Partnership
and Dr. Zwan is the sole limited partner of ZG Partnership. Dr. Zwan is the sole
shareholder and executive officer of ZG Inc. Dr. Zwan and Monte L. Miller are
the directors of ZG Inc.
Dr. Zwan's address is c/o Orrick, Herrington & Sutcliffe LLP, 1020
Marsh Road, Menlo Park, California 94025, Attn: Robert E. Freitas, Esq. Dr.
Zwan's principal occupation is corporate director and investor. Dr. Zwan is a
United States citizen. The principal business of ZG Partnership is investing.
The principal office of ZG Partnership is Suite 850, 101 Convention Center
Drive, Las Vegas, Nevada 89109. The principal business of ZG Inc. is investing.
The principal office of ZG Inc. is Suite 850, 101 Convention Center Drive, Las
Vegas, Nevada 89109. Mr. Miller is the President of Nevada Holding Services,
Inc., a corporate service provider. Mr. Miller's address is Suite 850, 101
Convention Center Drive, Las Vegas, Nevada 89109. Mr. Miller is a United States
citizen.
(D AND E) During the last five years, none of Dr. Zwan, ZG Partnership,
ZG Inc. nor Mr. Miller has been (i) convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors); or (ii) was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities law or finding any violation
with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
-------------------------------------------------
Not Applicable
5
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ITEM 4. PURPOSE OF THE TRANSACTION
--------------------------
(a)(A) On December 8, 1999, Dr. Zwan entered into a forward sale
agreement (the "Zwan Agreement") relating to up to 1,000,000 shares
(the "Base Amount") of Common Stock. The Zwan Agreement provides that
Dr. Zwan will deliver on December 8, 2004 (the "Maturity Date") a
number of shares of Common Stock (or, at the option of Dr. Zwan, the
cash equivalent of such shares) equal to the product of (1) the Base
Amount and (2) the Exchange Rate, which will be determined as follows:
(i) If the average closing price (the "Maturity Price")
of the Common Stock on the 20 trading days beginning
30 trading days prior to the Maturity Date is less
than or equal to $31.5505 (the "Issue Price"), the
Exchange Rate will be one;
(ii) If the Maturity Price is greater than the Issue Price
but less than $37.8606 (the "Threshold Price"), the
Exchange Rate will be equal to the Issue Price
divided by the Maturity Price; and
(iii) If the Maturity Price is equal to or greater than the
Threshold Price, the Exchange Rate will be .8333.
Pursuant to the Zwan Agreement, Dr. Zwan received a purchase price
of $23,790,580. In connection with the Zwan Agreement, Dr. Zwan entered
into the Pledge Agreement dated December 8, 1999 among Dr. Zwan, CSFB
SAILS Corp. and Credit Suisse First Boston Corporation. Up to 1,000,000
shares of the Common Stock beneficially owned by Dr. Zwan are subject
to this pledge agreement. See Item 7 below.
(B) On February 9, 2000, ZG Partnership entered into a binding term
sheet outlining the terms of forward sale arrangements with respect to
1,500,000 shares of Common Stock. On March 1, 2000, ZG Partnership
entered into a forward sale agreement ("Agreement I") relating to up to
750,000 shares (the "Base Amount") of Common Stock. Agreement I
provides that ZG Partnership will deliver on March 1, 2005 (the
"Maturity Date") a number of shares of Common Stock (or, at the option
of ZG Partnership, the cash equivalent of such shares) equal to
the product of (i) the Base Amount and (ii) the Exchange Rate, which
will be determined as follows:
(a) If the average closing price (the "Maturity Price") of
the Common Stock on the 20 trading days beginning 30
trading days prior to the Maturity Date is less than or
equal to $63.095 (the "Issue Price"), the Exchange Rate
will be one;
(b) If the Maturity Price is greater than the Issue Price but
less than $75.714 (the "Threshold Price"), the Exchange
Rate will be equal to the Issue Price divided by the
Maturity Price; and
(a) If the Maturity Price is equal to or greater than the
Threshold Price, the Exchange Rate will be .8333.
In consideration therefor, ZG Partnership received a purchase price of
$36,535,854.00. In connection with Agreement I, ZG Partnership entered
into the Pledge Agreement dated March 1, 2000 among ZG Partnership,
CSFB SAILS Corp. and Credit Suisse First Boston Corporation. Up to
750,000 shares are subject to this pledge agreement. See Item 7 below.
6
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(C) On February 9, 2000, ZG Partnership entered into a binding term
sheet outlining the terms of forward sale arrangements with respect to
1,500,000 shares of Common Stock. On March 1, 2000, ZG Partnership
entered into a forward sale agreement ("Agreement II") relating to up
to 750,000 shares (the "Base Amount") of Common Stock. Agreement II
provides that ZG Partnership will deliver on March 1, 2003 (the
"Maturity Date") a number of shares of Common Stock (or, at the option
of ZG Partnership, the cash equivalent of such shares) equal to the
product of (i) the Base Amount and (ii) the Exchange Rate, which will
be determined as follows:
(a) If the average closing price (the "Maturity Price") of
the Common Stock on the 20 trading days beginning 30
trading days prior to the Maturity Date is less than or
equal to $64.39 (the "Issue Price"), the Exchange Rate
will be one;
(b) If the Maturity Price is greater than the Issue Price
but less than $77.268 (the "Threshold Price"), the
Exchange Rate will be equal to the Issue Price divided
by the Maturity Price; and
(c) If the Maturity Price is equal to or greater than the
Threshold Price, the Exchange Rate will be .8333.
In consideration therefor, ZG Partnership received a purchase price of
$38,152,131.00. In connection with Agreement II, ZG Partnership entered
into the Pledge Agreement dated March 1, 2000 among ZG Partnership,
CSFB SAILS Corp. and Credit Suisse First Boston Corporation. Up to
750,000 shares are subject to this pledge agreement. See Item 7 below.
(D) On February 28, 2000, ZG Partnership entered into a binding term
sheet outlining the terms of forward sale arrangements with respect to
865,000 shares of Common Stock. On March 8, 2000, ZG Partnership entered
into a forward sale agreement ("Agreement III") relating to up to
865,000 shares (the "Base Amount") of Common Stock. Agreement III
provides that ZG Partnership will deliver on March 8, 2005 (the
"Maturity Date") a number of shares of Common Stock (or, at the option
of ZG Partnership, the cash equivalent of such shares) equal to the
product of (i) the Base Amount and (ii) the Exchange Rate, which will be
determined as follows:
(a) If the average closing price (the "Maturity Price") of
the Common Stock on the 20 trading days beginning 30
trading days prior to the Maturity Date is less than or
equal to $84.1243 (the "Issue Price"), the Exchange Rate
will be one;
(b) If the Maturity Price is greater than the Issue Price but
less than $100.9491 (the "Threshold Price"), the Exchange
Rate will be equal to the Issue Price divided by the
Maturity Price; and
(c) If the Maturity Price is equal to or greater than the
Threshold Price, the Exchange Rate will be .8333.
In consideration therefor, ZG Partnership received a purchase price of
$56,497,953.00. In connection with Agreement III, ZG Partnership
entered into the Pledge Agreement dated March 8, 2000 among ZG
Partnership, CSFB SAILS Corp. and Credit Suisse First Boston
Corporation. Up to 865,000 shares are subject to this pledge agreement.
See Item 7 below.
Except as noted above with respect to the shares of Common Stock, none
of Dr. Zwan, ZG Partnership nor ZG Inc. presently has any plans or
proposals that relate to or would result in the acquisition by any
person of additional securities of the Issuer, or the disposition of
securities of the Issuer (See Item 6);
(b) None of Dr. Zwan, ZG Partnership nor ZG Inc. presently has any
plans or proposals that relate to or would result in an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving the Issuer or any of its subsidiaries;
(c) None of Dr. Zwan, ZG Partnership nor ZG Inc. presently has any
plans or proposals that relate to or would result in a sale or transfer
of a material amount of assets of the Issuer or of any of its
subsidiaries;
7
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(d) On October 14, 1999, the Issuer and Dr. Zwan, the Issuer's majority
stockholder and a director, entered into a Memorandum of Understanding
pursuant to which the parties agreed, among other things, that (i) the
size of the board of directors will be increased from four to five
members, (ii) two new outside directors will be appointed to the board
of directors upon the approval of Dr. Zwan and a majority of the
current board of directors, (iii) Mr. William Seifert, a current
outside director, will step down, (iv) Dr. Zwan shall vote his shares
of Common Stock at the Issuer's annual meeting in the year 2000 in
favor of the election of Messrs. Hamilton, Chastelet and Zwan and the
new directors if appointed prior to the year 2000 meeting, and (v) the
Issuer will enter into agreements containing provisions with respect
to change of control, severance and non-compete with current senior
management.
Except as noted above in this subsection (d), none of Dr. Zwan, ZG
Partnership nor ZG Inc. presently has any plans or proposals that
relate to or would result in any change in the present board of
directors or management of the Issuer, including any plans or proposals
to change the number or term of directors or to fill any existing
vacancies on the board;
(e) None of Dr. Zwan, ZG Partnership nor ZG Inc. presently has any
plans or proposals that relate to or would result in any material
change in the present capitalization or dividend policy of the Issuer;
(f) None of Dr. Zwan, ZG Partnership nor ZG Inc. presently has any
plans or proposals that relate to or would result in any material
change in the Issuer's business or corporate structure;
(g) None of Dr. Zwan, ZG Partnership nor ZG Inc. presently has any
plans or proposals that relate to or would result in any change in the
Issuer's charter, bylaws or instruments corresponding thereto or other
actions which may impede the acquisition of control of the Issuer by
any person;
(h) None of Dr. Zwan, ZG Partnership nor ZG Inc. presently has any
plans or proposals that relate to or would cause a class of securities
of the Issuer to be delisted from a national securities exchange or to
cease to be authorized to be quoted in the inter-dealer quotation
system of a registered national securities association;
(i) None of Dr. Zwan, ZG Partnership nor ZG Inc. presently has any
plans or proposals that relate to or would cause a class of equity
securities of the Issuer to become eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities Act of
1933, as amended;
(j) Except as set forth above, none of Dr. Zwan, ZG Partnership nor ZG
Inc. presently has any plans or proposals that relate to any action
similar to any of those enumerated above.
8
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To the knowledge of Dr. Zwan, ZG Partnership and ZG Inc., Mr. Miller
has no plans or proposals relating to any of the foregoing.
ITEM 5. INTEREST IN SECURITIES OF ISSUER
--------------------------------
(a) Dr. Zwan may be deemed to be the beneficial owner of 18,441,750
shares (including the 3,365,000 shares of Common Stock subject to the forward
sale agreements and pledge agreements described in Item 4 (a) above and
2,000,000 shares of Common Stock subject to a legal dispute described in Item 6
below) or 68.3% of the outstanding shares of Common Stock (based on the Issuer's
Form 10-Q for the quarter ended September 30, 1999). Each of ZG Partnership and
ZG Inc. may be deemed to be the beneficial owner of 15,441,750 shares or 57.2%
of the outstanding shares of Common Stock of the Issuer (including the
2,365,000 shares of Common Stock subject to forward sale agreements and pledge
agreements described in Item 4(a) above).
To the knowledge of Dr. Zwan, ZG Inc. and ZG Partnership, Mr. Miller
does not beneficially own any securities of the Issuer.
(b) Number of shares as to which such Reporting Person has:
(i) Sole power to vote or direct the vote:
Dr. Zwan has sole power to vote or direct the vote of
18,441,750 shares of Common Stock. (Subject to the
Memorandum of Understanding. See Item 4(d) above. In
addition, 3,365,000 of such shares are subject to the
forward sale agreements and the pledge agreements
described in Item 4(a) above and 2,000,000 of
such shares are subject to a legal dispute described
in Item 6 below). Each of ZG Partnership and ZG
Inc. has sole power to vote or direct the vote of
15,441,750 shares of Common Stock. (Subject to the
Memorandum of Understanding. See Item 4(d) above.)
In addition, 2,365,000 shares of Common Stock are
subject to forward sale agreements and pledge
agreements described in Item 4(a) above
(ii) Shared power to vote or direct the vote:
Not applicable.
(iii) Sole power to dispose or to direct the disposition
of:
Dr. Zwan has the sole power to dispose or to direct
the disposition of 18,441,750 shares of Common Stock
(3,365,000 of such shares are subject to the forward
sale agreements and the pledge agreements described
in Item 4(a) above and 2,000,000 of such shares are
subject to a legal dispute described in Item 6
below). Each of ZG Partners and ZG Inc. has sole
power to dispose or direct the disposition of
15,441,750 shares of Common Stock (including the
2,365,000 shares of Common Stock subject to forward
sale agreements and pledge agreements described in
item 4(a)above).
(iv) Shared power to dispose or to direct the disposition
of:
Not applicable.
9
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(c) Transactions not previously reported on Schedule 13D:
As described in clauses (B), (C) and (D) of Item 4(a) above, ZG
Partnership entered into binding term sheets outlining the terms of forward sale
arrangements and thereafter ZG Partnership entered into forward sale agreements
and pledge agreements with respect to an aggregate of 2,365,000 shares of Common
Stock. See Item 4(a) above.
Pursuant to Rule 144 of the Securities Act of 1933, as amended,
ZG Partnership also made the following sales in the open market:
<TABLE>
<CAPTION>
Transaction Date Securities Disposed of Price Per Share
<S> <C> <C>
February 22, 2000 500,000 $71.2875
February 23, 2000 50,000 $80.00
</TABLE>
Pursuant to Rule 144 of the Securities Act of 1933, as amended, The
Bryan J. and June B. Zwan Foundation, Inc. (the "Foundation") sold 37,500 shares
of Common Stock on February 22, 2000 at a price of $68.25 per share. Dr. Zwan
and his spouse are directors of the Foundation. The Foundation has three
directors.
(d) Except as described in Item 4(a) and in this Item 5, no other
person is known to Dr. Zwan, ZG Partnership or ZG Inc. to have the right to
receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, any shares of Common Stock beneficially owned by Dr. Zwan, ZG
Partnership or ZG Inc.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERTAKINGS OR RELATIONSHIPS WITH RESPECT TO
----------------------------------------------------------------------
SECURITIES OF THE ISSUER.
-------------------------
Term Sheets
On February 9, 2000, ZG Partnership entered into a binding term sheet
outlining the terms of forward sale arrangements with respect to 1,500,000
shares of Common Stock.
On February 28, 2000, ZG Partnership entered into a binding term sheet
outlining the terms of forward sale arrangements with respect to 865,000 shares
of Common Stock.
Forward Sale Agreements
On December 8, 1999, Dr. Zwan entered into the Zwan Agreement relating
to up to 1,000,000 shares of Common Stock, as described in Item 4(a) above.
On March 1, 2000, ZG Partnership entered into Agreement I and Agreement
II relating to up to 750,000 and 750,000 shares of Common Stock, respectively,
as described in item 4(a) above.
On March 8, 2000, ZG Partnership entered into Agreement III relating to
up to 865,000 shares of Common Stock, as described in item 4(a) above.
10
<PAGE> 11
Pledge Agreements
On December 8, 1999, Dr. Zwan entered into the Pledge Agreement in
favor of CSFB SAILS Corp. to secure the performance by Dr. Zwan of his
obligations under the Agreement. Up to 1,000,000 shares of the Common Stock
beneficially owned by Dr. Zwan are subject to the Pledge Agreement. See Item 7
below.
On March 1, 2000, ZG Partnership entered into a Pledge Agreement in
favor of CSFB SAILS Corp. to secure the performance by ZG Partnership of its
obligations under Agreement I. Up to 750,000 shares of Common Stock beneficially
owned by ZG Partnership are subject to this pledge agreement. See Item 4(a)
above and Item 7 below.
On March 1, 2000, ZG Partnership entered into a Pledge Agreement in
favor of CSFB SAILS Corp. to secure the performance by ZG Partnership of its
obligations under Agreement II. Up to 750,000 shares of Common Stock
beneficially owned by ZG Partnership are subject to this pledge agreement. See
Item 4(a) above and Item 7 below.
On March 8, 2000, ZG Partnership entered into a Pledge Agreement in
favor of CSFB SAILS Corp. to secure the performance by ZG Partnership of its
obligations under Agreement III. Up to 865,000 shares of Common Stock
beneficially owned by ZG Partnership are subject to this pledge agreement. See
Item 4(a) above and Item 7 below.
Legal Dispute
Up to 2,000,000 shares of Common Stock beneficially owned by Dr. Zwan
are subject to a legal dispute between Dr. Zwan and H. Brian Haney and HBH
Assets, Ltd. over the validity of an option which if valid could entitle HBH
Assets, Ltd., as assignee, to purchase such shares upon exercise of the option
during the option term.
Dr. Zwan believes that the disputed option is invalid and believes
that Mr. Haney's and HBH Assets' claims are without merit. Dr. Zwan has
defended, and intends to continue to vigorously defend, against the claims in
the legal dispute. However, in the event H. Brian Haney and HBH Assets, Ltd.
prevailed on their claims in the legal dispute and if the court made an order
for specific performance of the disputed option, HBH Assets, Ltd., as
assignee, could exercise the option for some or all of such 2,000,000 shares
of Common Stock.
Memorandum of Understanding
See Item 4(d) above.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
--------------------------------
The following documents are filed as exhibits hereto:
1. Joint Filing Agreement between Bryan J. Zwan, ZG Nevada Limited
Partnership and ZG Nevada, Inc.
2. SAILS Mandatorily Exchangeable Securities Contract, dated as of
December 8, 1999, among Bryan J. Zwan, CSFB SAILS Corp. and Credit Suisse First
Boston Corporation. Incorporated by reference to Dr. Zwan's, ZG Partnership's
and ZG Inc.'s Amendment No. 1 to Schedule 13D filed on January 11, 2000.
3. SAILS Pledge Agreement dated December 8, 1999 among Bryan J. Zwan,
CSFB SAILS Corp. and Credit Suisse First Boston Corporation. Incorporated by
reference to Dr. Zwan's, ZG Partnership's and ZG Inc.'s Amendment No. 1 to
Schedule 13D filed on January 11, 2000.
4. Memorandum of Understanding dated October 14, 1999 by and between
Digital Lightwave, Inc. and Bryan J. Zwan. Incorporated by reference to Dr.
Zwan's, ZG Partnership's and ZG Inc.'s Amendment No. 1 to Schedule 13D filed on
January 11, 2000.
5. SAILS Mandatorily Exchangeable Securities Contract, dated as of
March 1, 2000, among ZG Nevada Limited Partnership, CSFB SAILS Corp. and Credit
Suisse First Boston Corporation ("Agreement I").
6. SAILS Pledge Agreement, dated as of March 1, 2000, among ZG
Nevada Limited Partnership, CSFB SAILS Corp. and Credit Suisse First Boston
Corporation.
7. SAILS Mandatorily Exchangeable Securities Contract, dated as of
March 1, 2000, among ZG Nevada Limited Partnership, CSFB SAILS Corp. and Credit
Suisse First Boston Corporation ("Agreement II").
8. SAILS Pledge Agreement, dated as of March 1, 2000, among ZG Nevada
Limited Partnership, CSFB SAILS Corp. and Credit Suisse First Boston
Corporation.
9. SAILS Mandatorily Exchangeable Securities Contract, dated as of
March 8, 2000, among ZG Nevada Limited Partnership, CSFB SAILS Corp. and Credit
Suisse First Boston Corporation ("Agreement III").
10. SAILS Pledge Agreement, dated as of March 8, 2000, among ZG
Nevada Limited Partnership, CFSB SAILS Corp. and Credit Suisse First Boston
Corporation.
11
<PAGE> 12
After reasonable inquiry and to the best of the undersigned's knowledge
and belief, the undersigned hereby certify that the information set forth in
this statement is true, complete and correct.
Dated: March 9, 2000 BRYAN J. ZWAN.
By: /s/ Bryan J. Zwan
-------------------------------
Name: Bryan J. Zwan
Dated: March 9, 2000 ZG NEVADA LIMITED PARTNERSHIP
By: ZG Nevada, Inc., as
General Partner
By: /s/ Bryan J. Zwan
-------------------------------
Name: Bryan J. Zwan
Title: President
Dated: March 9, 2000 ZG NEVADA, INC.
By: /s/ Bryan J. Zwan
-------------------------------
Name: Bryan J. Zwan
Title: President
12
<PAGE> 13
EXHIBIT INDEX
---------------
Exhibit
Sequentially
Numbered Page
---------------
1. Joint Filing Agreement between Bryan J. Zwan, ZG
Nevada Limited Partnership and ZG Nevada, Inc.
2. SAILS Mandatorily Exchangeable Securities Contract,
dated as of December 8, 1999, among Bryan J. Zwan,
CSFB SAILS Corp. and Credit Suisse First Boston
Corporation. Incorporated by reference to Dr.
Zwan's, ZG Partnership's and ZG Inc.'s Amendment No. 1
to Schedule 13D filed on January 11, 2000.
3. SAILS Pledge Agreement dated as of December 8, 1999,
among Bryan J. Zwan, CSFB SAILS Corp. and Credit
Suisse First Boston Corporation. Incorporated by reference
to Dr. Zwan's, ZG Partnership's and ZG Inc.'s
Amendment No. 1 to Schedule 13D filed on January 11, 2000.
4. Memorandum of Understanding dated October 14, 1999 by
and between Digital Lightwave, Inc. and Bryan J.
Zwan. Incorporated by reference to Dr. Zwan's, ZG
Partnership's and ZG Inc.'s Amendment No. 1
to Schedule 13D filed on January 11, 2000.
5. SAILS Mandatorily Exchangeable Securities Contract,
dated as of March 1, 2000, among ZG Nevada Limited Partnership,
CSFB SAILS Corp. and Credit Suisse First Boston
Corporation.
6. SAILS Pledge Agreement, dated as of March 1, 2000,
among ZG Nevada Limited Partnership, CSFB SAILS Corp.
and Credit Suisse First Boston Corporation.
7. SAILS Mandatorily Exchangeable Securities Contract,
dated as of March 1, 2000, among ZG Nevada Limited
Partnership, CSFB SAILS Corp. and Credit Suisse
First Boston Corporation.
8. SAILS Pledge Agreement, dated as of March 1, 2000,
among ZG Nevada Limited Partnership, CSFB SAILS Corp.
and Credit Suisse First Boston Corporation.
9. SAILS Mandatorily Exchangeable Securities Contract,
dated as of March 8, 2000, among ZG Nevada Limited
Partnership, CSFB SAILS Corp. and Credit Suisse
First Boston Corporation.
10. SAILS Pledge Agreement, dated as of March 8, 2000,
among ZG Nevada Limited Partnership, CSFB SAILS Corp.
and Credit Suisse First Boston Corporation.
13
<PAGE> 1
Exhibit 1
JOINT FILING AGREEMENT
----------------------
In accordance with Rule 13d-1(k) under the Securities Exchange Act of
1934, as amended, the persons named below agree to the joint filing on behalf of
each of them of the Amendment No. 2 to Schedule 13D to which this Agreement is
an exhibit (and any further amendment filed by them) with respect to the shares
of Common Stock, $.0001 par value, of Digital Lightwave, Inc.
This agreement may be executed simultaneously in any number of
counterparts, all of which together shall constitute one and the same
instrument.
Dated: March 9, 2000 BRYAN J. ZWAN.
By: /s/ Bryan J. Zwan
-------------------------------
Name: Bryan J. Zwan
Dated: March 9, 2000 ZG NEVADA LIMITED PARTNERSHIP
By: ZG Nevada, Inc., as
General Partner
By: /s/ Bryan J. Zwan
-------------------------------
Name: Bryan J. Zwan
Title: President
Dated: March 9, 2000 ZG NEVADA, INC.
By: /s/ Bryan J. Zwan
-------------------------------
Name: Bryan J. Zwan
Title: President
<PAGE> 1
EXHIBIT 5
SAILS MANDATORILY EXCHANGEABLE SECURITIES CONTRACT
dated as of
March 1, 2000
among
ZG NEVADA LIMITED PARTNERSHIP,
CSFB SAILS CORP.
and
CREDIT SUISSE FIRST BOSTON CORPORATION, as Agent
<PAGE> 2
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions ............................................... 1
ARTICLE 2
SALE AND PURCHASE
SECTION 2.01. Sale and Purchase ......................................... 6
SECTION 2.02. Purchase Price ............................................ 6
SECTION 2.03. Payment for and Delivery of Contract Shares ............... 6
SECTION 2.04. Cash Settlement Option .................................... 7
ARTICLE 3
TERMINATION BY SELLER
SECTION 3.01. Termination by Seller ..................................... 7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 4.01. Representations and Warranties of Seller .................. 8
ARTICLE 5
CONDITIONS TO BUYER'S OBLIGATIONS
SECTION 5.01. Conditions ................................................ 11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 6
COVENANTS
SECTION 6.01. Taxes ....................................................... 12
SECTION 6.02. Forward Contract ............................................ 12
SECTION 6.03. Notices ..................................................... 12
SECTION 6.04. Further Assurances .......................................... 13
SECTION 6.05. Securities Contract ......................................... 13
ARTICLE 7
ADJUSTMENTS
SECTION 7.01. Dilution Adjustments ........................................ 13
SECTION 7.02. Reorganization Events ....................................... 15
SECTION 7.03. Provisions Relating to Reorganization Events and Spin-Offs .. 16
SECTION 7.04. Termination and Payment ..................................... 16
ARTICLE 8
ACCELERATION
SECTION 8.01. Acceleration ................................................ 17
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices ..................................................... 19
SECTION 9.02. Governing Law; Submission to Jurisdiction; Severability;
Waiver of Jury Trial; Service of Process .................. 19
SECTION 9.03. Confidentiality ............................................. 20
SECTION 9.04. Entire Agreement ............................................ 21
SECTION 9.05. Amendments, Waivers ......................................... 21
SECTION 9.06. No Third Party Rights, Successors and Assigns ............... 21
SECTION 9.07. Calculation Agent ........................................... 21
SECTION 9.08. Set-off ..................................................... 22
SECTION 9.09. Matters Related to Credit Suisse First Boston Corporation,
as Agent .................................................. 22
SECTION 9.10. Counterparts ................................................ 23
SECTION 9.11. Limited Recourse ............................................ 23
</TABLE>
ii
<PAGE> 4
SAILS MANDATORILY EXCHANGEABLE SECURITIES CONTRACT
THIS AGREEMENT is made as of this 1st day of March, 2000 among ZG
NEVADA LIMITED PARTNERSHIP ("SELLER"), a Nevada limited partnership, CREDIT
SUISSE FIRST BOSTON CORPORATION, as agent (the "AGENT") hereunder, and CSFB
SAILS CORP. ("BUYER").
WHEREAS, Seller owns shares of common stock, par value $0.0001 per share,
of Digital Lightwave, Inc., a Delaware corporation (the "ISSUER"), or security
entitlements in respect thereof (the "COMMON STOCK");
WHEREAS, Seller has agreed, pursuant to the Pledge Agreement (as defined
herein), to grant Buyer a security interest in certain shares of Common Stock to
secure the obligations of Seller hereunder;
WHEREAS, Seller and Buyer are willing to sell and purchase such shares of
Common Stock at the time and on the terms set forth herein;
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby mutually
covenant and agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. As used herein, the following words and phrases
shall have the following meanings:
"ACCELERATION AMOUNT" has the meaning provided in Section 8.01.
"ACCELERATION AMOUNT NOTICE" has the meaning provided in Section 8.01.
"ACCELERATION DATE" has the meaning provided in Section 8.01.
"ACCELERATION DELIVERY DATE" has the meaning provided in Section 8.01.
"ACCELERATION EVENT" has the meaning provided in Section 8.01.
"ACQUIRING CORPORATION" has the meaning provided in Section 7.02.
<PAGE> 5
"BANKRUPTCY CODE" has the meaning provided in Section 6.05.
"BASE AMOUNT" has the meaning provided in Section 2.01.
"BUSINESS DAY" means any day on which commercial banks are open for
business in New York City.
"CALCULATION AGENT" means Credit Suisse Financial Products.
"CASH SETTLEMENT AMOUNT" means an amount of cash equal to the product of
the Maturity Price and the number of shares of Common Stock equal to the product
of (i) the Base Amount and (ii) the Exchange Rate.
"CLOSING PRICE" of any security on any date of determination means the
closing sale price (or, if no closing sale price is reported, the last reported
sale price) of such security on the Exchange for the regular trading session on
such date or, if such security is not listed on a national securities exchange
or quoted on a national automated quotation system, the last quoted bid price
for such security in the over-the-counter market for the regular trading session
for such date, as reported by the National Quotation Bureau or similar
organization, or, if such bid price is not available, the market value of such
security on such date as determined by the Calculation Agent.
"COLLATERAL ACCOUNT" has the meaning provided in the Pledge Agreement.
"CONTRACT SHARE AMOUNT" has the meaning provided in Section 2.03(b).
"CONTRACT SHARES" has the meaning provided in Section 2.03(b).
"CUSTODIAN" has the meaning provided in the Pledge Agreement.
"EXCHANGE" means, at any time, the principal national securities exchange
or automated quotation system, if any, on which the Common Stock is listed or
quoted at such time.
"EXCHANGE BUSINESS DAY" means any day that is (or, but for the occurrence
of a Market Disruption Event, would have been) a trading day on the Exchange,
other than a day on which trading on the Exchange is scheduled to close prior to
its regular weekday closing time.
"EXCHANGE RATE" has the meaning provided in Section 2.03(c).
2
<PAGE> 6
"FREE STOCK" means Common Stock that is not subject to any Transfer
Restrictions (other than Transfer Restrictions arising solely from the fact that
Seller is an "affiliate", within the meaning of Rule 144 under the Securities
Act, of the Issuer) in the hands of Seller immediately prior to delivery to
Buyer hereunder and would not upon delivery to Buyer be subject to any Transfer
Restrictions in the hands of Buyer.
"GENERAL PARTNER" means ZG Nevada, Inc., a Nevada corporation.
"ISSUE PRICE" has the meaning provided in Section 2.03(c).
"LIEN" means any lien, mortgage, security interest, pledge, charge or
encumbrance of any kind.
"LIMITED PARTNER" means Bryan J. Zwan.
"MARKET DISRUPTION EVENT" means the occurrence or the existence on any
Exchange Business Day during the one-half hour period ending at the close of the
regular trading session on the relevant exchange of any suspension of or
limitation in trading (by reason of movements in price exceeding limits
permitted by the relevant exchange or otherwise) in the Common Stock or in
listed options on the Common Stock, if any, if, in the determination of the
Calculation Agent, such suspension or limitation is material.
"MARKET VALUE" means, as of any date with respect to any share of Common
Stock, the Closing Price per share of Common Stock for the Exchange Business Day
prior to such date.
"MARKETABLE SECURITIES" means shares of common stock of a Publicly-Traded
Entity that are not subject to any Transfer Restrictions.
"MATURITY DATE" means March 1, 2003.
"MATURITY PRICE" means the average of the Closing Prices per share of the
Common Stock on the 20 Trading Days beginning 30 Exchange Business Days
immediately prior to the Maturity Date; provided that if there are not 20
Trading Days during the period beginning 30 Exchange Business Days immediately
prior to the Maturity Date and ending on the Exchange Business Day immediately
prior to the Maturity Date, the Maturity Price shall be the market value of one
share of Common Stock during such period as determined by the Calculation Agent.
"NEW COMMON STOCK" has the meaning provided in Section 7.01(c).
3
<PAGE> 7
"NON-STOCK CONSIDERATION" has the meaning provided in Section 7.02.
"OPTIONAL TERMINATION DATE" has the meaning provided in Section 3.01.
"ORGANIZATIONAL DOCUMENTS" means the Certificate of Limited Partnership of
Seller and the Amended and Restated Agreement of Limited Partnership of Seller
dated as of December 24, 1997 between the General Partner and the Limited
Partner, as amended from time to time.
"ORIGINAL COMMON STOCK" has the meaning provided in Section 7.01(c).
"PAYMENT DATE" has the meaning provided in Section 2.03(a).
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLEDGE AGREEMENT" means the SAILS Pledge Agreement dated as of the date
hereof among Seller, Buyer and the Agent, as amended from time to time.
"POTENTIAL ADJUSTMENT EVENT" has the meaning provided in Section 7.01.
"PUBLICLY-TRADED ENTITY" means an Acquiring Corporation or a surviving or
continuing corporation of the Issuer (or any successor) following a
Reorganization Event, or a corporation the capital stock of which is distributed
in a Spin-Off, the common stock of which is traded on any national securities
exchange or automatic interdealer quotation system in the United States;
provided that in the case of a Reorganization Event, the product of (i) the
Closing Price per share of common stock of such Acquiring Corporation or such
surviving or continuing corporation, as the case may be, on the Exchange
Business Day immediately succeeding such Reorganization Event multiplied by (ii)
the number of shares of such corporation's common stock held by non-affiliates
of such corporation shall not be less than the product of (A) the Closing Price
per share of Common Stock on the Exchange Business Day immediately preceding
such Reorganization Event and (B) the number of shares of Common Stock held by
non-affiliates of the Issuer.
"PURCHASE PRICE" has the meaning provided in Section 2.02.
"REORGANIZATION EVENT" has the meaning provided in Section 7.02.
"REORGANIZATION TERMINATION DATE" has the meaning provided in Section
7.02.
4
<PAGE> 8
"REPLACEMENT VALUE" has the meaning provided in Section 8.01.
"SECURED PARTY" has the meaning provided in the Pledge Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPIN-OFF" has the meaning provided in Section 7.01.
"TERMINATION AMOUNT NOTICE" has the meaning provided in Section 7.04.
"THRESHOLD PRICE" has the meaning provided in Section 2.03(c).
"TRADING DAY" is defined as any Exchange Business Day on which there is
not a Market Disruption Event.
"TRANSFER RESTRICTION" means, with respect to any share of Common Stock or
item of collateral pledged under the Pledge Agreement, any condition to or
restriction on the ability of the holder thereof to sell, assign or otherwise
transfer such share of Common Stock or item of collateral or to enforce the
provisions thereof or of any document related thereto whether set forth in such
item of collateral itself or in any document related thereto, including, without
limitation, (i) any requirement that any sale, assignment or other transfer or
enforcement of such share of Common Stock or item of collateral be consented to
or approved by any Person, including, without limitation, the issuer thereof or
any other obligor thereon, (ii) any limitations on the type or status, financial
or otherwise, of any purchaser, pledgee, assignee or transferee of such share of
Common Stock or item of collateral, (iii) any requirement of the delivery of any
certificate, consent, agreement, opinion of counsel, notice or any other
document of any Person to the issuer of, any other obligor on or any registrar
or transfer agent for, such share of Common Stock or item of collateral, prior
to the sale, pledge, assignment or other transfer or enforcement of such share
of Common Stock or item of collateral and (iv) any registration or qualification
requirement or prospectus delivery requirement for such share of Common Stock or
item of collateral pursuant to any federal, state or foreign securities law
(including, without limitation, any such requirement arising as a result of Rule
144 or Rule 145 under the Securities Act); provided that the required delivery
of any assignment, instruction or entitlement order from the seller, pledgor,
assignor or transferor of such share of Common Stock or item of collateral,
together with any evidence of the corporate or other authority of such Person,
shall not constitute a "TRANSFER RESTRICTION".
5
<PAGE> 9
"UCC" means the Uniform Commercial Code as in effect in the State of New
York.
ARTICLE 2
SALE AND PURCHASE
SECTION 2.01. Sale and Purchase. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees
to purchase and acquire from Seller, the number of shares of Common Stock equal
to the product of 750,000 (subject to reduction as provided in Section 3.01, the
"BASE AMOUNT") and the Exchange Rate.
SECTION 2.02. Purchase Price. The purchase price (the "PURCHASE PRICE")
shall be $38,152,131 in cash.
SECTION 2.03. Payment for and Delivery of Contract Shares. (a) Upon the
terms and subject to the conditions of this Agreement, Buyer shall deliver to
Seller the Purchase Price on March 1, 2000 (the "PAYMENT DATE") at the offices
of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at
such other place as shall be agreed upon by Buyer and Seller, paid in
immediately available funds by wire transfer to an account designated by Seller.
(b) On the Maturity Date, Seller agrees, subject to Section 2.04, to
deliver to Buyer (i) a number of shares of Free Stock (the "CONTRACT SHARES")
equal to the product (the "CONTRACT SHARE AMOUNT"), rounded down to the nearest
whole number, of (A) the Base Amount and (B) the Exchange Rate and (ii) cash in
an amount equal to the value (based on the Maturity Price) of any fractional
share not delivered as a result of such rounding. If (x) by 10:00 A.M., New York
City time on the Maturity Date, Seller has not otherwise effected such delivery
of Common Stock or delivered cash in lieu thereof pursuant to Section 2.04 and
(y) the Common Stock then held by or on behalf of Secured Party as collateral
under the Pledge Agreement is Free Stock, then (i) Seller shall be deemed not to
have elected to deliver cash in lieu of shares of Free Stock pursuant to Section
2.04 (notwithstanding any notice by Seller to the contrary) and (ii) the
delivery provided by this Section 2.03(b) shall be effected by delivery to Buyer
from the Collateral Account in the manner set forth in the Pledge Agreement of a
number of shares of Free Stock then held by or on behalf of Secured Party as
collateral under the Pledge Agreement equal to the number thereof required to be
delivered by Seller to Buyer pursuant to this Section 2.03(b); provided that,
notwithstanding the foregoing and without limiting the generality of Section
8.01, if Seller gives notice of Seller's election to deliver cash in lieu of
shares of Free
6
<PAGE> 10
Stock on the Maturity Date pursuant to Section 2.04 and fails to deliver the
Cash Settlement Amount on the Maturity Date as provided in Section 2.04, Seller
shall be in breach of this Agreement and shall be liable to Buyer for any
damages suffered by Buyer as a result of such breach, including without
limitation damages suffered in connection with any decrease in the Closing Price
per share of Common Stock subsequent to the 30th Exchange Business Day
immediately preceding the Maturity Date.
(c) The "EXCHANGE RATE" shall be determined by the Calculation Agent in
accordance with the following formula, and is subject to adjustment as a result
of certain events as provided in Article 7 and as provided in Section 5(i) of
the Pledge Agreement: (i) if the Maturity Price is less than $77.2680 (the
"THRESHOLD PRICE") but greater than $64.3900 (the "ISSUE PRICE"), the Exchange
Rate shall be a ratio (rounded upward or downward to the nearest 1/10,000th or,
if there is not a nearest 1/10,000th, to the next lower 1/10,000th) equal to the
Issue Price divided by the Maturity Price, (ii) if the Maturity Price is equal
to or greater than the Threshold Price, the Exchange Rate shall be 0.8333 and
(iii) if the Maturity Price is equal to or less than the Issue Price, the
Exchange Rate shall be one (1).
SECTION 2.04. Cash Settlement Option. Seller may, upon written notice
delivered to Buyer at least 35 Exchange Business Days prior to the Maturity
Date, elect to deliver the Cash Settlement Amount to Buyer on the Maturity Date
by wire transfer of immediately available funds to an account designated by
Buyer, in lieu of the shares of Common Stock to be delivered on the Maturity
Date pursuant to Section 2.03(b).
ARTICLE 3
TERMINATION BY SELLER
SECTION 3.01. Termination by Seller. Seller may terminate this Agreement
in whole or in part upon 35 Exchange Business Days' prior written notice to
Buyer (the termination date specified in such notice, the "OPTIONAL TERMINATION
DATE"). If Seller terminates this Agreement in whole, Seller shall make a cash
payment, by wire transfer of immediately available funds to an account
designated by Buyer, to Buyer on the Optional Termination Date in an amount
equal to the Replacement Value (calculated in the manner set forth in Section
8.01 as if the Optional Termination Date were the Acceleration Date). If Seller
terminates this Agreement in part, Seller shall specify the number of shares of
Common Stock with respect to which this Agreement is to be terminated and (i)
Seller shall make a cash payment, by wire transfer of immediately available
7
<PAGE> 11
funds to an account designated by Buyer, to Buyer on the Optional Termination
Date in an amount equal to the Replacement Value (calculated in the manner set
forth in Section 8.01 as if the Optional Termination Date were the Acceleration
Date; provided that for purposes of such calculation, the Base Amount shall be
deemed to be such number of shares of Common Stock with respect to which this
Agreement is to be terminated) and (ii) the Base Amount shall be reduced by such
number of shares of Common Stock with respect to which this Agreement is to be
terminated.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 4.01. Representations and Warranties of Seller. Seller represents
and warrants to Buyer that:
(a) Seller is a limited partnership duly organized and existing in
good standing under the laws of the State of Nevada and has the requisite
power to own its properties and to carry on its business as now being
conducted.
(b) The execution and delivery of this Agreement and the Pledge
Agreement and the performance by Seller of Seller's obligations hereunder
and thereunder do not violate or conflict with any provision of the
Organizational Documents, any law applicable to Seller, any order or
judgment of any court or other agency of government applicable to Seller
or any of Seller's assets or any contractual restriction binding on or
affecting Seller or any of Seller's assets.
(c) All government and other consents that are required to have been
obtained by Seller with respect to this Agreement or the Pledge Agreement
have been obtained and are in full force and effect and all conditions of
any such consents have been complied with. Seller has complied and will
comply with all applicable disclosure or reporting requirements in respect
of the transactions contemplated hereby and by the Pledge Agreement,
including without limitation any requirements imposed by Section 13 or
Section 16 of the Securities Exchange Act of 1934, as amended, or the
rules and regulations thereunder.
(d) Seller has the requisite power and authority to enter into and
perform this Agreement and the Pledge Agreement and to deliver the
Contract Shares in accordance with the terms hereof. The execution and
8
<PAGE> 12
delivery of this Agreement and the Pledge Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby and thereby
(including the delivery by Seller of the Contract Shares) have been duly
authorized by Seller. This Agreement and the Pledge Agreement have been
duly executed and delivered by Seller. Seller's obligations under this
Agreement and the Pledge Agreement constitute Seller's legal, valid and
binding obligations, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium
or similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless
of whether enforcement is sought in a proceeding in equity or at law)).
(e) No Acceleration Event or event that, with the giving of notice
or the lapse of time or both, would constitute an Acceleration Event has
occurred and is continuing and no such event would occur as a result of
Seller's entering into or performing Seller's obligations under this
Agreement or the Pledge Agreement.
(f) There is not pending or, to Seller's knowledge, threatened
against Seller, the General Partner or the Limited Partner any action,
suit or proceeding at law or in equity or before any court, tribunal,
governmental body, agency or official or any arbitrator (including without
limitation any bankruptcy, insolvency or similar proceeding) that is
likely to affect the legality, validity or enforceability against Seller
of this Agreement or the Pledge Agreement or Seller's ability to perform
Seller's obligations under this Agreement or the Pledge Agreement.
(g) Seller is acting for Seller's own account, and has made Seller's
own independent decision to enter into this Agreement and the Pledge
Agreement and as to whether this Agreement and the Pledge Agreement are
appropriate or proper for Seller based upon Seller's own judgment and upon
advice of such advisors as Seller deems necessary. Seller acknowledges and
agrees that Seller is not relying, and has not relied, upon any
communication (written or oral) of Buyer or any affiliate, employee or
agent of Buyer with respect to the legal, accounting, tax or other
implications of this Agreement and the Pledge Agreement and that Seller
has conducted Seller's own analyses of the legal, accounting, tax and
other implications hereof and thereof; it being understood that
information and explanations related to the terms and conditions of this
Agreement or the Pledge Agreement shall not be considered investment
advice or a recommendation to enter into this Agreement or the Pledge
Agreement. Seller is entering into this Agreement and the Pledge
9
<PAGE> 13
Agreement with a full understanding of all of the terms and risks hereof
and thereof (economic and otherwise) and is capable of evaluating and
understanding (on Seller's own behalf or through independent professional
advice), and understands and accepts, the terms, conditions and risks.
Seller is also capable of assuming (financially and otherwise), and
assumes, those risks. Seller acknowledges that neither Buyer nor any
affiliate, employee or agent of Buyer is acting as a fiduciary for or an
advisor to Seller in respect of this Agreement or the Pledge Agreement.
(h) Seller is not, on the date of this Agreement, in possession of
any material non-public information regarding the Issuer. Seller does not
know or have any reason to believe that the Issuer has not complied with
the reporting requirements contained in Rule 144(c)(1) under the
Securities Act. Neither Seller nor any person who would be considered to
be the same "person" (as such term is used in Rule 144(a)(2) under the
Securities Act) as Seller has, without the written consent of Buyer (which
consent shall not be unreasonably withheld), sold any shares of Common
Stock or hedged (through swaps, options, short sales or otherwise) any
long position in the Common Stock during the period beginning on the date
three months prior to the date hereof and ending on the date hereof,
except (i) the sale by Seller of 500,000 shares of Common Stock on
February 22, 2000, (ii) the sale by Seller of 50,000 shares of Common
Stock on February 23, 2000, (iii) the sale by The Bryan J. and June B.
Zwan Foundation, Inc., of 37,500 shares of Common Stock on February 22,
2000 and (iv) the transaction contemplated by the SAILS Mandatorily
Exchangeable Securities Contract dated as of December 8, 1999 among the
Limited Partner, Buyer and Credit Suisse First Boston Corporation, as
Agent. Seller's holding period (calculated in the manner provided in Rule
144(d) under the Securities Act) with respect to the Common Stock
commenced at least one year prior to the date of the Term Sheet (as
defined in the Pledge Agreement).
(i) Delivery of shares of Common Stock by Seller pursuant to this
Agreement on the Maturity Date or an Acceleration Delivery Date will pass
to Buyer title (or security entitlements) to such shares free and clear of
any Liens or Transfer Restrictions (other than Transfer Restrictions
arising solely from the fact that Seller is an "affiliate", within the
meaning of Rule 144 under the Securities Act, of the Issuer), except for
those created pursuant to the Pledge Agreement.
(j) Seller has a valid business purpose for entering into this
Agreement, and the transaction contemplated hereby is consistent with
Seller's overall investment strategy. Seller currently expects that Seller
10
<PAGE> 14
will not elect to deliver cash in lieu of Common Stock on the Maturity
Date pursuant to Section 2.04. Seller intends, however, to consider all
relevant economic, market and business factors in ultimately determining
whether to deliver cash in lieu of Common Stock on the Maturity Date.
ARTICLE 5
CONDITIONS TO BUYER'S OBLIGATIONS
SECTION 5.01. Conditions. The obligation of Buyer to deliver the Purchase
Price on the Payment Date is subject to the satisfaction of the following
conditions, each of which shall be conclusively deemed to be satisfied upon
payment of the Purchase Price on the Payment Date:
(a) The representations and warranties of Seller contained in
Article 4 and in the Pledge Agreement shall be true and correct as of the
Payment Date.
(b) The Pledge Agreement shall have been executed by the parties
thereto, and Seller shall have delivered to Secured Party in accordance
therewith the collateral required to be delivered pursuant to Section 1(b)
thereof, and Seller shall have executed UCC-1 financing statements in the
form of Exhibit B to the Pledge Agreement for filing in the filing offices
specified in Exhibit C to the Pledge Agreement.
(c) Seller shall have performed all of the covenants and obligations
to be performed by Seller hereunder and under the Pledge Agreement on or
prior to the Payment Date.
(d) Seller shall have delivered to Buyer on or prior to the Payment
Date an opinion of counsel acceptable to Buyer to the effect set forth in
Annex A.
(e) Seller shall have filed, or shall have caused to be filed, in
the manner contemplated by Rule 144(h) under the Securities Act, a notice
on Form 144 relating to the transactions contemplated hereby in form and
substance acceptable to Buyer.
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ARTICLE 6
COVENANTS
SECTION 6.01. Taxes. Seller shall pay any and all documentary, stamp,
transfer or similar taxes and charges that may be payable in respect of the
entry into this Agreement and the transfer and delivery of any Common Stock
pursuant hereto. Seller further agrees to make all payments in respect of this
Agreement free and clear of, and without withholding or deduction for or on
account of, any present or future taxes, duties, fines, penalties, assessments
or other governmental charges of whatsoever nature (or interest on any taxes,
duties, fines, penalties, assessments or other governmental charges of
whatsoever nature) imposed, levied, collected, withheld or assessed by, within
or on behalf of (a) the United States or any political subdivision or
governmental authority thereof or therein having power to tax or (b) any
jurisdiction from or through which payment on the Agreement is made by Seller,
or any political subdivision or governmental authority thereof or therein having
power to tax. In the event such withholding or deduction is imposed, Seller
agrees to indemnify Buyer for the full amount of such withholding or deduction,
as well as any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto.
SECTION 6.02. Forward Contract. Seller hereby agrees that: (i) Seller will
not treat this Agreement, any portion of this Agreement, or any obligation
hereunder as giving rise to any interest income or other inclusions of ordinary
income; (ii) Seller will not treat the delivery of any portion of the shares of
Common Stock or cash to be delivered pursuant to this Agreement as the payment
of interest or ordinary income; (iii) Seller will treat this Agreement in its
entirety as a forward contract for the delivery of such shares of Common Stock
or cash; and (iv) Seller will not take any action (including filing any tax
return or form or taking any position in any tax proceeding) that is
inconsistent with the obligations contained in (i) through (iii).
Notwithstanding the preceding sentence, Seller may take any action or position
required (A) by any taxing authority or (B) by law, provided that Seller
delivers to Buyer an opinion of counsel, nationally recognized as expert in
Federal tax matters and acceptable to Buyer, to the effect that such action or
position is required by a statutory change or a Treasury regulation or
applicable court decision published after the date of this Agreement.
SECTION 6.03. Notices. Seller will cause to be delivered to Buyer:
(a) Immediately upon the occurrence of any Acceleration Event
hereunder, notice of such occurrence; and
(b) In case at any time prior to the Maturity Date, Seller or the
General Partner of Seller receives notice that any event requiring that an
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adjustment be calculated pursuant to Article 7 hereof shall have occurred
or be pending, then Seller shall promptly cause to be delivered to Buyer a
notice identifying such event and stating, if known to Seller, the date on
which such event occurred or is to occur and, if applicable, the record
date relating to such event. Seller shall cause further notices to be
delivered to Buyer if Seller or the General Partner of Seller shall
subsequently receive notice of any further or revised information
regarding the terms or timing of such event or any record date relating
thereto.
SECTION 6.04. Further Assurances. From time to time from and after the
date hereof through the Maturity Date, each of the parties hereto shall use such
party's reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper and advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement in accordance with the terms and conditions
hereof, including (i) using reasonable best efforts to remove any legal
impediment to the consummation of such transactions and (ii) the execution and
delivery of all such deeds, agreements, assignments and further instruments of
transfer and conveyance necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement in accordance with the
terms and conditions hereof.
SECTION 6.05. Securities Contract. The parties hereto recognize that the
Custodian is a "financial institution" within the meaning of Section 101(22) of
Title 11 of the United States Code (the "BANKRUPTCY CODE") and is acting as
agent and custodian for Buyer in connection with this Agreement and that Buyer
is a "customer" of the Custodian within the meaning of said Section 101(22). The
parties hereto further recognize that this Agreement is a "securities contract,"
as such term is defined in Section 741(7) of the Bankruptcy Code, entitled to
the protection of Section 555 of the Bankruptcy Code.
ARTICLE 7
ADJUSTMENTS
SECTION 7.01. Dilution Adjustments. (a) Following the declaration by the
Issuer of the terms of any Potential Adjustment Event occurring prior to the
Maturity Date, the Calculation Agent will determine whether such Potential
Adjustment Event has a diluting or concentrative effect on the theoretical value
of the Common Stock and, if so, will (i) make the corresponding adjustment, if
any, to any one or more of the Base Amount, the Exchange Rate, the Threshold
Price, the Issue Price, the Maturity Price, the Cash Settlement Amount, any
Closing
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<PAGE> 17
Price and any other variable relevant to the exercise, settlement or payment
terms hereof or of the Pledge Agreement as the Calculation Agent determines
appropriate to account for that diluting or concentrative effect and (ii)
determine the effective date of the adjustment. The Calculation Agent may (but
need not) determine the appropriate adjustment by reference to the adjustment in
respect of such Potential Adjustment Event made by an options exchange to
options on the Common Stock traded on that options exchange.
(b) For these purposes, "POTENTIAL ADJUSTMENT EVENT" means any of the
following:
(i) a subdivision, consolidation or reclassification of shares of
Common Stock (which does not constitute a Reorganization Event), or a free
distribution or dividend of any shares of Common Stock to existing holders
of Common Stock by way of bonus, capitalization or similar issue;
(ii) a distribution or dividend to existing holders of Common Stock
of (A) shares of Common Stock, or (B) other share capital or securities
granting the right to payment of dividends and/or the proceeds of
liquidation of the Issuer equally or proportionately with such payments to
holders of Common Stock, or (C) other types of securities, rights or
warrants or other assets, in any case for payment (cash or other) at less
than the prevailing market price as determined by the Calculation Agent;
(iii) a cash dividend;
(iv) a call by the Issuer in respect of shares of Common Stock that
are not fully paid;
(v) a repurchase by the Issuer of shares of Common Stock, whether
out of profits or capital and whether the consideration for such
repurchase is cash, securities or otherwise; or
(vi) any other similar event that may have a diluting or
concentrative effect on the theoretical value of the Common Stock.
Without limiting the foregoing, the parties acknowledge that the
Calculation Agent will make adjustments to the Base Amount, the Exchange Rate,
the Threshold Price, the Issue Price, the Maturity Price, the Cash Settlement
Amount, any Closing Price and any other variable relevant to the exercise,
settlement or payment terms hereof or of the Pledge Agreement as the Calculation
Agent determines appropriate to account for the value of all cash dividends
(ordinary or extraordinary) with respect to the Common Stock.
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(c) Notwithstanding the foregoing, in the event of a distribution of
shares of capital stock of a subsidiary of the Issuer that is a Publicly-Traded
Entity (a "SPIN-OFF") made to holders of shares of Common Stock, (i) the
"Contract Shares" shall include, in addition to the number of shares of Free
Stock equal to the Contract Share Amount, a number of shares of New Common Stock
equal to the product of (A) the Base Amount immediately prior to the
consummation of the Spin-Off and (B) the number of shares of New Common Stock
that a holder of one share of Original Common Stock receives in connection with
such Spin-Off and (ii) the "Maturity Price" shall be equal to the sum of (A) the
Maturity Price of the Original Common Stock and (B) the product of (x) Maturity
Price of the New Common Stock and (y) the number of shares of New Common Stock
that a holder of one share of Original Common Stock would have owned or been
entitled to receive immediately following such Spin-Off. Following a Spin-Off,
"ORIGINAL COMMON STOCK" shall mean the common stock of the entity that is the
Issuer immediately prior to the Spin-Off and "NEW COMMON STOCK" shall mean the
common equity securities of the Publicly-Traded Entity resulting from such
Spin-Off.
SECTION 7.02. Reorganization Events. In the event of (i) any consolidation
or merger of the Issuer with or into another entity (other than a merger or
consolidation in which the Issuer is the continuing corporation and in which the
Common Stock outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of the Issuer or another
corporation), (ii) any sale, transfer, lease or conveyance of the property of
the Issuer as an entirety or substantially as an entirety, (iii) any statutory
exchange of securities of the Issuer with another corporation (other than in
connection with a merger or acquisition) or (iv) any liquidation, dissolution or
winding up of the Issuer (any such event, a "REORGANIZATION EVENT"), then (A) if
there is a surviving or continuing corporation and (1) such surviving or
continuing corporation is a Publicly-Traded Entity or (2) the entity (the
"ACQUIRING CORPORATION") issuing the consideration received by holders of Common
Stock in such Reorganization Event is a Publicly-Traded Entity, "Base Amount"
shall mean the product of (x) the Base Amount immediately prior to the
consummation of the Reorganization Event and (y) the number of shares of common
stock of such Publicly-Traded Entity that a holder of one share of Common Stock
receives in connection with such Reorganization Event and, if the consideration
received by holders of Common Stock includes cash or property other than common
stock of such Publicly-Traded Entity ("NON-STOCK CONSIDERATION"), Seller shall
make a cash payment as if this Agreement were terminated in part pursuant to
Section 3.01, by wire transfer of immediately available funds to an account
designated by Buyer, to Buyer on the date on which the Reorganization Event is
consummated (the "REORGANIZATION TERMINATION DATE") in an amount equal to the
Replacement Value (calculated in the manner set forth in Section 8.01 as if the
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Reorganization Termination Date were the Acceleration Date; provided that for
purposes of such calculation, the Base Amount shall be equal to the product of
(I) the Base Amount immediately prior to consummation of the Reorganization
Event and (II) the percentage of the value of the consideration received by
holders of Common Stock represented by the Non-Stock Consideration, as
determined by the Calculation Agent) or (B) if there is no surviving or
continuing corporation in such Reorganization Event or if the consideration
received by holders of Common Stock consists solely of Non-Stock Consideration,
this Agreement shall terminate and Seller shall make a payment or delivery to
Buyer as provided in Section 7.04.
SECTION 7.03. Provisions Relating to Reorganization Events and Spin-Offs.
If a Reorganization Event occurs and clause (B) of Section 7.02 does not apply,
(a) the surviving or continuing corporation or the Acquiring Corporation, as the
case may be, shall be deemed to be the "Issuer" and the common equity securities
of such corporation shall be deemed to be the "Common Stock" and (b) the
Calculation Agent shall calculate corresponding adjustments, if any, to the Base
Amount, the Exchange Rate, the Threshold Price, the Issue Price, the Maturity
Price, the Cash Settlement Amount, any Closing Price and any other variable
relevant to the exercise, settlement or payment terms hereof as the Calculation
Agent determines appropriate to account for such event. If a Spin-Off occurs,
the entity that is the Issuer immediately prior to the Spin-Off and the
Publicly-Traded Entity resulting from the Spin-Off shall each be deemed to be
the "Issuer" and the Original Common Stock and the New Common Stock shall each
be deemed to be the "Common Stock". Following any Spin-Off, the Calculation
Agent shall calculate further adjustments pursuant to this Article 7 by applying
the methodology set forth in this Article 7 to both the Original Common Stock
and the New Common Stock.
SECTION 7.04. Termination and Payment. Following termination of this
Agreement pursuant to clause (B) of Section 7.02 as a result of any
Reorganization Event, the Calculation Agent shall determine the Replacement
Value in the manner provided in Section 8.01 (calculated, for purposes of this
Section 7.04, as if the Reorganization Termination Date were the Acceleration
Date, and representing the fair replacement value (including both intrinsic and
time value) to Buyer of an agreement with terms that would preserve for Buyer
the economic equivalent of the payments and deliveries that Buyer and its
affiliates would, but for the occurrence of the Reorganization Event, have been
entitled to receive after the Reorganization Termination Date hereunder). As
promptly as reasonably practicable after calculation of the Replacement Value,
the Calculation Agent shall deliver to Buyer and Seller a notice (the
"TERMINATION AMOUNT NOTICE") specifying the Replacement Value. Not later than
three Business Days following delivery of a Termination Amount Notice, Seller
shall make a cash payment, by wire transfer of immediately available funds to an
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account designated by Buyer, to Buyer in an amount equal to the Replacement
Value. Notwithstanding the foregoing, to the extent that any Marketable
Securities are received by holders of Common Stock in such Reorganization Event,
then in lieu of delivering cash as provided in the immediately preceding
sentence, Seller may deliver Marketable Securities with an equal value (as
determined by the Calculation Agent).
ARTICLE 8
ACCELERATION
SECTION 8.01. Acceleration. If one or more of the following events (each
an "ACCELERATION EVENT") shall occur:
(a) any legal proceeding shall have been instituted or any other
event shall have occurred or condition shall exist that in Buyer's
reasonable judgment is highly likely to have a material adverse effect on
the financial condition of Seller or on Seller's ability to perform
Seller's obligations hereunder, or that is likely to affect the validity
or binding effect of any agreement of Seller hereunder or under the Pledge
Agreement;
(b) Seller is dissolved, makes an assignment for the benefit of
creditors, files a petition in bankruptcy, is adjudicated insolvent or
bankrupt, petitions or applies to any tribunal for any receiver of or any
trustee for it or any substantial part of its property, commences any
proceeding relating to it under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is commenced
against or with respect to it or any substantial portion of its property
any such proceeding and an order for relief is issued or such proceeding
remains undismissed for a period of 30 days;
(c) at any time, representations made by Seller in Sections 4.01(b),
4.01(c), 4.01(d) and 4.01(i) under this Agreement or in Section 3 under
the Pledge Agreement or any certificate delivered pursuant to Section 5(b)
of the Pledge Agreement would be incorrect or misleading in any material
respect if made as of such time;
(d) Seller fails to deliver shares of Common Stock (or the Cash
Settlement Amount) on the Maturity Date as required by this Agreement;
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(e) Seller fails to fulfill or discharge when due any of Seller's
obligations, covenants or agreements under or relating to this Agreement
or the Pledge Agreement (other than the obligation referred to in Section
8.01(d)) and such failure remains unremedied for 60 days following notice
from Buyer;
(f) due to the adoption of, or any change in, any applicable law
after the date hereof, or due to the promulgation of, or any change in,
the interpretation by any court, tribunal or regulatory authority with
competent jurisdiction of any applicable law after the date hereof, it
becomes unlawful for Seller to perform any absolute or contingent
obligation to make payment or delivery hereunder or to comply with any
other material provision of this Agreement or the Pledge Agreement;
(g) in the reasonable judgment of the Calculation Agent, Buyer is
unable to hedge Buyer's exposure to this Agreement because of the lack of
sufficient shares of Common Stock being made available for share borrowing
by lenders;
(h) there occurs a default under any indebtedness for money borrowed
by Seller, the General Partner or the Limited Partner whether such
indebtedness now exists or shall hereafter be created, which indebtedness,
individually or in the aggregate, is in excess of $10,000,000 principal
amount, which default shall constitute a failure to pay any portion of the
principal of such indebtedness when due and payable after the expiration
of any applicable grace or cure period with respect thereto or shall have
resulted in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable;
or
(i) a Collateral Event of Default within the meaning of the Pledge
Agreement shall occur;
then, upon notice to Seller from Buyer at any time following an Acceleration
Event, an "ACCELERATION DATE" shall occur, and Seller shall become obligated to
deliver to Buyer on the date (the "ACCELERATION DELIVERY DATE") three Exchange
Business Days following delivery of the Acceleration Amount Notice a number of
shares of Free Stock equal to the Acceleration Amount; provided that if Secured
Party proceeds to realize upon any collateral pledged under the Pledge Agreement
and to apply the proceeds of such realization as provided in the second
paragraph of Section 7(d) thereof, then, to the extent of such application of
proceeds, Seller's obligation to deliver Free Stock pursuant to this paragraph
shall be deemed to be an obligation to deliver an amount of cash equal to the
aggregate Market Value of
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such Free Stock on the Acceleration Date. The "ACCELERATION AMOUNT" means the
quotient obtained by dividing: (i) the Replacement Value by (ii) the Market
Value per share of the Common Stock on the Acceleration Date.
The "REPLACEMENT VALUE" means an amount determined by the Calculation
Agent representing the fair replacement value (including both intrinsic and time
value) to Buyer of an agreement with terms that would preserve for Buyer the
economic equivalent of the payments and deliveries that Buyer would, but for the
occurrence of the Acceleration Date, have been entitled to receive after the
Acceleration Date hereunder (taking into account any adjustments pursuant to
Section 7.01 or pursuant to Section 5(i) of the Pledge Agreement that may have
been calculated on or prior to the Acceleration Date), including any loss of
bargain, cost of funding or, without duplication, loss or cost incurred as a
result of Buyer's terminating, liquidating, obtaining or reestablishing any
hedge or related trading position.
As promptly as reasonably practicable after calculation of the Replacement
Value, the Calculation Agent shall deliver to Seller and Buyer a notice (the
"ACCELERATION AMOUNT NOTICE") specifying the Acceleration Amount of shares of
Common Stock required to be delivered by Seller.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard forms of telecommunication. Notices to Buyer shall
be directed to it care of Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, New York 10010, Telecopy No. (212) 325-8175, Attention:
Ricardo Harewood, with a copy to QSPV Limited, Queensgate House, George Town,
Grand Cayman, Cayman Islands, Telecopy No. (345) 945-7100, Attention: Martin
Couch. Notices to Seller shall be directed to Seller at Suite 850, 101
Convention Center Drive, Las Vegas, Nevada 89019, Telecopy No. (702) 598-3651,
with a copy to Robert E. Freitas, Orrick, Herrington & Sutcliffe LLP, 600 Hansen
Way, Palo Alto, California 94304, Telecopy No. (650) 614-7301.
SECTION 9.02. Governing Law; Submission to Jurisdiction; Severability;
Waiver of Jury Trial; Service of Process. (a) This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
reference to choice of law doctrine and each party hereto submits to the
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jurisdiction of the Courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City.
(b) To the extent permitted by law, the unenforceability or invalidity of
any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(c) SELLER AND BUYER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(d) Seller irrevocably appoints Corporation Trust Company of Nevada as
process agent to receive for Seller and on Seller's behalf, service of process
in any action, suit or other proceeding arising out of this Agreement, the
Pledge Agreement or any transaction contemplated hereby or thereby. If for any
reason Corporation Trust Company of Nevada is unable to act as such, Seller will
promptly notify Buyer and within 30 days appoint a substitute process agent
acceptable to Seller. Nothing in this Agreement will affect the right of either
party to serve process in any other manner permitted by law. Buyer irrevocably
appoints CT Corporation System as process agent to receive for Buyer and on
Buyer's behalf, service of process in any action, suit or other proceeding
arising out of this Agreement, the Pledge Agreement or any transaction
contemplated hereby or thereby. If for any reason CT Corporation System is
unable to act as such, Buyer will promptly notify Seller and within 30 days
appoint a substitute process agent acceptable to Seller. Nothing in this
Agreement will affect the right of either party to serve process in any other
manner permitted by law.
SECTION 9.03. Confidentiality. Except as required by law or judicial or
administrative process, or as requested by a regulatory authority or
self-regulatory organization, each party hereto agrees to keep this Agreement
and the Pledge Agreement and the transactions contemplated hereby and thereby
confidential. In the event disclosure is permitted pursuant to the preceding
sentence, the disclosing party shall (i) provide prior notice of such disclosure
to the other party, (ii) use such party's best efforts to minimize the extent of
such disclosure and (iii) comply with all reasonable requests of the other party
to minimize the extent of such disclosure. This Section 9.03 shall not prevent
Seller or Buyer from disclosing information as necessary to third-party advisors
in connection with the transactions contemplated hereby or by the Pledge
Agreement; provided that Seller or Buyer, as the case may be, shall use their
reasonable best efforts to cause such advisors to comply with this Section 9.03
as if a party hereto.
SECTION 9.04. Entire Agreement. Except as expressly set forth herein, this
Agreement constitutes the entire agreement and understanding among the
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parties with respect to its subject matter hereof and supersedes all oral
communications and prior writings with respect thereto.
SECTION 9.05. Amendments, Waivers. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Buyer and Seller or, in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.06. No Third Party Rights, Successors and Assigns. This
Agreement is not intended and shall not be construed to create any rights in any
person other than Seller, Buyer and their respective successors and assigns and
no other person shall assert any rights as third party beneficiary hereunder.
Whenever any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party. All the covenants
and agreements herein contained by or on behalf of Seller and Buyer shall bind,
and inure to the benefit of, their respective successors and assigns whether so
expressed or not, and shall be enforceable by and inure to the benefit of Seller
and Buyer and their respective successors and assigns. The rights and duties
under this Agreement may not be assigned or transferred by any party hereto
without the prior written consent of the other parties hereto; provided that (i)
Buyer may assign or transfer any of its rights or duties hereunder without the
prior written consent of Seller and (ii) the Agent may assign or transfer any of
its rights or duties hereunder without the prior written consent of the other
parties hereto to any affiliate of Credit Suisse First Boston, so long as such
affiliate is a broker-dealer registered with the Securities and Exchange
Commission.
SECTION 9.07. Calculation Agent. All determinations and calculations of
the Calculation Agent made pursuant to this Agreement or the Pledge Agreement
shall be made in a commercially reasonable manner and shall be binding in the
absence of manifest error. The Calculation Agent will have no responsibility for
good faith errors or omissions in the determination so made of any Closing
Price, the Maturity Price, the Exchange Rate, the Cash Settlement Amount or any
other amount as provided herein or in the Pledge Agreement. The Calculation
Agent shall promptly advise Seller in writing of any adjustments, calculations
or determinations made by it under this Agreement or the Pledge Agreement. The
Calculation Agent shall in good faith consider and respond in writing to any
objection of Seller to any determination or calculation of the Calculation Agent
hereunder or under the Pledge Agreement.
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SECTION 9.08. Set-off. In addition to and without limiting any rights of
set-off that a party hereto may have as a matter of law, pursuant to contract or
otherwise, upon the occurrence of a Reorganization Termination Date or an
Acceleration Date, Buyer shall have the right to terminate, liquidate and
otherwise close out the transactions contemplated by this Agreement pursuant to
the terms of this Agreement, and to set off any obligation that Buyer or any
affiliate of Buyer may have to Seller pursuant to this Agreement or the Pledge
Agreement, including without limitation any obligation to make any release,
delivery or payment to Seller pursuant to the Pledge Agreement, against any
right Buyer or any of its affiliates may have against Seller pursuant to this
Agreement or the Pledge Agreement, including without limitation any right to
receive a payment or delivery pursuant to this Agreement. In the case of a
set-off of any obligation to release, deliver or pay assets against any right to
receive assets of the same type, such obligation and right shall be set off in
kind. In the case of a set-off of any obligation to release, deliver or pay
assets against any right to receive assets of any other type, the value of each
of such obligation and such right shall be determined by the Calculation Agent
and the result of such set-off shall be that the net obligor shall pay or
deliver to the other party an amount of cash or assets, at the net obligor's
option, with a value (determined, in the case of a delivery of assets, by the
Calculation Agent) equal to that of the net obligation. In determining the value
of any obligation to release or deliver Common Stock or right to receive Common
Stock, the value at any time of such obligation or right shall be determined by
reference to the Market Value of the Common Stock at such time. If an obligation
or right is unascertained at the time of any such set-off, the Calculation Agent
may in good faith estimate the amount or value of such obligation or right, in
which case set-off will be effected in respect of that estimate, and the
relevant party shall account to the other party at the time such obligation or
right is ascertained.
SECTION 9.09. Matters Related to Credit Suisse First Boston Corporation,
as Agent. (a) Credit Suisse First Boston Corporation shall act as "agent" for
Buyer and Seller within the meaning of Rule 15a-6 under the Securities Exchange
Act of 1934 in connection with the transactions contemplated by this Agreement
and by the Pledge Agreement.
(b) The Agent shall have no responsibility or liability (including,
without limitation, by way of guarantee, endorsement or otherwise) to Buyer or
Seller or otherwise in respect of this Agreement or the Pledge Agreement,
including, without limitation, in respect of the failure of Buyer or Seller to
pay or perform under this Agreement or the Pledge Agreement, except for its
gross negligence or willful misconduct in performing its duties as Agent
hereunder or thereunder.
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(c) Each of Buyer and Seller agrees to proceed solely against the other to
collect or recover any securities or money owing to Buyer or Seller, as the case
may be, in connection with or as a result of this Agreement or the Pledge
Agreement.
(d) As a broker-dealer registered with the Securities and Exchange
Commission, Credit Suisse First Boston Corporation, in its capacity as Agent,
will be responsible for (i) effecting the transactions contemplated by this
Agreement and the Pledge Agreement, (ii) issuing all required notices,
confirmations and statements to Buyer and Seller and (iii) maintaining books and
records relating to this Agreement and the Pledge Agreement.
SECTION 9.10. Counterparts. This Agreement may be executed in any number
of counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same agreement.
SECTION 9.11. Limited Recourse. Seller hereby agrees that it shall not
institute against, or join any other person in instituting against, Buyer any
bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation
proceedings. Seller hereby acknowledges and agrees that Buyer's obligations
under this Agreement will be solely the corporate obligations of Buyer, and that
Seller will not have any recourse to any of the directors, officers or employees
of Buyer with respect to any claims, losses, damages, liabilities, indemnities
or other obligations in connection with any transactions contemplated by this
Agreement. Recourse in respect of any obligations of Buyer under this Agreement
will be limited to the assets of Buyer and no debt shall be owed by Buyer in
respect of any shortfall after realization of such assets.
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
and year first above written.
SELLER:
ZG NEVADA LIMITED PARTNERSHIP
By: ZG Nevada, Inc.,
its General Partner
By: ________________________________________
Name:
Title:
BUYER:
CSFB SAILS CORP.
By: ________________________________________
Name:
Title:
AGENT:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By: ________________________________________
Name:
Title:
<PAGE> 28
ANNEX A
(a) Seller is a limited partnership duly organized and existing in good
standing under the laws of the State of Nevada.
(b) The execution and delivery of this Agreement and the Pledge Agreement
and the performance by Seller of Seller's obligations hereunder and thereunder
do not violate or conflict with any provision of the Organizational Documents,
any law applicable to Seller, any order or judgment of any court or other agency
of government known to such counsel applicable to Seller or any of Seller's
assets or any contractual restriction known to such counsel binding on or
affecting Seller or any of Seller's assets.
(c) All government and other consents that are known to such counsel to be
required to have been obtained by Seller with respect to this Agreement or the
Pledge Agreement have been obtained and are in full force and effect and all
conditions of any such consents have been complied with.
(d) Seller has the requisite partnership power and authority to enter into
and perform this Agreement and the Pledge Agreement and to deliver the Contract
Shares in accordance with the terms hereof. The execution and delivery of this
Agreement and the Pledge Agreement by Seller and the consummation by Seller of
the transactions contemplated hereby and thereby (including the delivery by
Seller of the Contract Shares) have been duly authorized by all necessary
partnership action. This Agreement and the Pledge Agreement have been duly
executed and delivered by Seller. Seller's obligations under this Agreement and
the Pledge Agreement constitute Seller's legal, valid and binding obligations,
enforceable in accordance with their respective terms (subject to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to equitable
principles of general application (regardless of whether enforcement is sought
in a proceeding in equity or at law)).
(e) To such counsel's knowledge, no registration, recordation or filing
with any governmental body, agency or official is required by Seller in
connection with the execution and delivery by Seller of this Agreement or the
Pledge Agreement, other than any such registration, recordation or filing that
(i) has previously been made or (ii) will be made by Seller in connection with
Section 13(d) or 16 of the Securities Exchange Act of 1934, as amended.
(f) The Pledge Agreement creates in favor of Buyer a security interest in
Seller's rights in the Initial Pledged Items. Upon the Custodian's indicating by
<PAGE> 29
book entry that such Collateral has been credited to Buyer's securities account
pursuant to the Pledge Agreement, Buyer will have control (within the meaning of
Section 8-106 of the UCC) of a security entitlement with respect to such
Collateral and such security interest will be perfected. Assuming that Buyer
acquires such security entitlement without notice of any adverse claim, then an
action based on an adverse claim to the financial asset relating to such
Collateral, whether framed in conversion, replevin, constructive trust,
equitable lien, or other theory, may not be asserted against Buyer.
(g) Assuming that Buyer purchases Common Stock pursuant to the Securities
Contract and that, at the time of such purchase the Custodian has indicated by
book entry that such Common Stock has been credited to Buyer's account, and that
Buyer acquires such security entitlement without notice of any adverse claim,
then an action based on an adverse claim to the financial asset relating to such
Common Stock, whether framed in conversion, replevin, constructive trust,
equitable lien, or other theory, may not be asserted against Buyer.
A-2
<PAGE> 30
A-3
<PAGE> 1
EXHIBIT 6
SAILS PLEDGE AGREEMENT
dated as of
March 1, 2000
among
ZG NEVADA LIMITED PARTNERSHIP,
CSFB SAILS CORP.
and
CREDIT SUISSE FIRST BOSTON CORPORATION, as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. The Security Interests ..................................... 2
SECTION 2. Definitions ................................................ 3
SECTION 3. Representations and Warranties of Pledgor .................. 5
SECTION 4. Certain Covenants of Pledgor ............................... 7
SECTION 5. Administration of the Collateral and Valuation of the
Securities ................................................. 8
SECTION 6. Income and Voting Rights in Collateral .................... 11
SECTION 7. Remedies upon Acceleration Events ......................... 12
SECTION 8. Miscellaneous ............................................. 15
SECTION 9. Termination of Pledge Agreement ............................ 17
SECTION 10. Set-off .................................................... 17
</TABLE>
<PAGE> 3
PLEDGE AGREEMENT
THIS AGREEMENT is made as of this 1(st) day of March, 2000 among ZG
NEVADA LIMITED PARTNERSHIP ("Pledgor"), a Nevada limited partnership, CREDIT
SUISSE FIRST BOSTON CORPORATION, as agent (the "Agent") hereunder, and CSFB
SAILS CORP. ("Secured Party").
WHEREAS, Pledgor owns shares of common stock, par value $0.0001 per
share, of Digital Lightwave, Inc., a Delaware corporation (the "Issuer"), or
security entitlements in respect thereof (the "Common Stock");
WHEREAS, Pledgor and Credit Suisse First Boston Corporation have entered
into a Term and Conditions for Private SAILS (the "Term Sheet") dated as of
February 9, 2000, pursuant to which Pledgor and Credit Suisse First Boston
Corporation have agreed to sell and purchase such shares of Common Stock at the
time and on the terms set forth therein;
WHEREAS, pursuant to an Assignment and Assumption Agreement dated as of
March 1, 2000 between Credit Suisse First Boston Corporation and Secured Party,
Credit Suisse First Boston Corporation assigned to Secured Party all of the
rights and obligations of Credit Suisse First Boston Corporation under the Term
Sheet;
WHEREAS, the Term Sheet provides that the parties thereto will enter into
final documentation, consisting of a SAILS Mandatorily Exchangeable Securities
Contract and a SAILS Pledge Agreement, relating to the transactions contemplated
by the Term Sheet;
WHEREAS, pursuant to the Term Sheet, Pledgor has granted the purchaser
under the Term Sheet a security interest in certain shares of Common Stock to
secure the obligations of Pledgor thereunder and under the Securities Contract;
WHEREAS, Pledgor and Secured Party wish to (i) set forth additional
understandings and agreements relating to such security interest and (ii)
confirm, on the terms set forth herein, the continuation of such security
interest;
WHEREAS, it is a condition to the obligations of Secured Party under the
Securities Contract (as defined herein) that Pledgor and Secured Party enter
into this Agreement;
<PAGE> 4
NOW, THEREFORE, in consideration of their mutual covenants contained
herein and to secure the performance by Pledgor of Pledgor's obligations under
the Securities Contract and the observance and performance of the covenants and
agreements contained herein and in the Securities Contract, the parties hereto,
intending to be legally bound, hereby mutually covenant and agree as follows:
SECTION 1. The Security Interests. In order to secure the full and
punctual observance and performance of the covenants and agreements contained
herein and in the Securities Contract:
(a) Pledgor hereby assigns and pledges to Secured Party, and grants to
Secured Party, security interests in and to, and a lien upon and right of
set-off against, and transfers to Secured Party, as and by way of a security
interest having priority over all other security interests, with power of sale,
all of Pledgor's right, title and interest in and to (i) the Initial Pledged
Items; (ii) all additions to and substitutions for the Initial Pledged Items
(including, without limitation, any securities, instruments or other property
delivered or pledged pursuant to Section 4(a) or 5(b)) (such additions and
substitutions, the "Additions and Substitutions"); (iii) all income, proceeds
and collections received or to be received, or derived or to be derived, now or
any time hereafter (whether before or after the commencement of any proceeding
under applicable bankruptcy, insolvency or similar law, by or against Pledgor,
with respect to Pledgor) from or in connection with the Initial Pledged Items
and the Additions and Substitutions (including, without limitation, (A) any
shares of capital stock issued by the Issuer in respect of any Common Stock
constituting Collateral or any cash, securities or other property distributed in
respect of or exchanged for any Common Stock constituting Collateral, or into
which any such Common Stock is converted, in connection with any Reorganization
Event, and any security entitlements in respect of any of the foregoing, (B) any
obligation of Secured Party to replace any rehypothecated Collateral pursuant to
Section 5(i) and (C) any amounts paid or assets delivered to Pledgor by Secured
Party in respect of dividends paid or distributions made on shares of Common
Stock constituting Collateral that have been rehypothecated in accordance with
Section 5(i)); (iv) the Collateral Account and all securities and other
financial assets (each as defined in Section 8-102 of the UCC), including the
Initial Pledged Items and the Additions and Substitutions, and other funds,
property or assets from time to time held therein or credited thereto; and (v)
all powers and rights now owned or hereafter acquired under or with respect to
the Initial Pledged Items or the Additions and Substitutions (such Initial
Pledged Items, Additions and Substitutions, proceeds, collections, powers,
rights, Collateral Account and assets held therein or credited thereto being
herein collectively called the "Collateral"). Secured Party shall have all of
the rights, remedies and recourses with respect to the Collateral afforded a
secured party by
2
<PAGE> 5
the UCC, in addition to, and not in limitation of, the other rights, remedies
and recourses afforded to Secured Party by this Agreement.
(b) On or prior to the date of the Term Sheet, Pledgor delivered to
Credit Suisse First Boston Corporation a number of shares of Common Stock equal
to the Base Amount as of the Payment Date (the "Initial Pledged Items"), in the
manner provided in Section 5(c). As of the Payment Date, such Initial Pledged
Items shall include, as Eligible Collateral, at least the Base Amount of shares
of Common Stock.
(c) In the event that the Issuer at any time issues in respect of any
Common Stock constituting Collateral hereunder, or comprising financial assets
underlying security entitlements constituting Collateral hereunder, any
additional or substitute shares of capital stock of any class, Pledgor shall
immediately pledge and deliver to Secured Party in accordance with Section 5(c)
all such shares or security entitlements in respect thereof as additional
Collateral hereunder.
(d) The Security Interests are granted as security only and shall not
subject Secured Party to, or transfer or in any way affect or modify, any
obligation or liability of Pledgor or the Issuer with respect to any of the
Collateral or any transaction in connection therewith.
(e) The parties hereto expressly agree that all rights, assets and
property at any time held in or credited to the Collateral Account shall be
treated as financial assets (as defined in Section 8-102 of the UCC).
SECTION 2. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to them in the Securities Contract. As
used herein, the following words and phrases shall have the following meanings:
"Additions and Substitutions" has the meaning provided in Section 1(a).
"Collateral" has the meaning provided in Section 1(a).
"Collateral Account" has the meaning provided in Section 5(c).
"Collateral Event of Default" means, at any time, the occurrence of
either of the following: (A) failure of the Collateral to include, as Eligible
Collateral, at least the Maximum Deliverable Number of shares of Common Stock or
(B) failure at any time of the Security Interests to constitute valid and
perfected security interests in all of the Collateral, subject to no prior or
equal Lien, and, with respect to any Collateral consisting of securities or
security entitlements
3
<PAGE> 6
(each as defined in Section 8-102 of the UCC), as to which Secured Party has
Control, or, in each case, assertion of such by Pledgor in writing.
"CONTROL" means "control" as defined in Section 8-106 and Section 9-115
of the UCC.
"CUSTODIAN" means The Bank of New York, or any other custodian appointed
by Secured Party and identified to Seller.
"DEFAULT SETTLEMENT DATE" has the meaning provided in Section 7(a).
"ELIGIBLE COLLATERAL" means Common Stock; provided that Pledgor has good
and marketable title thereto, free of all Liens (other than the Security
Interests) and Transfer Restrictions and that Secured Party has a valid, first
priority perfected security interest therein, a first lien thereon and Control
with respect thereto, and provided further that to the extent the number of
shares of Common Stock pledged hereunder exceeds at any time the Maximum
Deliverable Number thereof, such excess shares shall not be Eligible Collateral.
"INITIAL PLEDGED ITEMS" has the meaning provided in Section 1(b).
"LOCATION" means, with respect to any party, the place such party is
"deemed located" within the meaning of Section 9-103(3)(d) of the UCC.
"MAXIMUM DELIVERABLE NUMBER" means, on any date, a number of shares of
Common Stock equal to the Base Amount on such date.
"PLEDGED ITEMS" means, as of any date, any and all securities and
instruments delivered by Pledgor to be held by or on behalf of Secured Party
under this Agreement as Collateral.
"REHYPOTHECATION UNAVAILABILITY" has the meaning provided in Section
5(i).
"REHYPOTHECATE" has the meaning provided in Section 5(i).
"SECURITY INTERESTS" means the security interests in the Collateral
created hereby.
"SECURITIES CONTRACT" means the SAILS Mandatorily Exchangeable Securities
Contract dated as of the date hereof among Pledgor, Secured Party and the Agent,
maturing March 1, 2005, as amended from time to time.
4
<PAGE> 7
"UCC" means the Uniform Commercial Code as in effect in the State of New
York.
SECTION 3. Representations and Warranties of Pledgor. Pledgor hereby
represents and warrants to Secured Party that:
(a) Pledgor's holding period (calculated in the manner provided in Rule
144(d) under the Securities Act) with respect to the Eligible Collateral
delivered in accordance with Section 1(b) commenced at least one year prior to
the date of the Term Sheet, and Pledgor (i) owns, and, except with respect to
Collateral rehypothecated pursuant to Section 5(i) at all times prior to the
release of the Collateral pursuant to the terms of this Agreement, will own the
Collateral free and clear of any Liens (other than the Security Interests) or
Transfer Restrictions and (ii) is not and will not become a party to or
otherwise bound by any agreement, other than this Agreement, that (x) restricts
in any manner the rights of any present or future owner of the Collateral with
respect thereto or (y) provides any person other than Pledgor, Secured Party or
any securities intermediary through whom any Collateral is held (but, in the
case of any such securities intermediary, only with respect to Collateral held
through it) with Control with respect to any Collateral.
(b) Other than financing statements or other similar or equivalent
documents or instruments with respect to the Security Interests, no financing
statement, security agreement or similar or equivalent document or instrument
covering all or any part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be effective to perfect a
lien, security interest or other encumbrance of any kind on such Collateral.
(c) All Collateral consisting of securities and all financial assets
underlying Collateral consisting of security entitlements (each as defined in
Section 8-102 of the UCC) at any time pledged hereunder is and will be issued by
an issuer organized under the laws of the United States, any State thereof or
the District of Columbia and (i) certificated (and the certificate or
certificates in respect of such securities or financial assets are and will be
located in the United States) and registered in the name of Pledgor or held
through a securities intermediary whose securities intermediary's jurisdiction
(within the meaning of Section 8-110(e) of the UCC) is located in the United
States or (ii) uncertificated and either registered in the name of Pledgor or
held through a securities intermediary whose securities intermediary's
jurisdiction (within the meaning of Section 8-110(e) of the UCC) is located in
the United States; provided that this representation shall not be deemed to be
breached if, at any time, any such Collateral is issued by an issuer that is not
organized under the laws of the United States, any State thereof or the District
of Columbia, and the parties hereto agree
5
<PAGE> 8
to procedures or amendments hereto necessary to enable Secured Party to maintain
a valid and continuously perfected security interest in such Collateral, in
respect of which Secured Party will have Control, subject to no prior Lien. The
parties hereto agree to negotiate in good faith any such procedures or
amendments.
(d) Upon (i) in the case of Collateral consisting of investment property
(as defined in Section 9-115 of the UCC), (A) the delivery of certificates
evidencing any such investment property consisting of securities to the
Custodian in accordance with Section 5(c)(i), (B) the registration of any such
investment property consisting of uncertificated securities in the name of the
Custodian or its nominee in accordance with Section 5(c)(ii) or (C) the
crediting of any securities or other financial assets underlying any such
investment property consisting of security entitlements to a securities account
of the Custodian in accordance with Section 5(c)(iii) and, in each case, the
crediting of such securities or financial assets to the Collateral Account or
(ii) in the case of Collateral not consisting of investment property, the filing
of UCC-1 financing statements in the form of Exhibit B hereto in the filing
offices specified in Exhibit C hereto, Secured Party will have a valid and
perfected security interest in such Collateral, in respect of which Secured
Party will have (in the case of Collateral consisting of investment property)
Control, subject to no prior Lien.
(e) No registration, recordation or filing with any governmental body,
agency or official is required in connection with the execution and delivery of
this Agreement or necessary for the validity or enforceability hereof or for the
perfection or enforcement of the Security Interests, other than the filing of
UCC-1 financing statements in the form of Exhibit B hereto in the filing offices
specified in Exhibit C hereto.
(f) Pledgor has not performed and will not perform any acts that might
prevent Secured Party from enforcing any of the terms of this Agreement or that
might limit Secured Party in any such enforcement.
(g) The Location of Pledgor is the address set forth in Section 8(c), and
under the Uniform Commercial Code as in effect in such Location, no local filing
is required to perfect a security interest in collateral consisting of general
intangibles.
(h) Pledgor has delivered to Secured Party a perfection certificate
substantially in the form attached as Exhibit C hereto, completed and
supplemented with the schedules and attachments contemplated thereby to the
satisfaction of Secured Party, and signed by the General Partner of Pledgor.
6
<PAGE> 9
SECTION 4. Certain Covenants of Pledgor. Pledgor agrees that, so long as
any of Pledgor's obligations under the Securities Contract remain outstanding:
(a) Pledgor shall ensure at all times that a Collateral Event of Default
shall not occur, and shall pledge additional Collateral in the manner described
in Sections 5(b) and 5(c) as necessary to cause such requirement to be met.
(b) Pledgor shall, at the expense of Pledgor and in such manner and form
as Secured Party may reasonably require, give, execute, deliver, file and record
any financing statement, notice, instrument, document, agreement or other papers
that may be necessary or desirable in order to (i) create, preserve, perfect,
substantiate or validate any security interest granted pursuant hereto, (ii)
create or maintain Control with respect to any such security interests in any
investment property (as defined in Section 9-115 of the UCC) or (iii) enable
Secured Party to exercise and enforce its rights hereunder with respect to such
security interest. To the extent permitted by applicable law, Pledgor hereby
authorizes Secured Party to execute and file, in the name of Pledgor or
otherwise, UCC financing or continuation statements (which may be carbon,
photographic, photostatic or other reproductions of this Agreement or of a
financing statement relating to this Agreement) that Secured Party in its sole
discretion may deem reasonably necessary or appropriate to further perfect, or
maintain the perfection of, the Security Interests.
(c) Pledgor shall warrant and defend Pledgor's title to the Collateral,
subject to the rights of Secured Party, against the claims and demands of all
persons. Secured Party may elect, but without an obligation to do so, to
discharge any Lien of any third party on any of the Collateral.
(d) Pledgor agrees that Pledgor shall not change (i) Pledgor's name,
identity or organizational structure in any manner or (ii) Pledgor's Location,
unless in either case (A) Pledgor shall have given Secured Party not less than
30 days' prior notice thereof and (B) such change shall not cause any of the
Security Interests to become unperfected, cause Secured Party to cease to have
Control in respect of any of the Security Interests in any Collateral consisting
of investment property (as defined in Section 9-115 of the UCC) or subject any
Collateral to any other Lien.
(e) Pledgor agrees that Pledgor shall not (i) create or permit to exist
any Lien (other than the Security Interests) or any Transfer Restriction upon or
with respect to the Collateral, (ii) sell or otherwise dispose of, or grant any
option with respect to, any of the Collateral or (iii) enter into or consent to
any agreement pursuant to which any person other than Pledgor, Secured Party and
any securities intermediary through whom any of the Collateral is held (but in
the case of any
7
<PAGE> 10
such securities intermediary only in respect of Collateral held through it) has
or will have Control in respect of any Collateral.
SECTION 5. Administration of the Collateral and Valuation of the
Securities. (a) Secured Party shall determine on each Business Day whether a
Collateral Event of Default shall have occurred.
(b) Pledgor may pledge additional Eligible Collateral hereunder at any
time. Concurrently with the delivery of any additional Eligible Collateral,
Pledgor shall deliver to Secured Party a certificate of the General Partner of
Pledgor substantially in the form of Exhibit A hereto and dated the date of such
delivery, (i) identifying the additional items of Eligible Collateral being
pledged and (ii) certifying that with respect to such items of additional
Eligible Collateral the representations and warranties contained in paragraphs
(a), (b), (c) and (d) of Section 3 are true and correct with respect to such
Eligible Collateral on and as of the date thereof. Pledgor hereby covenants and
agrees to take all actions required under Section 5(c) and any other actions
necessary to create for the benefit of Secured Party a valid, first priority,
perfected security interest in, and a first lien upon, such additional Eligible
Collateral, as to which Secured Party will have Control.
(c) Any delivery of any securities or security entitlements (each as
defined in Section 8-102 of the UCC) as Collateral to Secured Party by Pledgor
shall be effected (i) in the case of Collateral consisting of certificated
securities registered in the name of Pledgor, by delivery of certificates
representing such securities to the Custodian, accompanied by any required
transfer tax stamps, and in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in blank,
with signatures appropriately guaranteed, all in form and substance satisfactory
to Secured Party, and the crediting by the Custodian of such securities to a
securities account (as defined in Section 8-501 of the UCC) (the "Collateral
Account") of Secured Party maintained by the Custodian, (ii) in the case of
Collateral consisting of uncertificated securities registered in the name of
Pledgor, by transmission by Pledgor of an instruction to the issuer of such
securities instructing such issuer to register such securities in the name of
the Custodian or its nominee, accompanied by any required transfer tax stamps,
the issuer's compliance with such instructions and the crediting by the
Custodian of such securities to the Collateral Account, (iii) in the case of
securities in respect of which security entitlements are held by Pledgor through
a securities intermediary, by the crediting of such securities, accompanied by
any required transfer tax stamps, to a securities account of the Custodian at
such securities intermediary or, at the option of Secured Party, at another
securities intermediary satisfactory to Secured Party and the crediting by the
Custodian of such securities to the Collateral Account or (iv) in any case, by
8
<PAGE> 11
complying with such reasonable alternative delivery instructions as Secured
Party shall provide to Pledgor in writing. Upon delivery of any such Pledged
Item under this Agreement, Secured Party shall examine (or cause the Custodian
to examine) such Pledged Item and any certificates delivered pursuant to Section
5(b) or otherwise pursuant to the terms hereof in connection therewith to
determine that they comply as to form with the requirements for Eligible
Collateral.
(d) If on any Business Day Secured Party determines that a Collateral
Event of Default shall have occurred, Secured Party shall promptly notify
Pledgor of such determination by telephone call to the General Partner of
Pledgor followed by a written confirmation of such call.
(e) If on any Business Day Secured Party determines that no Acceleration
Event or failure by Pledgor to meet any of Pledgor's obligations under Sections
4 or 5 hereof has occurred and is continuing, Pledgor may obtain the release
from the Security Interests of any Collateral upon delivery to Secured Party of
a written notice from the General Partner of Pledgor indicating the items of
Collateral to be released so long as, after such release, no Collateral Event of
Default shall have occurred.
(f) On the Maturity Date, unless (i) Pledgor shall have otherwise
effected the deliveries required by Section 2.03(b) of the Securities Contract
or shall have delivered the Cash Settlement Amount to Secured Party in lieu of
shares of Common Stock in accordance with Section 2.04 of the Securities
Contract on the Maturity Date or (ii) the Common Stock then held by or on behalf
of Secured Party hereunder is not Free Stock, Secured Party shall deliver or
cause to be delivered to itself from the Collateral Account in whole or partial,
as the case may be, satisfaction of Pledgor's obligations to deliver shares of
Common Stock to Secured Party on the Maturity Date pursuant to the Securities
Contract, shares of Common Stock then held by or on behalf of it hereunder
representing the number of shares of Common Stock required to be delivered under
the Securities Contract on the Maturity Date. Upon any such delivery, Secured
Party shall hold such shares of Common Stock absolutely and free from any claim
or right whatsoever (including, without limitation, any claim or right of
Pledgor).
(g) Secured Party may at any time or from time to time, in its sole
discretion, cause any or all of the Common Stock pledged hereunder registered in
the name of Pledgor or Pledgor's nominee to be transferred of record into the
name of the Custodian, Secured Party or its nominee. Pledgor shall promptly give
to Secured Party copies of any notices or other communications received by
Pledgor with respect to Common Stock pledged hereunder registered, or held
through a securities intermediary, in the name of Pledgor or Pledgor's nominee
9
<PAGE> 12
and Secured Party shall promptly give to Pledgor copies of any notices and
communications received by Secured Party with respect to Common Stock pledged
hereunder registered, or held through a securities intermediary, in the name of
Custodian, Secured Party or its nominee.
(h) Pledgor agrees that Pledgor shall forthwith upon demand pay to
Secured Party:
(i) the amount of any taxes that Secured Party or the Custodian
may have been required to pay by reason of the Security Interests or to
free any of the Collateral from any Lien thereon, and
(ii) the amount of any and all reasonable costs and expenses,
including the fees and disbursements of counsel and of any other experts,
that Secured Party or the Custodian may incur in connection with (A) the
enforcement of this Agreement, including such expenses as are incurred to
preserve the value of the Collateral and the validity, perfection, rank
and value of the Security Interests, (B) the collection, sale or other
disposition of any of the Collateral, (C) the exercise by Secured Party
of any of the rights conferred upon it hereunder or (D) any Acceleration
Event.
Any such amount not paid on demand shall bear interest (computed on the basis of
a year of 360 days and payable for the actual number of days elapsed) at a rate
per annum equal to 5% plus the prime rate as published from time to time in The
Wall Street Journal, Eastern Edition.
(i) Without limiting the rights and obligations of the parties under this
Agreement, upon the consent of Pledgor (which consent need not be in writing),
Secured Party may, notwithstanding Section 9-207 of the UCC, sell, lend, pledge,
rehypothecate, assign, invest, use, commingle or otherwise dispose of, or
otherwise use in its business (collectively, "rehypothecate"), any Collateral,
free from any claim or right of any nature whatsoever of Pledgor, including any
equity or right of redemption by Pledgor; provided that Secured Party will
replace any rehypothecated Collateral (with the same Collateral or identical
substitute Collateral) (A) upon five Business Days' notice from Pledgor or (B)
if not already replaced, on the Maturity Date or any Optional Termination Date;
provided further that in the case of any Optional Termination Date on which the
Securities Contract is terminated in part pursuant to Section 3.01 of the
Securities Contract, Secured Party will be obligated to replace only an amount
of rehypothecated Collateral sufficient to ensure that on such date, the
Collateral Account will contain a number of shares of Common Stock at least
equal to the number of shares of Common Stock with respect to which the
Securities Contract is to be terminated pursuant to Section 3.01 of the
Securities Contract. If at any time at which any shares of Common Stock
constituting
10
<PAGE> 13
Collateral have been rehypothecated pursuant to this Section 5(i) there shall
occur an event of a type that would, had Secured Party borrowed such shares of
Common Stock from Pledgor on terms customary for loans of equity securities (as
determined by the Calculation Agent), require either (i) an adjustment to the
number of shares of Common Stock or a change in the type of securities or other
property that Secured Party would be required to deliver to Pledgor to repay
such stock loan or (ii) a payment or delivery by Secured Party to Pledgor in
respect of dividends paid or distributions made on such shares of Common Stock,
then, in the case of clause (i), such adjustment or change shall be applied to
the number of shares of Common Stock that Secured Party is required to replace
in accordance with the proviso to the immediately preceding sentence and, in the
case of clause (ii), Secured Party shall make such payment or delivery to
Pledgor, whereupon the amount so paid or the assets so delivered shall become
Collateral hereunder. All determinations related to the immediately preceding
sentence shall be made by the Calculation Agent. Notwithstanding the foregoing,
if any of the Eligible Collateral pledged hereunder is unavailable for
rehypothecation by Secured Party at any time ((1) as a result of Pledgor's
withholding Pledgor's consent to rehypothecation of such Collateral, (2) as a
result of Pledgor's causing Secured Party to replace such Collateral pursuant to
the proviso to the first sentence in this Section 5(i), (3) as a result of any
Transfer Restrictions or (4) otherwise) (a "Rehypothecation Unavailability"),
the Calculation Agent shall adjust one or more of the Base Amount, the Exchange
Rate, the Threshold Price, the Issue Price, the Maturity Price, the Cash
Settlement Amount, any Closing Price and any other variable relevant to the
exercise, settlement or payment terms hereof or of the Securities Contract, as
appropriate to make Secured Party whole for Secured Party's cost relating to the
borrowing of shares of Common Stock in connection with hedging Secured Party's
exposure to the Securities Contract (whether such borrowing is effected by
Secured Party or by a counterparty to a transaction entered into by Secured
Party to hedge Secured Party's exposure to the Securities Contract), as
determined by the Calculation Agent. For purposes of determining the occurrence
of a Collateral Event of Default, the rehypothecation of any Collateral pledged
hereunder shall not affect the status of such Collateral as Collateral or
Eligible Collateral hereunder.
SECTION 6. Income and Voting Rights in Collateral. (a) Secured Party
shall have the right to receive and retain as Collateral hereunder all proceeds
(including, without limitation, ordinary cash dividends or interest) of the
Collateral, and Pledgor shall take all such action as Secured Party shall deem
reasonably necessary or appropriate to give effect to such right. All such
proceeds that are received by Pledgor shall be received in trust for the benefit
of Secured Party and, if Secured Party so directs, shall be segregated from
other funds of Pledgor and shall, forthwith upon demand by Secured Party, be
delivered over to the Custodian on behalf of Secured Party as Collateral in the
same form as received (with any necessary endorsement).
11
<PAGE> 14
(b) Unless an Acceleration Event shall have occurred and be continuing,
Pledgor shall have the right, from time to time, to vote and to give consents,
ratifications and waivers with respect to the Collateral (other than Collateral
that has been rehypothecated by Secured Party pursuant to Section 5(i)), and
Secured Party shall, upon receiving a written request from Pledgor accompanied
by a certificate of the General Partner of Pledgor stating that no Acceleration
Event has occurred and is continuing, deliver to Pledgor or as specified in such
request such proxies, powers of attorney, consents, ratifications and waivers in
respect of any of the Collateral that is registered, or held through a
securities intermediary, in the name of the Custodian, Secured Party or its
nominee as shall be specified in such request and shall be in form and substance
satisfactory to Secured Party.
(c) If an Acceleration Event shall have occurred and be continuing,
Secured Party shall have the right, to the extent permitted by law, and Pledgor
shall take all such action as may be necessary or appropriate to give effect to
such right, to vote and to give consents, ratifications and waivers, and to take
any other action with respect to any or all of the Collateral with the same
force and effect as if Secured Party were the absolute and sole owner thereof.
SECTION 7. Remedies upon Acceleration Events. (a) If any Acceleration
Event shall have occurred and be continuing, Secured Party may exercise all the
rights of a secured party under the Uniform Commercial Code (whether or not in
effect in the jurisdiction where such rights are exercised) and, in addition,
without being required to give any notice, except as herein provided or as may
be required by mandatory provisions of law, shall: (i) deliver or cause to be
delivered to itself from the Collateral Account all Collateral consisting of
shares of Common Stock (but not in excess of the number thereof deliverable
under the Securities Contract at such time) on the date of the Acceleration
Amount Notice relating to such Acceleration Event (the "Default Settlement
Date") in satisfaction of Pledgor's obligations to deliver Common Stock under
the Securities Contract, whereupon Secured Party shall hold such shares of
Common Stock absolutely free from any claim or right of whatsoever kind,
including any equity or right of redemption of Pledgor that may be waived or any
other right or claim of Pledgor, and Pledgor, to the extent permitted by law,
hereby specifically waives all rights of redemption, stay or appraisal that
Pledgor has or may have under any law now existing or hereafter adopted; and
(ii) if such delivery shall be insufficient to satisfy in full all of the
obligations of Pledgor under the Securities Contract or hereunder, sell all of
the remaining Collateral, or such lesser portion thereof as may be necessary to
generate proceeds sufficient to satisfy in full all of the obligations of
Pledgor under the Securities Contract or hereunder, at public or private sale or
at any broker's board or on any securities exchange, for cash, upon credit or
for future delivery, and at such price or prices as Secured Party may deem
satisfactory. Pledgor covenants and agrees that Pledgor will execute and deliver
such documents and take such other action as Secured Party
12
<PAGE> 15
deems necessary or advisable in order that any such sale may be made in
compliance with law. Upon any such sale, Secured Party shall have the right to
deliver, assign and transfer to the buyer thereof the Collateral so sold. Each
buyer at any such sale shall hold the Collateral so sold absolutely and free
from any claim or right of whatsoever kind, including any equity or right of
redemption of Pledgor that may be waived or any other right or claim of Pledgor,
and Pledgor, to the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal that Pledgor has or may have under any
law now existing or hereafter adopted. The notice (if any) of such sale required
by Section 9-504 of the UCC shall (1) in case of a public sale, state the time
and place fixed for such sale, (2) in case of sale at a broker's board or on a
securities exchange, state the board or exchange at which such sale is to be
made and the day on which the Collateral, or the portion thereof so being sold,
will first be offered for sale at such board or exchange, and (3) in the case of
a private sale, state the day after which such sale may be consummated. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as Secured Party may fix in the notice of such sale.
At any such sale the Collateral may be sold in one lot as an entirety or in
separate parcels, as Secured Party may determine. Secured Party shall not be
obligated to make any such sale pursuant to any such notice. Secured Party may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the buyer thereof,
but Secured Party shall not incur any liability in case of the failure of such
buyer to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. Secured Party,
instead of exercising the power of sale herein conferred upon it, may proceed by
a suit or suits at law or in equity to foreclose the Security Interests and sell
the Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) Pledgor hereby irrevocably appoints Secured Party Pledgor's true
and lawful attorney, with full power of substitution, in the name of Pledgor,
Secured Party or otherwise, for the sole use and benefit of Secured Party, but
at the expense of Pledgor, to the extent permitted by law, to exercise, at any
time and from time to time while an Acceleration Event has occurred and is
continuing, all or any of the following powers with respect to all or any of the
Collateral:
(i) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due upon or by virtue thereof,
13
<PAGE> 16
(ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in or with
the same or the proceeds or avails thereof, as fully and effectually as
if Secured Party were the absolute owner thereof (including, without
limitation, the giving of instructions and entitlement orders in
respect thereof), and
(iv) to extend the time of payment of any or all thereof and
to make any allowance and other adjustments with reference thereto;
provided that Secured Party shall give Pledgor not less than one day's prior
written notice of the time and place of any sale or other intended disposition
of any of the Collateral, except any Collateral that threatens to decline
speedily in value, including, without limitation, equity securities, or is of a
type customarily sold on a recognized market. Secured Party and Pledgor agree
that such notice constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the UCC.
(c) Upon any delivery or sale of all or any part of any Collateral made
either under the power of delivery or sale given under this Section 7 or under
judgment or decree in any judicial proceedings for foreclosure or otherwise for
the enforcement of this Agreement, Secured Party is hereby irrevocably appointed
the true and lawful attorney of Pledgor, in the name and stead of Pledgor, to
make all necessary deeds, bills of sale, instruments of assignment, transfer or
conveyance of the property, and all instructions and entitlement orders in
respect of the property thus delivered or sold. For that purpose Secured Party
may execute all such documents, instruments, instructions and entitlement
orders. This power of attorney shall be deemed coupled with an interest, and
Pledgor hereby ratifies and confirms that which Pledgor's attorney acting under
such power, or such attorney's successors or agents, shall lawfully do by virtue
of this Agreement. If so requested by Secured Party or by any buyer of the
Collateral or a portion thereof, Pledgor shall further ratify and confirm any
such delivery or sale by executing and delivering to Secured Party or to such
buyer or buyers at the expense of Pledgor all proper deeds, bills of sale,
instruments of assignment, conveyance or transfer, releases, instructions and
entitlement orders as may be designated in any such request.
(d) In the case of an Acceleration Event, Secured Party may proceed to
realize upon the security interest in the Collateral against any one or more of
the types of Collateral, at any time, as Secured Party shall determine in its
sole discretion subject to the foregoing provisions of this Section 7. The
proceeds of any sale of, or other realization upon, or other receipt from, any
of the Collateral shall be applied by Secured Party in the following order of
priorities:
14
<PAGE> 17
first, to the payment to Secured Party or the Custodian of the expenses
of such sale or other realization, including reasonable compensation to the
Custodian and the agents and counsel of the Custodian and Secured Party, and all
expenses, liabilities and advances incurred or made by Secured Party or the
Custodian in connection therewith, including brokerage fees in connection with
the sale by Secured Party of any Collateral;
second, to the payment to Secured Party of an amount equal to the
aggregate Market Value of a number of shares of Common Stock equal to (i) the
number of shares of Common Stock that would be required to be delivered under
Section 8.01 of the Securities Contract on the Default Settlement Date without
giving effect to the proviso therein minus (ii) the number of shares of Common
Stock delivered to Secured Party on the Default Settlement Date as described in
Section 7(a);
finally, if all of the obligations of Pledgor hereunder and under the
Securities Contract have been fully discharged or sufficient funds have been set
aside by Secured Party at the request of Pledgor for the discharge thereof, any
remaining proceeds shall be released to Pledgor.
SECTION 8. Miscellaneous. (a). This Agreement is not intended and shall
not be construed to create any rights in any person other than Pledgor, Secured
Party and their respective successors and assigns and no other person shall
assert any rights as third party beneficiary hereunder. Whenever any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party. All the covenants and agreements herein
contained by or on behalf of Pledgor and Secured Party shall bind, and inure to
the benefit of, their respective successors and assigns whether so expressed or
not. The rights and duties under this Agreement may not be assigned or
transferred by any party hereto without the prior written consent of the other
parties hereto; provided that (i) Secured Party may assign or transfer any of
its rights or duties hereunder without the prior written consent of Pledgor and
(ii) the Agent may assign or transfer any of its rights or duties hereunder
without the prior written consent of the other parties hereto to any affiliate
of Credit Suisse First Boston, so long as such affiliate is a broker-dealer
registered with the Securities and Exchange Commission.
(b) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by Pledgor and Secured Party or, in the case of a waiver, by the
party against whom the waiver is to be effective. No failure or delay by either
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and
15
<PAGE> 18
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(c) All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed or transmitted by any
standard forms of telecommunication. Notices to Pledgor shall be directed to
Pledgor at Suite 850, 101 Convention Center Drive, Las Vegas, Nevada 89019,
Telecopy No. (702) 598-3651, with a copy to Robert E. Freitas, Orrick,
Herrington & Sutcliffe LLP, 600 Hansen Way, Palo Alto, California 94304,
Telecopy No. (650) 614-7301; notices to Secured Party shall be directed to it in
care of Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York,
New York 10010, Telecopy No. (212) 325-8175, Attention: Ricardo Harewood, with a
copy to QSPV Limited, Queensgate House, George Town, Grand Cayman, Cayman
Islands, Telecopy No. (345) 945-7100, Attention: Martin Couch.
(d) This Agreement shall in all respects be construed in accordance
with and governed by the laws of the State of New York without reference to
choice of law doctrine (provided that as to Pledged Items located in any
jurisdiction other than the State of New York, Secured Party shall, in addition
to any rights under the laws of the State of New York, have all of the rights to
which a secured party is entitled under the laws of such other jurisdiction) and
each party hereto submits to the jurisdiction of the Courts of the State of New
York and the United States District Court located in the Borough of Manhattan in
New York City. The parties hereto hereby agree that the Custodian's
jurisdiction, within the meaning of Section 8-10(e) of the UCC, insofar as it
acts as a securities intermediary hereunder or in respect hereof, is the State
of New York. To the extent permitted by law, the unenforceability or invalidity
of any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(e) EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(f) Pledgor hereby agrees that it shall not institute against, or join
any other person in instituting against, Secured Party any bankruptcy,
reorganization, arrangement, insolvency, moratorium or liquidation proceedings.
Pledgor hereby acknowledges and agrees that Secured Party's obligations under
this Agreement will be solely the corporate obligations of Secured Party, and
that Pledgor will not have any recourse to any of the directors, officers or
employees of Secured Party with respect to any claims, losses, damages,
liabilities, indemnities or other obligations in connection with any
transactions contemplated by this Agreement. Recourse in respect of any
obligations of Secured Party under this Agreement will be limited to
16
<PAGE> 19
the assets of Secured Party and no debt shall be owed by Secured Party in
respect of any shortfall after realization of such assets.
(g) This Agreement may be executed, acknowledged and delivered in any
number of counterparts and all such counterparts taken together shall be deemed
to constitute one and the same agreement.
(h) The rights and obligations of the Agent shall be as set forth in
Section 9.09 of the Securities Contract.
SECTION 9. Termination of Pledge Agreement. This Agreement and the
rights hereby granted by Pledgor in the Collateral shall cease, terminate and be
void upon fulfillment of all of the obligations of Pledgor under the Securities
Contract and hereunder. Any Collateral remaining at the time of such termination
shall be fully released and discharged from the Security Interests and delivered
to Pledgor by Secured Party, all at the request and expense of Pledgor.
SECTION 10. Set-off. In addition to and without limiting any rights of
set-off that Secured Party may have as a matter of law, pursuant to contract or
otherwise, upon the occurrence of a Reorganization Termination Date or an
Acceleration Date, Secured Party shall have the right to terminate, liquidate
and otherwise close out the transactions contemplated by the Securities Contract
and this Agreement pursuant to the terms of the Securities Contract and this
Agreement, and to set off any obligation it may have to Pledgor pursuant to the
Securities Contract or this Agreement, including without limitation any
obligation to (i) release from the Security Interests or return to Pledgor any
Collateral pursuant to Section 5(e) or Section 9 or (ii) replace any
rehypothecated Collateral pursuant to Section 5(i), against any right Secured
Party or any of its affiliates may have against Pledgor pursuant to the
Securities Contract or this Agreement, including without limitation any right to
receive a payment or delivery pursuant to the Securities Contract. In the case
of a set-off of any obligation to return or replace assets against any right to
receive assets of the same type, such obligation and right shall be set off in
kind. In the case of a set-off of any obligation to return or replace assets
against any right to receive assets of any other type, the value of each of such
obligation and such right shall be determined by the Calculation Agent and the
result of such set-off shall be that the net obligor shall pay or deliver to the
other party an amount of cash or assets, at the net obligor's option, with a
value (determined, in the case of a delivery of assets, by the Calculation
Agent) equal to that of the net obligation. In determining the value of any
obligation to release or deliver Common Stock or right to receive Common Stock,
the value at any time of such obligation or right shall be determined by
reference to the Market Value of the Common Stock at such time. If an obligation
or right is unascertained at the time of any such set-off, the Calculation Agent
may in good faith estimate the amount or value of such obligation or right, in
which case
17
<PAGE> 20
set-off will be effected in respect of that estimate, and the relevant party
shall account to the other party at the time such obligation or right is
ascertained.
<PAGE> 21
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
PLEDGOR:
ZG NEVADA LIMITED PARTNERSHIP
By: ZG Nevada, Inc.,
its General Partner
By:
-----------------------------------
Name:
Title:
SECURED PARTY:
CSFB SAILS CORP.
By:
----------------------------------
Name:
Title:
AGENT:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE> 22
EXHIBIT A
[Certificate for Additional Collateral]
The undersigned, the General Partner of ZG Nevada Limited Partnership
("PLEDGOR"), hereby certifies, pursuant to Section 5(b) of the SAILS Pledge
Agreement dated as of March 1, 2000 among Pledgor, Credit Suisse First Boston
Corporation, as Agent, and CSFB SAILS Corp. (the "PLEDGE AGREEMENT"; terms
defined in the Pledge Agreement being used herein as defined therein), that:
1. Pledgor is delivering, or causing to be delivered in
accordance with Section 5(c) of the Pledge Agreement, the following
securities (or security entitlements in respect thereof) to Secured
Party to be held by Secured Party as additional Collateral (the
"ADDITIONAL COLLATERAL"):
2. Pledgor hereby represents and warrants to Secured Party
that the Additional Collateral is Eligible Collateral and that the
representations and warranties contained in paragraphs (a), (b), (c)
and (d) of Section 3 of the Pledge Agreement are true and correct with
respect to the Additional Collateral on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
__ day of ________ , 200_.
ZG NEVADA, INC.
By:
-----------------------------------
Name:
Title:
<PAGE> 23
EXHIBIT B
[Form of UCC-1 Financing Statement]
SCHEDULE A TO FINANCING STATEMENT NAMING
ZG NEVADA LIMITED PARTNERSHIP, AS DEBTOR, AND
CSFB SAILS CORP., AS SECURED PARTY
This financing statement covers ZG Nevada Limited Partnership's
("DEBTOR'S") right, title and interest in and to the following, whether now
owned or hereafter acquired (all of which is hereinafter collectively referred
to as the "COLLATERAL"):
(i) the Initial Pledged Items;
(ii) all additions to and substitutions for the Initial Pledged Items
(the "ADDITIONS AND SUBSTITUTIONS")
(iii) all income, proceeds and collections received or to be received,
or derived or to be derived, now or at any time hereafter (whether before or
after the commencement of any proceeding under applicable bankruptcy, insolvency
or similar law, by or against Debtor, with respect to Debtor) from or in
connection with the Initial Pledged Items and the Additions and Substitutions
(including, without limitation, (A) any shares of capital stock issued by the
Issuer in respect of any Common Stock constituting Collateral or any cash,
securities or other property distributed in respect of or exchanged for any
Common Stock constituting Collateral, or into which any such Common Stock is
converted in connection with any Reorganization Event, and any security
entitlements in respect of any of the foregoing, (B) any obligation of Secured
Party to replace any rehypothecated Collateral and (C) any amounts paid or
assets delivered to Pledgor by Secured Party in respect of dividends paid or
distributions made on shares of Common Stock constituting Collateral that have
been rehypothecated);
(iv) the Collateral Account and all securities and other financial
assets (each as defined in Section 8-102 of the UCC), including the Initial
Pledged Items and the Additions and Substitutions, and other funds, property or
other assets from time to time held therein or credited thereto; and
(v) all powers and rights now owned or hereafter acquired under or with
respect to the Initial Pledged Items or the Additions and Substitutions.
<PAGE> 24
As used in this Schedule A, the following capitalized terms have the
meanings specified below (such meanings being equally applicable to both the
singular and plural forms of the terms defined):
"AGENT" means Credit Suisse First Boston Corporation.
"COLLATERAL ACCOUNT" means a securities account (as defined in Section
8- 501(a) of the UCC) established in the name of Secured Party at the offices of
the Custodian in which or to which certain of the Collateral is to be deposited
or credited.
"COMMON STOCK" means shares of Common Stock, par value $0.0001 per
share, of the Issuer, or security entitlements in respect thereof.
"CUSTODIAN" means The Bank of New York or any other custodian appointed
by Secured Party and identified to Debtor.
"INITIAL PLEDGED ITEMS" means 750,000 shares of Common Stock.
"ISSUER" means Digital Lightwave, Inc., a Delaware corporation.
"SECURED PARTY" means CSFB SAILS Corp.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
B-2
<PAGE> 25
EXHIBIT C
[Perfection Certificate]
The undersigned, the General Partner of ZG Nevada Limited Partnership
("PLEDGOR"), hereby certifies, pursuant to Section 3(h) of the SAILS Pledge
Agreement (the "PLEDGE AGREEMENT") dated as of March 1, 2000 among Pledgor,
Credit Suisse First Boston Corporation, as Agent, and CSFB SAILS Corp. ("SECURED
PARTY") (terms defined therein being used herein as defined in the Pledge
Agreement), that:
1. Jurisdiction of Organization. Pledgor is a limited partnership
organized under the laws of the State of Nevada.
2. Name. The exact name of Pledgor as it appears in its certificate of
limited partnership is:
ZG Nevada Limited Partnership
3. Prior Names. (a) Set forth below is each other name that Pledgor has
had since its organization, together with the date of the relevant change:
(b) Pledgor has not changed its organizational structure in any way
within the past five years.
4. Current Locations. The chief executive office of Pledgor is located
at the following address:
<TABLE>
<CAPTION>
MAILING ADDRESS COUNTY STATE
<S> <C> <C>
Suite 850 Clark Nevada
101 Convention Center Drive
Las Vegas, Nevada 89019
</TABLE>
5. Prior Locations. (a) Set forth below is the information required by
Section 4 above with respect to each other chief executive office maintained by
Pledgor at any time during the past five years:
<PAGE> 26
<TABLE>
<CAPTION>
MAILING ADDRESS COUNTY STATE
<S> <C> <C>
3500 Lakeside Court Washoe Nevada
Reno, Washoe County, Nevada 89509
</TABLE>
6. Filing Offices. In order to perfect the Security Interests granted
by Pledgor, a duly signed financing statement on Form UCC-1 in the form attached
as Exhibit B to the Pledge Agreement should be on file in the appropriate
offices (central and, where required, local) in each jurisdiction identified in
Section 4 above.
7. Search Reports. Attached hereto as Schedule I is a true copy of a
file search report from the central UCC filing office in each jurisdiction
identified in Sections 4 and 5 above with respect to each name set forth in
Sections 2 and 3(a) above (searches in local filing offices, if any, are not
required).
C-2
<PAGE> 27
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 1st day
of March, 2000.
ZG NEVADA, INC.
By:
---------------------------------
Name:
Title:
<PAGE> 28
[CM LEFT BLANK]
C-4
<PAGE> 1
Exhibit 7
SAILS MANDATORILY EXCHANGEABLE SECURITIES CONTRACT
dated as of
March 1, 2000
among
ZG NEVADA LIMITED PARTNERSHIP,
CSFB SAILS CORP.
and
CREDIT SUISSE FIRST BOSTON CORPORATION, as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions........................................... 1
ARTICLE 2
SALE AND PURCHASE
SECTION 2.01. Sale and Purchase..................................... 6
SECTION 2.02. Purchase Price........................................ 6
SECTION 2.03. Payment for and Delivery of Contract Shares........... 6
SECTION 2.04. Cash Settlement Option................................ 7
ARTICLE 3
TERMINATION BY SELLER
SECTION 3.01. Termination by Seller................................. 7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 4.01. Representations and Warranties of Seller.............. 8
ARTICLE 5
CONDITIONS TO BUYER'S OBLIGATIONS
SECTION 5.01. Conditions............................................ 11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 6
COVENANTS
SECTION 6.01. Taxes................................................. 12
SECTION 6.02. Forward Contract...................................... 12
SECTION 6.03. Notices............................................... 12
SECTION 6.04. Further Assurances.................................... 13
SECTION 6.05. Securities Contract................................... 13
ARTICLE 7
ADJUSTMENTS
SECTION 7.01. Dilution Adjustments.................................. 13
SECTION 7.02. Reorganization Events................................. 15
SECTION 7.03. Provisions Relating to Reorganization Events and
Spin-Offs............................................. 16
SECTION 7.04. Termination and Payment............................... 16
ARTICLE 8
ACCELERATION
SECTION 8.01. Acceleration.......................................... 17
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices............................................... 19
SECTION 9.02. Governing Law; Submission to Jurisdiction; Severability;
Waiver of Jury Trial; Service of Process.............. 19
SECTION 9.03. Confidentiality....................................... 20
SECTION 9.04. Entire Agreement...................................... 21
SECTION 9.05. Amendments, Waivers................................... 21
SECTION 9.06. No Third Party Rights, Successors and Assigns......... 21
SECTION 9.07. Calculation Agent..................................... 21
SECTION 9.08. Set-off............................................... 22
SECTION 9.09. Matters Related to Credit Suisse First Boston
Corporation, as Agent................................. 22
SECTION 9.10. Counterparts.......................................... 23
SECTION 9.11. Limited Recourse...................................... 23
</TABLE>
ii
<PAGE> 4
SAILS MANDATORILY EXCHANGEABLE SECURITIES CONTRACT
THIS AGREEMENT is made as of this 1(st) day of March, 2000 among ZG NEVADA
LIMITED PARTNERSHIP ("SELLER"), a Nevada limited partnership, CREDIT SUISSE
FIRST BOSTON CORPORATION, as agent (the "AGENT") hereunder, and CSFB SAILS CORP.
("BUYER").
WHEREAS, Seller owns shares of common stock, par value $0.0001 per share,
of Digital Lightwave, Inc., a Delaware corporation (the "ISSUER"), or security
entitlements in respect thereof (the "COMMON STOCK");
WHEREAS, Seller has agreed, pursuant to the Pledge Agreement (as defined
herein), to grant Buyer a security interest in certain shares of Common Stock to
secure the obligations of Seller hereunder;
WHEREAS, Seller and Buyer are willing to sell and purchase such shares of
Common Stock at the time and on the terms set forth herein;
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby mutually
covenant and agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. As used herein, the following words and phrases
shall have the following meanings:
"ACCELERATION AMOUNT" has the meaning provided in Section 8.01.
"ACCELERATION AMOUNT NOTICE" has the meaning provided in Section 8.01.
"ACCELERATION DATE" has the meaning provided in Section 8.01.
"ACCELERATION DELIVERY DATE" has the meaning provided in Section 8.01.
"ACCELERATION EVENT" has the meaning provided in Section 8.01.
"ACQUIRING CORPORATION" has the meaning provided in Section 7.02.
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"BANKRUPTCY CODE" has the meaning provided in Section 6.05.
"BASE AMOUNT" has the meaning provided in Section 2.01.
"BUSINESS DAY" means any day on which commercial banks are open for
business in New York City.
"CALCULATION AGENT" means Credit Suisse Financial Products.
"CASH SETTLEMENT AMOUNT" means an amount of cash equal to the product of
the Maturity Price and the number of shares of Common Stock equal to the product
of (i) the Base Amount and (ii) the Exchange Rate.
"CLOSING PRICE" of any security on any date of determination means the
closing sale price (or, if no closing sale price is reported, the last reported
sale price) of such security on the Exchange for the regular trading session on
such date or, if such security is not listed on a national securities exchange
or quoted on a national automated quotation system, the last quoted bid price
for such security in the over-the-counter market for the regular trading session
for such date, as reported by the National Quotation Bureau or similar
organization, or, if such bid price is not available, the market value of such
security on such date as determined by the Calculation Agent.
"COLLATERAL ACCOUNT" has the meaning provided in the Pledge Agreement.
"CONTRACT SHARE AMOUNT" has the meaning provided in Section 2.03(b).
"CONTRACT SHARES" has the meaning provided in Section 2.03(b).
"CUSTODIAN" has the meaning provided in the Pledge Agreement.
"EXCHANGE" means, at any time, the principal national securities exchange
or automated quotation system, if any, on which the Common Stock is listed or
quoted at such time.
"EXCHANGE BUSINESS DAY" means any day that is (or, but for the occurrence
of a Market Disruption Event, would have been) a trading day on the Exchange,
other than a day on which trading on the Exchange is scheduled to close prior to
its regular weekday closing time.
"EXCHANGE RATE" has the meaning provided in Section 2.03(c).
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"FREE STOCK" means Common Stock that is not subject to any Transfer
Restrictions (other than Transfer Restrictions arising solely from the fact that
Seller is an "affiliate", within the meaning of Rule 144 under the Securities
Act, of the Issuer) in the hands of Seller immediately prior to delivery to
Buyer hereunder and would not upon delivery to Buyer be subject to any Transfer
Restrictions in the hands of Buyer.
"GENERAL PARTNER" means ZG Nevada, Inc., a Nevada corporation.
"ISSUE PRICE" has the meaning provided in Section 2.03(c).
"LIEN" means any lien, mortgage, security interest, pledge, charge or
encumbrance of any kind.
"LIMITED PARTNER" means Bryan J. Zwan.
"MARKET DISRUPTION EVENT" means the occurrence or the existence on any
Exchange Business Day during the one-half hour period ending at the close of the
regular trading session on the relevant exchange of any suspension of or
limitation in trading (by reason of movements in price exceeding limits
permitted by the relevant exchange or otherwise) in the Common Stock or in
listed options on the Common Stock, if any, if, in the determination of the
Calculation Agent, such suspension or limitation is material.
"MARKET VALUE" means, as of any date with respect to any share of Common
Stock, the Closing Price per share of Common Stock for the Exchange Business Day
prior to such date.
"MARKETABLE SECURITIES" means shares of common stock of a Publicly- Traded
Entity that are not subject to any Transfer Restrictions.
"MATURITY DATE" means March 1, 2003.
"MATURITY PRICE" means the average of the Closing Prices per share of the
Common Stock on the 20 Trading Days beginning 30 Exchange Business Days
immediately prior to the Maturity Date; provided that if there are not 20
Trading Days during the period beginning 30 Exchange Business Days immediately
prior to the Maturity Date and ending on the Exchange Business Day immediately
prior to the Maturity Date, the Maturity Price shall be the market value of one
share of Common Stock during such period as determined by the Calculation Agent.
"NEW COMMON STOCK" has the meaning provided in Section 7.01(c).
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"NON-STOCK CONSIDERATION" has the meaning provided in Section 7.02.
"OPTIONAL TERMINATION DATE" has the meaning provided in Section 3.01.
"ORGANIZATIONAL DOCUMENTS" means the Certificate of Limited Partnership of
Seller and the Amended and Restated Agreement of Limited Partnership of Seller
dated as of December 24, 1997 between the General Partner and the Limited
Partner, as amended from time to time.
"ORIGINAL COMMON STOCK" has the meaning provided in Section 7.01(c).
"PAYMENT DATE" has the meaning provided in Section 2.03(a).
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLEDGE AGREEMENT" means the SAILS Pledge Agreement dated as of the date
hereof among Seller, Buyer and the Agent, as amended from time to time.
"POTENTIAL ADJUSTMENT EVENT" has the meaning provided in Section 7.01.
"PUBLICLY-TRADED ENTITY" means an Acquiring Corporation or a surviving or
continuing corporation of the Issuer (or any successor) following a
Reorganization Event, or a corporation the capital stock of which is distributed
in a Spin-Off, the common stock of which is traded on any national securities
exchange or automatic interdealer quotation system in the United States;
provided that in the case of a Reorganization Event, the product of (i) the
Closing Price per share of common stock of such Acquiring Corporation or such
surviving or continuing corporation, as the case may be, on the Exchange
Business Day immediately succeeding such Reorganization Event multiplied by (ii)
the number of shares of such corporation's common stock held by non-affiliates
of such corporation shall not be less than the product of (A) the Closing Price
per share of Common Stock on the Exchange Business Day immediately preceding
such Reorganization Event and (B) the number of shares of Common Stock held by
non-affiliates of the Issuer.
"PURCHASE PRICE" has the meaning provided in Section 2.02.
"REORGANIZATION EVENT" has the meaning provided in Section 7.02.
"REORGANIZATION TERMINATION DATE" has the meaning provided in Section
7.02.
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"REPLACEMENT VALUE" has the meaning provided in Section 8.01.
"SECURED PARTY" has the meaning provided in the Pledge Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPIN-OFF" has the meaning provided in Section 7.01.
"TERMINATION AMOUNT NOTICE" has the meaning provided in Section
7.04.
"THRESHOLD PRICE" has the meaning provided in Section 2.03(c).
"TRADING DAY" is defined as any Exchange Business Day on which there
is not a Market Disruption Event.
"TRANSFER RESTRICTION" means, with respect to any share of Common Stock or
item of collateral pledged under the Pledge Agreement, any condition to or
restriction on the ability of the holder thereof to sell, assign or otherwise
transfer such share of Common Stock or item of collateral or to enforce the
provisions thereof or of any document related thereto whether set forth in such
item of collateral itself or in any document related thereto, including, without
limitation, (i) any requirement that any sale, assignment or other transfer or
enforcement of such share of Common Stock or item of collateral be consented to
or approved by any Person, including, without limitation, the issuer thereof or
any other obligor thereon, (ii) any limitations on the type or status, financial
or otherwise, of any purchaser, pledgee, assignee or transferee of such share of
Common Stock or item of collateral, (iii) any requirement of the delivery of any
certificate, consent, agreement, opinion of counsel, notice or any other
document of any Person to the issuer of, any other obligor on or any registrar
or transfer agent for, such share of Common Stock or item of collateral, prior
to the sale, pledge, assignment or other transfer or enforcement of such share
of Common Stock or item of collateral and (iv) any registration or qualification
requirement or prospectus delivery requirement for such share of Common Stock or
item of collateral pursuant to any federal, state or foreign securities law
(including, without limitation, any such requirement arising as a result of Rule
144 or Rule 145 under the Securities Act); provided that the required delivery
of any assignment, instruction or entitlement order from the seller, pledgor,
assignor or transferor of such share of Common Stock or item of collateral,
together with any evidence of the corporate or other authority of such Person,
shall not constitute a "TRANSFER RESTRICTION".
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"UCC" means the Uniform Commercial Code as in effect in the State of New
York.
ARTICLE 2
SALE AND PURCHASE
SECTION 2.01. Sale and Purchase. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees
to purchase and acquire from Seller, the number of shares of Common Stock equal
to the product of 750,000 (subject to reduction as provided in Section 3.01, the
"BASE AMOUNT") and the Exchange Rate.
SECTION 2.02. Purchase Price. The purchase price (the "PURCHASE PRICE")
shall be $38,152,131 in cash.
SECTION 2.03. Payment for and Delivery of Contract Shares. (a) Upon the
terms and subject to the conditions of this Agreement, Buyer shall deliver to
Seller the Purchase Price on March 1, 2000 (the "PAYMENT DATE") at the offices
of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at
such other place as shall be agreed upon by Buyer and Seller, paid in
immediately available funds by wire transfer to an account designated by Seller.
(b) On the Maturity Date, Seller agrees, subject to Section 2.04, to
deliver to Buyer (i) a number of shares of Free Stock (the "CONTRACT SHARES")
equal to the product (the "CONTRACT SHARE AMOUNT"), rounded down to the nearest
whole number, of (A) the Base Amount and (B) the Exchange Rate and (ii) cash in
an amount equal to the value (based on the Maturity Price) of any fractional
share not delivered as a result of such rounding. If (x) by 10:00 A.M., New York
City time on the Maturity Date, Seller has not otherwise effected such delivery
of Common Stock or delivered cash in lieu thereof pursuant to Section 2.04 and
(y) the Common Stock then held by or on behalf of Secured Party as collateral
under the Pledge Agreement is Free Stock, then (i) Seller shall be deemed not to
have elected to deliver cash in lieu of shares of Free Stock pursuant to Section
2.04 (notwithstanding any notice by Seller to the contrary) and (ii) the
delivery provided by this Section 2.03(b) shall be effected by delivery to Buyer
from the Collateral Account in the manner set forth in the Pledge Agreement of a
number of shares of Free Stock then held by or on behalf of Secured Party as
collateral under the Pledge Agreement equal to the number thereof required to be
delivered by Seller to Buyer pursuant to this Section 2.03(b); provided that,
notwithstanding the foregoing and without limiting the generality of Section
8.01, if Seller gives notice of Seller's election to deliver cash in lieu of
shares of Free
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<PAGE> 10
Stock on the Maturity Date pursuant to Section 2.04 and fails to deliver the
Cash Settlement Amount on the Maturity Date as provided in Section 2.04, Seller
shall be in breach of this Agreement and shall be liable to Buyer for any
damages suffered by Buyer as a result of such breach, including without
limitation damages suffered in connection with any decrease in the Closing Price
per share of Common Stock subsequent to the 30th Exchange Business Day
immediately preceding the Maturity Date.
(c) The "EXCHANGE RATE" shall be determined by the Calculation Agent in
accordance with the following formula, and is subject to adjustment as a result
of certain events as provided in Article 7 and as provided in Section 5(i) of
the Pledge Agreement: (i) if the Maturity Price is less than $77.2680 (the
"THRESHOLD PRICE") but greater than $64.3900 (the "ISSUE PRICE"), the Exchange
Rate shall be a ratio (rounded upward or downward to the nearest 1/10,000th or,
if there is not a nearest 1/10,000th, to the next lower 1/10,000th) equal to the
Issue Price divided by the Maturity Price, (ii) if the Maturity Price is equal
to or greater than the Threshold Price, the Exchange Rate shall be 0.8333 and
(iii) if the Maturity Price is equal to or less than the Issue Price, the
Exchange Rate shall be one (1).
SECTION 2.04. Cash Settlement Option. Seller may, upon written notice
delivered to Buyer at least 35 Exchange Business Days prior to the Maturity
Date, elect to deliver the Cash Settlement Amount to Buyer on the Maturity Date
by wire transfer of immediately available funds to an account designated by
Buyer, in lieu of the shares of Common Stock to be delivered on the Maturity
Date pursuant to Section 2.03(b).
ARTICLE 3
TERMINATION BY SELLER
SECTION 3.01. Termination by Seller. Seller may terminate this Agreement
in whole or in part upon 35 Exchange Business Days' prior written notice to
Buyer (the termination date specified in such notice, the "OPTIONAL TERMINATION
DATE"). If Seller terminates this Agreement in whole, Seller shall make a cash
payment, by wire transfer of immediately available funds to an account
designated by Buyer, to Buyer on the Optional Termination Date in an amount
equal to the Replacement Value (calculated in the manner set forth in Section
8.01 as if the Optional Termination Date were the Acceleration Date). If Seller
terminates this Agreement in part, Seller shall specify the number of shares of
Common Stock with respect to which this Agreement is to be terminated and (i)
Seller shall make a cash payment, by wire transfer of immediately available
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<PAGE> 11
funds to an account designated by Buyer, to Buyer on the Optional Termination
Date in an amount equal to the Replacement Value (calculated in the manner set
forth in Section 8.01 as if the Optional Termination Date were the Acceleration
Date; provided that for purposes of such calculation, the Base Amount shall be
deemed to be such number of shares of Common Stock with respect to which this
Agreement is to be terminated) and (ii) the Base Amount shall be reduced by such
number of shares of Common Stock with respect to which this Agreement is to be
terminated.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 4.01. Representations and Warranties of Seller. Seller represents
and warrants to Buyer that:
(a) Seller is a limited partnership duly organized and existing in
good standing under the laws of the State of Nevada and has the requisite
power to own its properties and to carry on its business as now being
conducted.
(b) The execution and delivery of this Agreement and the Pledge
Agreement and the performance by Seller of Seller's obligations hereunder
and thereunder do not violate or conflict with any provision of the
Organizational Documents, any law applicable to Seller, any order or
judgment of any court or other agency of government applicable to Seller
or any of Seller's assets or any contractual restriction binding on or
affecting Seller or any of Seller's assets.
(c) All government and other consents that are required to have been
obtained by Seller with respect to this Agreement or the Pledge Agreement
have been obtained and are in full force and effect and all conditions of
any such consents have been complied with. Seller has complied and will
comply with all applicable disclosure or reporting requirements in respect
of the transactions contemplated hereby and by the Pledge Agreement,
including without limitation any requirements imposed by Section 13 or
Section 16 of the Securities Exchange Act of 1934, as amended, or the
rules and regulations thereunder.
(d) Seller has the requisite power and authority to enter into and
perform this Agreement and the Pledge Agreement and to deliver the
Contract Shares in accordance with the terms hereof. The execution and
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<PAGE> 12
delivery of this Agreement and the Pledge Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby and thereby
(including the delivery by Seller of the Contract Shares) have been duly
authorized by Seller. This Agreement and the Pledge Agreement have been
duly executed and delivered by Seller. Seller's obligations under this
Agreement and the Pledge Agreement constitute Seller's legal, valid and
binding obligations, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium
or similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless
of whether enforcement is sought in a proceeding in equity or at law)).
(e) No Acceleration Event or event that, with the giving of notice
or the lapse of time or both, would constitute an Acceleration Event has
occurred and is continuing and no such event would occur as a result of
Seller's entering into or performing Seller's obligations under this
Agreement or the Pledge Agreement.
(f) There is not pending or, to Seller's knowledge, threatened
against Seller, the General Partner or the Limited Partner any action,
suit or proceeding at law or in equity or before any court, tribunal,
governmental body, agency or official or any arbitrator (including without
limitation any bankruptcy, insolvency or similar proceeding) that is
likely to affect the legality, validity or enforceability against Seller
of this Agreement or the Pledge Agreement or Seller's ability to perform
Seller's obligations under this Agreement or the Pledge Agreement.
(g) Seller is acting for Seller's own account, and has made Seller's
own independent decision to enter into this Agreement and the Pledge
Agreement and as to whether this Agreement and the Pledge Agreement are
appropriate or proper for Seller based upon Seller's own judgment and upon
advice of such advisors as Seller deems necessary. Seller acknowledges and
agrees that Seller is not relying, and has not relied, upon any
communication (written or oral) of Buyer or any affiliate, employee or
agent of Buyer with respect to the legal, accounting, tax or other
implications of this Agreement and the Pledge Agreement and that Seller
has conducted Seller's own analyses of the legal, accounting, tax and
other implications hereof and thereof; it being understood that
information and explanations related to the terms and conditions of this
Agreement or the Pledge Agreement shall not be considered investment
advice or a recommendation to enter into this Agreement or the Pledge
Agreement. Seller is entering into this Agreement and the Pledge
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Agreement with a full understanding of all of the terms and risks hereof
and thereof (economic and otherwise) and is capable of evaluating and
understanding (on Seller's own behalf or through independent professional
advice), and understands and accepts, the terms, conditions and risks.
Seller is also capable of assuming (financially and otherwise), and
assumes, those risks. Seller acknowledges that neither Buyer nor any
affiliate, employee or agent of Buyer is acting as a fiduciary for or an
advisor to Seller in respect of this Agreement or the Pledge Agreement.
(h) Seller is not, on the date of this Agreement, in possession of
any material non-public information regarding the Issuer. Seller does not
know or have any reason to believe that the Issuer has not complied with
the reporting requirements contained in Rule 144(c)(1) under the
Securities Act. Neither Seller nor any person who would be considered to
be the same "person" (as such term is used in Rule 144(a)(2) under the
Securities Act) as Seller has, without the written consent of Buyer (which
consent shall not be unreasonably withheld), sold any shares of Common
Stock or hedged (through swaps, options, short sales or otherwise) any
long position in the Common Stock during the period beginning on the date
three months prior to the date hereof and ending on the date hereof,
except (i) the sale by Seller of 500,000 shares of Common Stock on
February 22, 2000, (ii) the sale by Seller of 50,000 shares of Common
Stock on February 23, 2000, (iii) the sale by The Bryan J. and June B.
Zwan Foundation, Inc., of 37,500 shares of Common Stock on February 22,
2000 and (iv) the transaction contemplated by the SAILS Mandatorily
Exchangeable Securities Contract dated as of December 8, 1999 among the
Limited Partner, Buyer and Credit Suisse First Boston Corporation, as
Agent. Seller's holding period (calculated in the manner provided in Rule
144(d) under the Securities Act) with respect to the Common Stock
commenced at least one year prior to the date of the Term Sheet (as
defined in the Pledge Agreement).
(i) Delivery of shares of Common Stock by Seller pursuant to this
Agreement on the Maturity Date or an Acceleration Delivery Date will pass
to Buyer title (or security entitlements) to such shares free and clear of
any Liens or Transfer Restrictions (other than Transfer Restrictions
arising solely from the fact that Seller is an "affiliate", within the
meaning of Rule 144 under the Securities Act, of the Issuer), except for
those created pursuant to the Pledge Agreement.
(j) Seller has a valid business purpose for entering into this
Agreement, and the transaction contemplated hereby is consistent with
Seller's overall investment strategy. Seller currently expects that Seller
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will not elect to deliver cash in lieu of Common Stock on the Maturity
Date pursuant to Section 2.04. Seller intends, however, to consider all
relevant economic, market and business factors in ultimately determining
whether to deliver cash in lieu of Common Stock on the Maturity Date.
ARTICLE 5
CONDITIONS TO BUYER'S OBLIGATIONS
SECTION 5.01. Conditions. The obligation of Buyer to deliver the Purchase
Price on the Payment Date is subject to the satisfaction of the following
conditions, each of which shall be conclusively deemed to be satisfied upon
payment of the Purchase Price on the Payment Date:
(a) The representations and warranties of Seller contained in
Article 4 and in the Pledge Agreement shall be true and correct as of the
Payment Date.
(b) The Pledge Agreement shall have been executed by the parties
thereto, and Seller shall have delivered to Secured Party in accordance
therewith the collateral required to be delivered pursuant to Section 1(b)
thereof, and Seller shall have executed UCC-1 financing statements in the
form of Exhibit B to the Pledge Agreement for filing in the filing offices
specified in Exhibit C to the Pledge Agreement.
(c) Seller shall have performed all of the covenants and
obligations to be performed by Seller hereunder and under the Pledge
Agreement on or prior to the Payment Date.
(d) Seller shall have delivered to Buyer on or prior to the Payment
Date an opinion of counsel acceptable to Buyer to the effect set forth in
Annex A.
(e) Seller shall have filed, or shall have caused to be filed, in
the manner contemplated by Rule 144(h) under the Securities Act, a notice
on Form 144 relating to the transactions contemplated hereby in form and
substance acceptable to Buyer.
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ARTICLE 6
COVENANTS
SECTION 6.01. Taxes. Seller shall pay any and all documentary, stamp,
transfer or similar taxes and charges that may be payable in respect of the
entry into this Agreement and the transfer and delivery of any Common Stock
pursuant hereto. Seller further agrees to make all payments in respect of this
Agreement free and clear of, and without withholding or deduction for or on
account of, any present or future taxes, duties, fines, penalties, assessments
or other governmental charges of whatsoever nature (or interest on any taxes,
duties, fines, penalties, assessments or other governmental charges of
whatsoever nature) imposed, levied, collected, withheld or assessed by, within
or on behalf of (a) the United States or any political subdivision or
governmental authority thereof or therein having power to tax or (b) any
jurisdiction from or through which payment on the Agreement is made by Seller,
or any political subdivision or governmental authority thereof or therein having
power to tax. In the event such withholding or deduction is imposed, Seller
agrees to indemnify Buyer for the full amount of such withholding or deduction,
as well as any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto.
SECTION 6.02. Forward Contract. Seller hereby agrees that: (i) Seller will
not treat this Agreement, any portion of this Agreement, or any obligation
hereunder as giving rise to any interest income or other inclusions of ordinary
income; (ii) Seller will not treat the delivery of any portion of the shares of
Common Stock or cash to be delivered pursuant to this Agreement as the payment
of interest or ordinary income; (iii) Seller will treat this Agreement in its
entirety as a forward contract for the delivery of such shares of Common Stock
or cash; and (iv) Seller will not take any action (including filing any tax
return or form or taking any position in any tax proceeding) that is
inconsistent with the obligations contained in (i) through (iii).
Notwithstanding the preceding sentence, Seller may take any action or position
required (A) by any taxing authority or (B) by law, provided that Seller
delivers to Buyer an opinion of counsel, nationally recognized as expert in
Federal tax matters and acceptable to Buyer, to the effect that such action or
position is required by a statutory change or a Treasury regulation or
applicable court decision published after the date of this Agreement.
SECTION 6.03. Notices. Seller will cause to be delivered to Buyer:
(a) Immediately upon the occurrence of any Acceleration Event
hereunder, notice of such occurrence; and
(b) In case at any time prior to the Maturity Date, Seller or the
General Partner of Seller receives notice that any event requiring that an
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adjustment be calculated pursuant to Article 7 hereof shall have occurred
or be pending, then Seller shall promptly cause to be delivered to Buyer a
notice identifying such event and stating, if known to Seller, the date on
which such event occurred or is to occur and, if applicable, the record
date relating to such event. Seller shall cause further notices to be
delivered to Buyer if Seller or the General Partner of Seller shall
subsequently receive notice of any further or revised information
regarding the terms or timing of such event or any record date relating
thereto.
SECTION 6.04. Further Assurances. From time to time from and after the
date hereof through the Maturity Date, each of the parties hereto shall use such
party's reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper and advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement in accordance with the terms and conditions
hereof, including (i) using reasonable best efforts to remove any legal
impediment to the consummation of such transactions and (ii) the execution and
delivery of all such deeds, agreements, assignments and further instruments of
transfer and conveyance necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement in accordance with the
terms and conditions hereof.
SECTION 6.05. Securities Contract. The parties hereto recognize that the
Custodian is a "financial institution" within the meaning of Section 101(22) of
Title 11 of the United States Code (the "BANKRUPTCY CODE") and is acting as
agent and custodian for Buyer in connection with this Agreement and that Buyer
is a "customer" of the Custodian within the meaning of said Section 101(22). The
parties hereto further recognize that this Agreement is a "securities contract,"
as such term is defined in Section 741(7) of the Bankruptcy Code, entitled to
the protection of Section 555 of the Bankruptcy Code.
ARTICLE 7
ADJUSTMENTS
SECTION 7.01. Dilution Adjustments. (a) Following the declaration by the
Issuer of the terms of any Potential Adjustment Event occurring prior to the
Maturity Date, the Calculation Agent will determine whether such Potential
Adjustment Event has a diluting or concentrative effect on the theoretical value
of the Common Stock and, if so, will (i) make the corresponding adjustment, if
any, to any one or more of the Base Amount, the Exchange Rate, the Threshold
Price, the Issue Price, the Maturity Price, the Cash Settlement Amount, any
Closing
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Price and any other variable relevant to the exercise, settlement or payment
terms hereof or of the Pledge Agreement as the Calculation Agent determines
appropriate to account for that diluting or concentrative effect and (ii)
determine the effective date of the adjustment. The Calculation Agent may (but
need not) determine the appropriate adjustment by reference to the adjustment in
respect of such Potential Adjustment Event made by an options exchange to
options on the Common Stock traded on that options exchange.
(b) For these purposes, "POTENTIAL ADJUSTMENT EVENT" means any of the
following:
(i) a subdivision, consolidation or reclassification of shares of
Common Stock (which does not constitute a Reorganization Event), or a
free distribution or dividend of any shares of Common Stock to existing
holders of Common Stock by way of bonus, capitalization or similar issue;
(ii) a distribution or dividend to existing holders of Common Stock
of (A) shares of Common Stock, or (B) other share capital or securities
granting the right to payment of dividends and/or the proceeds of
liquidation of the Issuer equally or proportionately with such payments to
holders of Common Stock, or (C) other types of securities, rights or
warrants or other assets, in any case for payment (cash or other) at less
than the prevailing market price as determined by the Calculation Agent;
(iii) a cash dividend;
(iv) a call by the Issuer in respect of shares of Common Stock that
are not fully paid;
(v) a repurchase by the Issuer of shares of Common Stock,
whether out of profits or capital and whether the consideration for such
repurchase is cash, securities or otherwise; or
(vi) any other similar event that may have a diluting or
concentrative effect on the theoretical value of the Common Stock.
Without limiting the foregoing, the parties acknowledge that the
Calculation Agent will make adjustments to the Base Amount, the Exchange Rate,
the Threshold Price, the Issue Price, the Maturity Price, the Cash Settlement
Amount, any Closing Price and any other variable relevant to the exercise,
settlement or payment terms hereof or of the Pledge Agreement as the Calculation
Agent determines appropriate to account for the value of all cash dividends
(ordinary or extraordinary) with respect to the Common Stock.
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(c) Notwithstanding the foregoing, in the event of a distribution of
shares of capital stock of a subsidiary of the Issuer that is a Publicly-Traded
Entity (a "SPIN-OFF") made to holders of shares of Common Stock, (i) the
"Contract Shares" shall include, in addition to the number of shares of Free
Stock equal to the Contract Share Amount, a number of shares of New Common Stock
equal to the product of (A) the Base Amount immediately prior to the
consummation of the Spin-Off and (B) the number of shares of New Common Stock
that a holder of one share of Original Common Stock receives in connection with
such Spin-Off and (ii) the "Maturity Price" shall be equal to the sum of (A) the
Maturity Price of the Original Common Stock and (B) the product of (x) Maturity
Price of the New Common Stock and (y) the number of shares of New Common Stock
that a holder of one share of Original Common Stock would have owned or been
entitled to receive immediately following such Spin-Off. Following a Spin-Off,
"ORIGINAL COMMON STOCK" shall mean the common stock of the entity that is the
Issuer immediately prior to the Spin-Off and "NEW COMMON STOCK" shall mean the
common equity securities of the Publicly-Traded Entity resulting from such
Spin-Off.
SECTION 7.02. Reorganization Events. In the event of (i) any consolidation
or merger of the Issuer with or into another entity (other than a merger or
consolidation in which the Issuer is the continuing corporation and in which the
Common Stock outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of the Issuer or another
corporation), (ii) any sale, transfer, lease or conveyance of the property of
the Issuer as an entirety or substantially as an entirety, (iii) any statutory
exchange of securities of the Issuer with another corporation (other than in
connection with a merger or acquisition) or (iv) any liquidation, dissolution or
winding up of the Issuer (any such event, a "REORGANIZATION EVENT"), then (A) if
there is a surviving or continuing corporation and (1) such surviving or
continuing corporation is a Publicly-Traded Entity or (2) the entity (the
"ACQUIRING CORPORATION") issuing the consideration received by holders of Common
Stock in such Reorganization Event is a Publicly-Traded Entity, "Base Amount"
shall mean the product of (x) the Base Amount immediately prior to the
consummation of the Reorganization Event and (y) the number of shares of common
stock of such Publicly-Traded Entity that a holder of one share of Common Stock
receives in connection with such Reorganization Event and, if the consideration
received by holders of Common Stock includes cash or property other than common
stock of such Publicly-Traded Entity ("NON-STOCK CONSIDERATION"), Seller shall
make a cash payment as if this Agreement were terminated in part pursuant to
Section 3.01, by wire transfer of immediately available funds to an account
designated by Buyer, to Buyer on the date on which the Reorganization Event is
consummated (the "REORGANIZATION TERMINATION DATE") in an amount equal to the
Replacement Value (calculated in the manner set forth in Section 8.01 as if the
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<PAGE> 19
Reorganization Termination Date were the Acceleration Date; provided that for
purposes of such calculation, the Base Amount shall be equal to the product of
(I) the Base Amount immediately prior to consummation of the Reorganization
Event and (II) the percentage of the value of the consideration received by
holders of Common Stock represented by the Non-Stock Consideration, as
determined by the Calculation Agent) or (B) if there is no surviving or
continuing corporation in such Reorganization Event or if the consideration
received by holders of Common Stock consists solely of Non-Stock Consideration,
this Agreement shall terminate and Seller shall make a payment or delivery to
Buyer as provided in Section 7.04.
SECTION 7.03. Provisions Relating to Reorganization Events and Spin-Offs.
If a Reorganization Event occurs and clause (B) of Section 7.02 does not apply,
(a) the surviving or continuing corporation or the Acquiring Corporation, as the
case may be, shall be deemed to be the "Issuer" and the common equity securities
of such corporation shall be deemed to be the "Common Stock" and (b) the
Calculation Agent shall calculate corresponding adjustments, if any, to the Base
Amount, the Exchange Rate, the Threshold Price, the Issue Price, the Maturity
Price, the Cash Settlement Amount, any Closing Price and any other variable
relevant to the exercise, settlement or payment terms hereof as the Calculation
Agent determines appropriate to account for such event. If a Spin-Off occurs,
the entity that is the Issuer immediately prior to the Spin-Off and the
Publicly-Traded Entity resulting from the Spin-Off shall each be deemed to be
the "Issuer" and the Original Common Stock and the New Common Stock shall each
be deemed to be the "Common Stock". Following any Spin-Off, the Calculation
Agent shall calculate further adjustments pursuant to this Article 7 by applying
the methodology set forth in this Article 7 to both the Original Common Stock
and the New Common Stock.
SECTION 7.04. Termination and Payment. Following termination of this
Agreement pursuant to clause (B) of Section 7.02 as a result of any
Reorganization Event, the Calculation Agent shall determine the Replacement
Value in the manner provided in Section 8.01 (calculated, for purposes of this
Section 7.04, as if the Reorganization Termination Date were the Acceleration
Date, and representing the fair replacement value (including both intrinsic and
time value) to Buyer of an agreement with terms that would preserve for Buyer
the economic equivalent of the payments and deliveries that Buyer and its
affiliates would, but for the occurrence of the Reorganization Event, have been
entitled to receive after the Reorganization Termination Date hereunder). As
promptly as reasonably practicable after calculation of the Replacement Value,
the Calculation Agent shall deliver to Buyer and Seller a notice (the
"TERMINATION AMOUNT NOTICE") specifying the Replacement Value. Not later than
three Business Days following delivery of a Termination Amount Notice, Seller
shall make a cash payment, by wire transfer of immediately available funds to an
16
<PAGE> 20
account designated by Buyer, to Buyer in an amount equal to the Replacement
Value. Notwithstanding the foregoing, to the extent that any Marketable
Securities are received by holders of Common Stock in such Reorganization
Event, then in lieu of delivering cash as provided in the immediately preceding
sentence, Seller may deliver Marketable Securities with an equal value (as
determined by the Calculation Agent).
ARTICLE 8
ACCELERATION
SECTION 8.01. Acceleration. If one or more of the following events (each
an "ACCELERATION EVENT") shall occur:
(a) any legal proceeding shall have been instituted or any other
event shall have occurred or condition shall exist that in Buyer's
reasonable judgment is highly likely to have a material adverse effect on
the financial condition of Seller or on Seller's ability to perform
Seller's obligations hereunder, or that is likely to affect the validity
or binding effect of any agreement of Seller hereunder or under the Pledge
Agreement;
(b) Seller is dissolved, makes an assignment for the benefit of
creditors, files a petition in bankruptcy, is adjudicated insolvent or
bankrupt, petitions or applies to any tribunal for any receiver of or any
trustee for it or any substantial part of its property, commences any
proceeding relating to it under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is commenced
against or with respect to it or any substantial portion of its property
any such proceeding and an order for relief is issued or such proceeding
remains undismissed for a period of 30 days;
(c) at any time, representations made by Seller in Sections 4.01(b),
4.01(c), 4.01(d) and 4.01(i) under this Agreement or in Section 3 under
the Pledge Agreement or any certificate delivered pursuant to Section 5(b)
of the Pledge Agreement would be incorrect or misleading in any material
respect if made as of such time;
(d) Seller fails to deliver shares of Common Stock (or the Cash
Settlement Amount) on the Maturity Date as required by this Agreement;
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<PAGE> 21
(e) Seller fails to fulfill or discharge when due any of Seller's
obligations, covenants or agreements under or relating to this Agreement
or the Pledge Agreement (other than the obligation referred to in Section
8.01(d)) and such failure remains unremedied for 60 days following notice
from Buyer;
(f) due to the adoption of, or any change in, any applicable law
after the date hereof, or due to the promulgation of, or any change in,
the interpretation by any court, tribunal or regulatory authority with
competent jurisdiction of any applicable law after the date hereof, it
becomes unlawful for Seller to perform any absolute or contingent
obligation to make payment or delivery hereunder or to comply with any
other material provision of this Agreement or the Pledge Agreement;
(g) in the reasonable judgment of the Calculation Agent, Buyer is
unable to hedge Buyer's exposure to this Agreement because of the lack of
sufficient shares of Common Stock being made available for share
borrowing by lenders;
(h) there occurs a default under any indebtedness for money borrowed
by Seller, the General Partner or the Limited Partner whether such
indebtedness now exists or shall hereafter be created, which indebtedness,
individually or in the aggregate, is in excess of $10,000,000 principal
amount, which default shall constitute a failure to pay any portion of the
principal of such indebtedness when due and payable after the expiration
of any applicable grace or cure period with respect thereto or shall have
resulted in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable;
or
(i) a Collateral Event of Default within the meaning of the
Pledge Agreement shall occur;
then, upon notice to Seller from Buyer at any time following an Acceleration
Event, an "ACCELERATION DATE" shall occur, and Seller shall become obligated to
deliver to Buyer on the date (the "ACCELERATION DELIVERY DATE") three Exchange
Business Days following delivery of the Acceleration Amount Notice a number of
shares of Free Stock equal to the Acceleration Amount; provided that if Secured
Party proceeds to realize upon any collateral pledged under the Pledge Agreement
and to apply the proceeds of such realization as provided in the second
paragraph of Section 7(d) thereof, then, to the extent of such application of
proceeds, Seller's obligation to deliver Free Stock pursuant to this paragraph
shall be deemed to be an obligation to deliver an amount of cash equal to the
aggregate Market Value of
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<PAGE> 22
such Free Stock on the Acceleration Date. The "ACCELERATION AMOUNT" means the
quotient obtained by dividing: (i) the Replacement Value by (ii) the Market
Value per share of the Common Stock on the Acceleration Date.
The "REPLACEMENT VALUE" means an amount determined by the Calculation
Agent representing the fair replacement value (including both intrinsic and time
value) to Buyer of an agreement with terms that would preserve for Buyer the
economic equivalent of the payments and deliveries that Buyer would, but for the
occurrence of the Acceleration Date, have been entitled to receive after the
Acceleration Date hereunder (taking into account any adjustments pursuant to
Section 7.01 or pursuant to Section 5(i) of the Pledge Agreement that may have
been calculated on or prior to the Acceleration Date), including any loss of
bargain, cost of funding or, without duplication, loss or cost incurred as a
result of Buyer's terminating, liquidating, obtaining or reestablishing any
hedge or related trading position.
As promptly as reasonably practicable after calculation of the Replacement
Value, the Calculation Agent shall deliver to Seller and Buyer a notice (the
"ACCELERATION AMOUNT NOTICE") specifying the Acceleration Amount of shares of
Common Stock required to be delivered by Seller.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard forms of telecommunication. Notices to Buyer shall
be directed to it care of Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, New York 10010, Telecopy No. (212) 325-8175, Attention:
Ricardo Harewood, with a copy to QSPV Limited, Queensgate House, George Town,
Grand Cayman, Cayman Islands, Telecopy No. (345) 945-7100, Attention: Martin
Couch. Notices to Seller shall be directed to Seller at Suite 850, 101
Convention Center Drive, Las Vegas, Nevada 89019, Telecopy No. (702) 598-3651,
with a copy to Robert E. Freitas, Orrick, Herrington & Sutcliffe LLP, 600 Hansen
Way, Palo Alto, California 94304, Telecopy No. (650) 614-7301.
SECTION 9.02. Governing Law; Submission to Jurisdiction; Severability;
Waiver of Jury Trial; Service of Process. (a) This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
reference to choice of law doctrine and each party hereto submits to the
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<PAGE> 23
jurisdiction of the Courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City.
(b) To the extent permitted by law, the unenforceability or invalidity of
any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(C) SELLER AND BUYER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(d) Seller irrevocably appoints Corporation Trust Company of Nevada as
process agent to receive for Seller and on Seller's behalf, service of process
in any action, suit or other proceeding arising out of this Agreement, the
Pledge Agreement or any transaction contemplated hereby or thereby. If for any
reason Corporation Trust Company of Nevada is unable to act as such, Seller will
promptly notify Buyer and within 30 days appoint a substitute process agent
acceptable to Seller. Nothing in this Agreement will affect the right of either
party to serve process in any other manner permitted by law. Buyer irrevocably
appoints CT Corporation System as process agent to receive for Buyer and on
Buyer's behalf, service of process in any action, suit or other proceeding
arising out of this Agreement, the Pledge Agreement or any transaction
contemplated hereby or thereby. If for any reason CT Corporation System is
unable to act as such, Buyer will promptly notify Seller and within 30 days
appoint a substitute process agent acceptable to Seller. Nothing in this
Agreement will affect the right of either party to serve process in any other
manner permitted by law.
SECTION 9.03. Confidentiality. Except as required by law or judicial or
administrative process, or as requested by a regulatory authority or
self-regulatory organization, each party hereto agrees to keep this Agreement
and the Pledge Agreement and the transactions contemplated hereby and thereby
confidential. In the event disclosure is permitted pursuant to the preceding
sentence, the disclosing party shall (i) provide prior notice of such disclosure
to the other party, (ii) use such party's best efforts to minimize the extent of
such disclosure and (iii) comply with all reasonable requests of the other party
to minimize the extent of such disclosure. This Section 9.03 shall not prevent
Seller or Buyer from disclosing information as necessary to third-party advisors
in connection with the transactions contemplated hereby or by the Pledge
Agreement; provided that Seller or Buyer, as the case may be, shall use their
reasonable best efforts to cause such advisors to comply with this Section 9.03
as if a party hereto.
SECTION 9.04. Entire Agreement. Except as expressly set forth herein,
this Agreement constitutes the entire agreement and understanding among the
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<PAGE> 24
parties with respect to its subject matter hereof and supersedes all oral
communications and prior writings with respect thereto.
SECTION 9.05. Amendments, Waivers. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Buyer and Seller or, in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.06. No Third Party Rights, Successors and Assigns. This
Agreement is not intended and shall not be construed to create any rights in any
person other than Seller, Buyer and their respective successors and assigns and
no other person shall assert any rights as third party beneficiary hereunder.
Whenever any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party. All the covenants
and agreements herein contained by or on behalf of Seller and Buyer shall bind,
and inure to the benefit of, their respective successors and assigns whether so
expressed or not, and shall be enforceable by and inure to the benefit of Seller
and Buyer and their respective successors and assigns. The rights and duties
under this Agreement may not be assigned or transferred by any party hereto
without the prior written consent of the other parties hereto; provided that (i)
Buyer may assign or transfer any of its rights or duties hereunder without the
prior written consent of Seller and (ii) the Agent may assign or transfer any of
its rights or duties hereunder without the prior written consent of the other
parties hereto to any affiliate of Credit Suisse First Boston, so long as such
affiliate is a broker-dealer registered with the Securities and Exchange
Commission.
SECTION 9.07. Calculation Agent. All determinations and calculations of
the Calculation Agent made pursuant to this Agreement or the Pledge Agreement
shall be made in a commercially reasonable manner and shall be binding in the
absence of manifest error. The Calculation Agent will have no responsibility for
good faith errors or omissions in the determination so made of any Closing
Price, the Maturity Price, the Exchange Rate, the Cash Settlement Amount or any
other amount as provided herein or in the Pledge Agreement. The Calculation
Agent shall promptly advise Seller in writing of any adjustments, calculations
or determinations made by it under this Agreement or the Pledge Agreement. The
Calculation Agent shall in good faith consider and respond in writing to any
objection of Seller to any determination or calculation of the Calculation Agent
hereunder or under the Pledge Agreement.
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SECTION 9.08. Set-off. In addition to and without limiting any rights of
set-off that a party hereto may have as a matter of law, pursuant to contract or
otherwise, upon the occurrence of a Reorganization Termination Date or an
Acceleration Date, Buyer shall have the right to terminate, liquidate and
otherwise close out the transactions contemplated by this Agreement pursuant to
the terms of this Agreement, and to set off any obligation that Buyer or any
affiliate of Buyer may have to Seller pursuant to this Agreement or the Pledge
Agreement, including without limitation any obligation to make any release,
delivery or payment to Seller pursuant to the Pledge Agreement, against any
right Buyer or any of its affiliates may have against Seller pursuant to this
Agreement or the Pledge Agreement, including without limitation any right to
receive a payment or delivery pursuant to this Agreement. In the case of a
set-off of any obligation to release, deliver or pay assets against any right to
receive assets of the same type, such obligation and right shall be set off in
kind. In the case of a set-off of any obligation to release, deliver or pay
assets against any right to receive assets of any other type, the value of each
of such obligation and such right shall be determined by the Calculation Agent
and the result of such set-off shall be that the net obligor shall pay or
deliver to the other party an amount of cash or assets, at the net obligor's
option, with a value (determined, in the case of a delivery of assets, by the
Calculation Agent) equal to that of the net obligation. In determining the value
of any obligation to release or deliver Common Stock or right to receive Common
Stock, the value at any time of such obligation or right shall be determined by
reference to the Market Value of the Common Stock at such time. If an obligation
or right is unascertained at the time of any such set-off, the Calculation Agent
may in good faith estimate the amount or value of such obligation or right, in
which case set-off will be effected in respect of that estimate, and the
relevant party shall account to the other party at the time such obligation or
right is ascertained.
SECTION 9.09. Matters Related to Credit Suisse First Boston Corporation,
as Agent. (a) Credit Suisse First Boston Corporation shall act as "agent" for
Buyer and Seller within the meaning of Rule 15a-6 under the Securities Exchange
Act of 1934 in connection with the transactions contemplated by this Agreement
and by the Pledge Agreement.
(b) The Agent shall have no responsibility or liability (including,
without limitation, by way of guarantee, endorsement or otherwise) to Buyer or
Seller or otherwise in respect of this Agreement or the Pledge Agreement,
including, without limitation, in respect of the failure of Buyer or Seller to
pay or perform under this Agreement or the Pledge Agreement, except for its
gross negligence or willful misconduct in performing its duties as Agent
hereunder or thereunder.
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(c) Each of Buyer and Seller agrees to proceed solely against the other to
collect or recover any securities or money owing to Buyer or Seller, as the case
may be, in connection with or as a result of this Agreement or the Pledge
Agreement.
(d) As a broker-dealer registered with the Securities and Exchange
Commission, Credit Suisse First Boston Corporation, in its capacity as Agent,
will be responsible for (i) effecting the transactions contemplated by this
Agreement and the Pledge Agreement, (ii) issuing all required notices,
confirmations and statements to Buyer and Seller and (iii) maintaining books and
records relating to this Agreement and the Pledge Agreement.
SECTION 9.10. Counterparts. This Agreement may be executed in any number
of counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same agreement.
SECTION 9.11. Limited Recourse. Seller hereby agrees that it shall not
institute against, or join any other person in instituting against, Buyer any
bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation
proceedings. Seller hereby acknowledges and agrees that Buyer's obligations
under this Agreement will be solely the corporate obligations of Buyer, and that
Seller will not have any recourse to any of the directors, officers or employees
of Buyer with respect to any claims, losses, damages, liabilities, indemnities
or other obligations in connection with any transactions contemplated by this
Agreement. Recourse in respect of any obligations of Buyer under this Agreement
will be limited to the assets of Buyer and no debt shall be owed by Buyer in
respect of any shortfall after realization of such assets.
23
<PAGE> 27
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
and year first above written.
SELLER:
ZG NEVADA LIMITED PARTNERSHIP
By: ZG Nevada, Inc.,
its General Partner
By: ____________________________________
Name:
Title:
BUYER:
CSFB SAILS CORP.
By: ____________________________________
Name:
Title:
AGENT:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By: ____________________________________
Name:
Title:
<PAGE> 28
ANNEX A
(a) Seller is a limited partnership duly organized and existing in good
standing under the laws of the State of Nevada.
(b) The execution and delivery of this Agreement and the Pledge Agreement
and the performance by Seller of Seller's obligations hereunder and thereunder
do not violate or conflict with any provision of the Organizational Documents,
any law applicable to Seller, any order or judgment of any court or other agency
of government known to such counsel applicable to Seller or any of Seller's
assets or any contractual restriction known to such counsel binding on or
affecting Seller or any of Seller's assets.
(c) All government and other consents that are known to such counsel to be
required to have been obtained by Seller with respect to this Agreement or the
Pledge Agreement have been obtained and are in full force and effect and all
conditions of any such consents have been complied with.
(d) Seller has the requisite partnership power and authority to enter into
and perform this Agreement and the Pledge Agreement and to deliver the Contract
Shares in accordance with the terms hereof. The execution and delivery of this
Agreement and the Pledge Agreement by Seller and the consummation by Seller of
the transactions contemplated hereby and thereby (including the delivery by
Seller of the Contract Shares) have been duly authorized by all necessary
partnership action. This Agreement and the Pledge Agreement have been duly
executed and delivered by Seller. Seller's obligations under this Agreement and
the Pledge Agreement constitute Seller's legal, valid and binding obligations,
enforceable in accordance with their respective terms (subject to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to equitable
principles of general application (regardless of whether enforcement is sought
in a proceeding in equity or at law)).
(e) To such counsel's knowledge, no registration, recordation or filing
with any governmental body, agency or official is required by Seller in
connection with the execution and delivery by Seller of this Agreement or the
Pledge Agreement, other than any such registration, recordation or filing that
(i) has previously been made or (ii) will be made by Seller in connection with
Section 13(d) or 16 of the Securities Exchange Act of 1934, as amended.
(f) The Pledge Agreement creates in favor of Buyer a security interest in
Seller's rights in the Initial Pledged Items. Upon the Custodian's indicating by
<PAGE> 29
book entry that such Collateral has been credited to Buyer's securities account
pursuant to the Pledge Agreement, Buyer will have control (within the meaning of
Section 8-106 of the UCC) of a security entitlement with respect to such
Collateral and such security interest will be perfected. Assuming that Buyer
acquires such security entitlement without notice of any adverse claim, then an
action based on an adverse claim to the financial asset relating to such
Collateral, whether framed in conversion, replevin, constructive trust,
equitable lien, or other theory, may not be asserted against Buyer.
(g) Assuming that Buyer purchases Common Stock pursuant to the Securities
Contract and that, at the time of such purchase the Custodian has indicated by
book entry that such Common Stock has been credited to Buyer's account, and that
Buyer acquires such security entitlement without notice of any adverse claim,
then an action based on an adverse claim to the financial asset relating to such
Common Stock, whether framed in conversion, replevin, constructive trust,
equitable lien, or other theory, may not be asserted against Buyer.
A-2
<PAGE> 30
A-3
<PAGE> 1
Exhibit 8
SAILS PLEDGE AGREEMENT
dated as of
March 1, 2000
among
ZG NEVADA LIMITED PARTNERSHIP,
CSFB SAILS CORP.
and
CREDIT SUISSE FIRST BOSTON CORPORATION, as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. The Security Interests .............................. 2
SECTION 2. Definitions ......................................... 3
SECTION 3. Representations and Warranties of Pledgor ........... 5
SECTION 4. Certain Covenants of Pledgor ........................ 7
SECTION 5. Administration of the Collateral and Valuation of the
Securities ............................................... 8
SECTION 6. Income and Voting Rights in Collateral .............. 11
SECTION 7. Remedies upon Acceleration Events ................... 12
SECTION 8. Miscellaneous ....................................... 15
SECTION 9. Termination of Pledge Agreement ..................... 17
SECTION 10. Set-off ............................................ 17
</TABLE>
<PAGE> 3
PLEDGE AGREEMENT
THIS AGREEMENT is made as of this 1(st) day of March, 2000 among ZG
NEVADA LIMITED PARTNERSHIP ("Pledgor"), a Nevada limited partnership, CREDIT
SUISSE FIRST BOSTON CORPORATION, as agent (the "Agent") hereunder, and CSFB
SAILS CORP. ("Secured Party").
WHEREAS, Pledgor owns shares of common stock, par value $0.0001 per share,
of Digital Lightwave, Inc., a Delaware corporation (the "Issuer"), or security
entitlements in respect thereof (the "Common Stock");
WHEREAS, Pledgor and Credit Suisse First Boston Corporation have entered
into a Term and Conditions for Private SAILS (the "Term Sheet") dated as of
February 9, 2000, pursuant to which Pledgor and Credit Suisse First Boston
Corporation have agreed to sell and purchase such shares of Common Stock at the
time and on the terms set forth therein;
WHEREAS, pursuant to an Assignment and Assumption Agreement dated as of
March 1, 2000 between Credit Suisse First Boston Corporation and Secured Party,
Credit Suisse First Boston Corporation assigned to Secured Party all of the
rights and obligations of Credit Suisse First Boston Corporation under the Term
Sheet;
WHEREAS, the Term Sheet provides that the parties thereto will enter into
final documentation, consisting of a SAILS Mandatorily Exchangeable Securities
Contract and a SAILS Pledge Agreement, relating to the transactions contemplated
by the Term Sheet;
WHEREAS, pursuant to the Term Sheet, Pledgor has granted the purchaser
under the Term Sheet a security interest in certain shares of Common Stock to
secure the obligations of Pledgor thereunder and under the Securities Contract;
WHEREAS, Pledgor and Secured Party wish to (i) set forth additional
understandings and agreements relating to such security interest and (ii)
confirm, on the terms set forth herein, the continuation of such security
interest;
WHEREAS, it is a condition to the obligations of Secured Party under the
Securities Contract (as defined herein) that Pledgor and Secured Party enter
into this Agreement;
<PAGE> 4
NOW, THEREFORE, in consideration of their mutual covenants contained
herein and to secure the performance by Pledgor of Pledgor's obligations under
the Securities Contract and the observance and performance of the covenants and
agreements contained herein and in the Securities Contract, the parties hereto,
intending to be legally bound, hereby mutually covenant and agree as follows:
SECTION 1. The Security Interests. In order to secure the full and
punctual observance and performance of the covenants and agreements contained
herein and in the Securities Contract:
(a) Pledgor hereby assigns and pledges to Secured Party, and grants to
Secured Party, security interests in and to, and a lien upon and right of
set-off against, and transfers to Secured Party, as and by way of a security
interest having priority over all other security interests, with power of sale,
all of Pledgor's right, title and interest in and to (i) the Initial Pledged
Items; (ii) all additions to and substitutions for the Initial Pledged Items
(including, without limitation, any securities, instruments or other property
delivered or pledged pursuant to Section 4(a) or 5(b)) (such additions and
substitutions, the "ADDITIONS AND SUBSTITUTIONS"); (iii) all income, proceeds
and collections received or to be received, or derived or to be derived, now or
any time hereafter (whether before or after the commencement of any proceeding
under applicable bankruptcy, insolvency or similar law, by or against Pledgor,
with respect to Pledgor) from or in connection with the Initial Pledged Items
and the Additions and Substitutions (including, without limitation, (A) any
shares of capital stock issued by the Issuer in respect of any Common Stock
constituting Collateral or any cash, securities or other property distributed in
respect of or exchanged for any Common Stock constituting Collateral, or into
which any such Common Stock is converted, in connection with any Reorganization
Event, and any security entitlements in respect of any of the foregoing, (B) any
obligation of Secured Party to replace any rehypothecated Collateral pursuant to
Section 5(i) and (C) any amounts paid or assets delivered to Pledgor by Secured
Party in respect of dividends paid or distributions made on shares of Common
Stock constituting Collateral that have been rehypothecated in accordance with
Section 5(i)); (iv) the Collateral Account and all securities and other
financial assets (each as defined in Section 8-102 of the UCC), including the
Initial Pledged Items and the Additions and Substitutions, and other funds,
property or assets from time to time held therein or credited thereto; and (v)
all powers and rights now owned or hereafter acquired under or with respect to
the Initial Pledged Items or the Additions and Substitutions (such Initial
Pledged Items, Additions and Substitutions, proceeds, collections, powers,
rights, Collateral Account and assets held therein or credited thereto being
herein collectively called the "COLLATERAL"). Secured Party shall have all of
the rights, remedies and recourses with respect to the Collateral afforded a
secured party by
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the UCC, in addition to, and not in limitation of, the other rights, remedies
and recourses afforded to Secured Party by this Agreement.
(b) On or prior to the date of the Term Sheet, Pledgor delivered to Credit
Suisse First Boston Corporation a number of shares of Common Stock equal to the
Base Amount as of the Payment Date (the "INITIAL PLEDGED ITEMS"), in the manner
provided in Section 5(c). As of the Payment Date, such Initial Pledged Items
shall include, as Eligible Collateral, at least the Base Amount of shares of
Common Stock.
(c) In the event that the Issuer at any time issues in respect of any
Common Stock constituting Collateral hereunder, or comprising financial assets
underlying security entitlements constituting Collateral hereunder, any
additional or substitute shares of capital stock of any class, Pledgor shall
immediately pledge and deliver to Secured Party in accordance with Section 5(c)
all such shares or security entitlements in respect thereof as additional
Collateral hereunder.
(d) The Security Interests are granted as security only and shall not
subject Secured Party to, or transfer or in any way affect or modify, any
obligation or liability of Pledgor or the Issuer with respect to any of the
Collateral or any transaction in connection therewith.
(e) The parties hereto expressly agree that all rights, assets and
property at any time held in or credited to the Collateral Account shall be
treated as financial assets (as defined in Section 8-102 of the UCC).
SECTION 2. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to them in the Securities Contract. As
used herein, the following words and phrases shall have the following meanings:
"ADDITIONS AND SUBSTITUTIONS" has the meaning provided in Section 1(a).
"COLLATERAL" has the meaning provided in Section 1(a).
"COLLATERAL ACCOUNT" has the meaning provided in Section 5(c).
"COLLATERAL EVENT OF DEFAULT" means, at any time, the occurrence of either
of the following: (A) failure of the Collateral to include, as Eligible
Collateral, at least the Maximum Deliverable Number of shares of Common Stock or
(B) failure at any time of the Security Interests to constitute valid and
perfected security interests in all of the Collateral, subject to no prior or
equal Lien, and, with respect to any Collateral consisting of securities or
security entitlements
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(each as defined in Section 8-102 of the UCC), as to which Secured Party has
Control, or, in each case, assertion of such by Pledgor in writing.
"CONTROL" means "control" as defined in Section 8-106 and Section 9-115
of the UCC.
"CUSTODIAN" means The Bank of New York, or any other custodian appointed
by Secured Party and identified to Seller.
"DEFAULT SETTLEMENT DATE" has the meaning provided in Section 7(a).
"ELIGIBLE COLLATERAL" means Common Stock; provided that Pledgor has good
and marketable title thereto, free of all Liens (other than the Security
Interests) and Transfer Restrictions and that Secured Party has a valid, first
priority perfected security interest therein, a first lien thereon and Control
with respect thereto, and provided further that to the extent the number of
shares of Common Stock pledged hereunder exceeds at any time the Maximum
Deliverable Number thereof, such excess shares shall not be Eligible Collateral.
"INITIAL PLEDGED ITEMS" has the meaning provided in Section 1(b).
"LOCATION" means, with respect to any party, the place such party is
"deemed located" within the meaning of Section 9-103(3)(d) of the UCC.
"MAXIMUM DELIVERABLE NUMBER" means, on any date, a number of shares of
Common Stock equal to the Base Amount on such date.
"PLEDGED ITEMS" means, as of any date, any and all securities and
instruments delivered by Pledgor to be held by or on behalf of Secured Party
under this Agreement as Collateral.
"REHYPOTHECATION UNAVAILABILITY" has the meaning provided in Section
5(i).
"REHYPOTHECATE" has the meaning provided in Section 5(i).
"SECURITY INTERESTS" means the security interests in the Collateral
created hereby.
"SECURITIES CONTRACT" means the SAILS Mandatorily Exchangeable Securities
Contract dated as of the date hereof among Pledgor, Secured Party and the Agent,
maturing March 1, 2003, as amended from time to time.
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"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
SECTION 3. Representations and Warranties of Pledgor. Pledgor hereby
represents and warrants to Secured Party that:
(a) Pledgor's holding period (calculated in the manner provided in Rule
144(d) under the Securities Act) with respect to the Eligible Collateral
delivered in accordance with Section 1(b) commenced at least one year prior to
the date of the Term Sheet, and Pledgor (i) owns, and, except with respect to
Collateral rehypothecated pursuant to Section 5(i) at all times prior to the
release of the Collateral pursuant to the terms of this Agreement, will own the
Collateral free and clear of any Liens (other than the Security Interests) or
Transfer Restrictions and (ii) is not and will not become a party to or
otherwise bound by any agreement, other than this Agreement, that (x) restricts
in any manner the rights of any present or future owner of the Collateral with
respect thereto or (y) provides any person other than Pledgor, Secured Party or
any securities intermediary through whom any Collateral is held (but, in the
case of any such securities intermediary, only with respect to Collateral held
through it) with Control with respect to any Collateral.
(b) Other than financing statements or other similar or equivalent
documents or instruments with respect to the Security Interests, no financing
statement, security agreement or similar or equivalent document or instrument
covering all or any part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be effective to perfect a
lien, security interest or other encumbrance of any kind on such Collateral.
(c) All Collateral consisting of securities and all financial assets
underlying Collateral consisting of security entitlements (each as defined in
Section 8-102 of the UCC) at any time pledged hereunder is and will be issued by
an issuer organized under the laws of the United States, any State thereof or
the District of Columbia and (i) certificated (and the certificate or
certificates in respect of such securities or financial assets are and will be
located in the United States) and registered in the name of Pledgor or held
through a securities intermediary whose securities intermediary's jurisdiction
(within the meaning of Section 8-110(e) of the UCC) is located in the United
States or (ii) uncertificated and either registered in the name of Pledgor or
held through a securities intermediary whose securities intermediary's
jurisdiction (within the meaning of Section 8-110(e) of the UCC) is located in
the United States; provided that this representation shall not be deemed to be
breached if, at any time, any such Collateral is issued by an issuer that is not
organized under the laws of the United States, any State thereof or the District
of Columbia, and the parties hereto agree
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to procedures or amendments hereto necessary to enable Secured Party to maintain
a valid and continuously perfected security interest in such Collateral, in
respect of which Secured Party will have Control, subject to no prior Lien. The
parties hereto agree to negotiate in good faith any such procedures or
amendments.
(d) Upon (i) in the case of Collateral consisting of investment property
(as defined in Section 9-115 of the UCC), (A) the delivery of certificates
evidencing any such investment property consisting of securities to the
Custodian in accordance with Section 5(c)(i), (B) the registration of any such
investment property consisting of uncertificated securities in the name of the
Custodian or its nominee in accordance with Section 5(c)(ii) or (C) the
crediting of any securities or other financial assets underlying any such
investment property consisting of security entitlements to a securities account
of the Custodian in accordance with Section 5(c)(iii) and, in each case, the
crediting of such securities or financial assets to the Collateral Account or
(ii) in the case of Collateral not consisting of investment property, the filing
of UCC-1 financing statements in the form of Exhibit B hereto in the filing
offices specified in Exhibit C hereto, Secured Party will have a valid and
perfected security interest in such Collateral, in respect of which Secured
Party will have (in the case of Collateral consisting of investment property)
Control, subject to no prior Lien.
(e) No registration, recordation or filing with any governmental body,
agency or official is required in connection with the execution and delivery of
this Agreement or necessary for the validity or enforceability hereof or for the
perfection or enforcement of the Security Interests, other than the filing of
UCC-1 financing statements in the form of Exhibit B hereto in the filing offices
specified in Exhibit C hereto.
(f) Pledgor has not performed and will not perform any acts that might
prevent Secured Party from enforcing any of the terms of this Agreement or that
might limit Secured Party in any such enforcement.
(g) The Location of Pledgor is the address set forth in Section 8(c), and
under the Uniform Commercial Code as in effect in such Location, no local filing
is required to perfect a security interest in collateral consisting of general
intangibles.
(h) Pledgor has delivered to Secured Party a perfection certificate
substantially in the form attached as Exhibit C hereto, completed and
supplemented with the schedules and attachments contemplated thereby to the
satisfaction of Secured Party, and signed by the General Partner of Pledgor.
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SECTION 4. Certain Covenants of Pledgor. Pledgor agrees that, so long as
any of Pledgor's obligations under the Securities Contract remain outstanding:
(a) Pledgor shall ensure at all times that a Collateral Event of Default
shall not occur, and shall pledge additional Collateral in the manner described
in Sections 5(b) and 5(c) as necessary to cause such requirement to be met.
(b) Pledgor shall, at the expense of Pledgor and in such manner and form
as Secured Party may reasonably require, give, execute, deliver, file and record
any financing statement, notice, instrument, document, agreement or other papers
that may be necessary or desirable in order to (i) create, preserve, perfect,
substantiate or validate any security interest granted pursuant hereto, (ii)
create or maintain Control with respect to any such security interests in any
investment property (as defined in Section 9-115 of the UCC) or (iii) enable
Secured Party to exercise and enforce its rights hereunder with respect to such
security interest. To the extent permitted by applicable law, Pledgor hereby
authorizes Secured Party to execute and file, in the name of Pledgor or
otherwise, UCC financing or continuation statements (which may be carbon,
photographic, photostatic or other reproductions of this Agreement or of a
financing statement relating to this Agreement) that Secured Party in its sole
discretion may deem reasonably necessary or appropriate to further perfect, or
maintain the perfection of, the Security Interests.
(c) Pledgor shall warrant and defend Pledgor's title to the Collateral,
subject to the rights of Secured Party, against the claims and demands of all
persons. Secured Party may elect, but without an obligation to do so, to
discharge any Lien of any third party on any of the Collateral.
(d) Pledgor agrees that Pledgor shall not change (i) Pledgor's name,
identity or organizational structure in any manner or (ii) Pledgor's Location,
unless in either case (A) Pledgor shall have given Secured Party not less than
30 days' prior notice thereof and (B) such change shall not cause any of the
Security Interests to become unperfected, cause Secured Party to cease to have
Control in respect of any of the Security Interests in any Collateral consisting
of investment property (as defined in Section 9-115 of the UCC) or subject any
Collateral to any other Lien.
(e) Pledgor agrees that Pledgor shall not (i) create or permit to exist
any Lien (other than the Security Interests) or any Transfer Restriction upon or
with respect to the Collateral, (ii) sell or otherwise dispose of, or grant any
option with respect to, any of the Collateral or (iii) enter into or consent to
any agreement pursuant to which any person other than Pledgor, Secured Party and
any securities intermediary through whom any of the Collateral is held (but in
the case of any
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such securities intermediary only in respect of Collateral held through it) has
or will have Control in respect of any Collateral.
SECTION 5. Administration of the Collateral and Valuation of the
Securities. (a) Secured Party shall determine on each Business Day whether a
Collateral Event of Default shall have occurred.
(b) Pledgor may pledge additional Eligible Collateral hereunder at any
time. Concurrently with the delivery of any additional Eligible Collateral,
Pledgor shall deliver to Secured Party a certificate of the General Partner of
Pledgor substantially in the form of Exhibit A hereto and dated the date of such
delivery, (i) identifying the additional items of Eligible Collateral being
pledged and (ii) certifying that with respect to such items of additional
Eligible Collateral the representations and warranties contained in paragraphs
(a), (b), (c) and (d) of Section 3 are true and correct with respect to such
Eligible Collateral on and as of the date thereof. Pledgor hereby covenants and
agrees to take all actions required under Section 5(c) and any other actions
necessary to create for the benefit of Secured Party a valid, first priority,
perfected security interest in, and a first lien upon, such additional Eligible
Collateral, as to which Secured Party will have Control.
(c) Any delivery of any securities or security entitlements (each as
defined in Section 8-102 of the UCC) as Collateral to Secured Party by Pledgor
shall be effected (i) in the case of Collateral consisting of certificated
securities registered in the name of Pledgor, by delivery of certificates
representing such securities to the Custodian, accompanied by any required
transfer tax stamps, and in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in blank,
with signatures appropriately guaranteed, all in form and substance satisfactory
to Secured Party, and the crediting by the Custodian of such securities to a
securities account (as defined in Section 8-501 of the UCC) (the "Collateral
Account") of Secured Party maintained by the Custodian, (ii) in the case of
Collateral consisting of uncertificated securities registered in the name of
Pledgor, by transmission by Pledgor of an instruction to the issuer of such
securities instructing such issuer to register such securities in the name of
the Custodian or its nominee, accompanied by any required transfer tax stamps,
the issuer's compliance with such instructions and the crediting by the
Custodian of such securities to the Collateral Account, (iii) in the case of
securities in respect of which security entitlements are held by Pledgor through
a securities intermediary, by the crediting of such securities, accompanied by
any required transfer tax stamps, to a securities account of the Custodian at
such securities intermediary or, at the option of Secured Party, at another
securities intermediary satisfactory to Secured Party and the crediting by the
Custodian of such securities to the Collateral Account or (iv) in any case, by
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complying with such reasonable alternative delivery instructions as Secured
Party shall provide to Pledgor in writing. Upon delivery of any such Pledged
Item under this Agreement, Secured Party shall examine (or cause the Custodian
to examine) such Pledged Item and any certificates delivered pursuant to Section
5(b) or otherwise pursuant to the terms hereof in connection therewith to
determine that they comply as to form with the requirements for Eligible
Collateral.
(d) If on any Business Day Secured Party determines that a Collateral
Event of Default shall have occurred, Secured Party shall promptly notify
Pledgor of such determination by telephone call to the General Partner of
Pledgor followed by a written confirmation of such call.
(e) If on any Business Day Secured Party determines that no Acceleration
Event or failure by Pledgor to meet any of Pledgor's obligations under Sections
4 or 5 hereof has occurred and is continuing, Pledgor may obtain the release
from the Security Interests of any Collateral upon delivery to Secured Party of
a written notice from the General Partner of Pledgor indicating the items of
Collateral to be released so long as, after such release, no Collateral Event of
Default shall have occurred.
(f) On the Maturity Date, unless (i) Pledgor shall have otherwise effected
the deliveries required by Section 2.03(b) of the Securities Contract or shall
have delivered the Cash Settlement Amount to Secured Party in lieu of shares of
Common Stock in accordance with Section 2.04 of the Securities Contract on the
Maturity Date or (ii) the Common Stock then held by or on behalf of Secured
Party hereunder is not Free Stock, Secured Party shall deliver or cause to be
delivered to itself from the Collateral Account in whole or partial, as the case
may be, satisfaction of Pledgor's obligations to deliver shares of Common Stock
to Secured Party on the Maturity Date pursuant to the Securities Contract,
shares of Common Stock then held by or on behalf of it hereunder representing
the number of shares of Common Stock required to be delivered under the
Securities Contract on the Maturity Date. Upon any such delivery, Secured Party
shall hold such shares of Common Stock absolutely and free from any claim or
right whatsoever (including, without limitation, any claim or right of Pledgor).
(g) Secured Party may at any time or from time to time, in its sole
discretion, cause any or all of the Common Stock pledged hereunder registered in
the name of Pledgor or Pledgor's nominee to be transferred of record into the
name of the Custodian, Secured Party or its nominee. Pledgor shall promptly give
to Secured Party copies of any notices or other communications received by
Pledgor with respect to Common Stock pledged hereunder registered, or held
through a securities intermediary, in the name of Pledgor or Pledgor's nominee
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and Secured Party shall promptly give to Pledgor copies of any notices and
communications received by Secured Party with respect to Common Stock pledged
hereunder registered, or held through a securities intermediary, in the name of
Custodian, Secured Party or its nominee.
(h) Pledgor agrees that Pledgor shall forthwith upon demand pay to
Secured Party:
(i) the amount of any taxes that Secured Party or the Custodian
may have been required to pay by reason of the Security Interests or to
free any of the Collateral from any Lien thereon, and
(ii) the amount of any and all reasonable costs and expenses,
including the fees and disbursements of counsel and of any other experts,
that Secured Party or the Custodian may incur in connection with (A) the
enforcement of this Agreement, including such expenses as are incurred to
preserve the value of the Collateral and the validity, perfection, rank
and value of the Security Interests, (B) the collection, sale or other
disposition of any of the Collateral, (C) the exercise by Secured Party
of any of the rights conferred upon it hereunder or (D) any Acceleration
Event.
Any such amount not paid on demand shall bear interest (computed on the basis of
a year of 360 days and payable for the actual number of days elapsed) at a rate
per annum equal to 5% plus the prime rate as published from time to time in The
Wall Street Journal, Eastern Edition.
(i) Without limiting the rights and obligations of the parties under
this Agreement, upon the consent of Pledgor (which consent need not be in
writing), Secured Party may, notwithstanding Section 9-207 of the UCC, sell,
lend, pledge, rehypothecate, assign, invest, use, commingle or otherwise dispose
of, or otherwise use in its business (collectively, "REHYPOTHECATE"), any
Collateral, free from any claim or right of any nature whatsoever of Pledgor,
including any equity or right of redemption by Pledgor; provided that Secured
Party will replace any rehypothecated Collateral (with the same Collateral or
identical substitute Collateral) (A) upon five Business Days' notice from
Pledgor or (B) if not already replaced, on the Maturity Date or any Optional
Termination Date; provided further that in the case of any Optional Termination
Date on which the Securities Contract is terminated in part pursuant to Section
3.01 of the Securities Contract, Secured Party will be obligated to replace only
an amount of rehypothecated Collateral sufficient to ensure that on such date,
the Collateral Account will contain a number of shares of Common Stock at least
equal to the number of shares of Common Stock with respect to which the
Securities Contract is to be terminated pursuant to Section 3.01 of the
Securities Contract. If at any time at which any shares of Common Stock
constituting
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Collateral have been rehypothecated pursuant to this Section 5(i) there shall
occur an event of a type that would, had Secured Party borrowed such shares of
Common Stock from Pledgor on terms customary for loans of equity securities (as
determined by the Calculation Agent), require either (i) an adjustment to the
number of shares of Common Stock or a change in the type of securities or other
property that Secured Party would be required to deliver to Pledgor to repay
such stock loan or (ii) a payment or delivery by Secured Party to Pledgor in
respect of dividends paid or distributions made on such shares of Common Stock,
then, in the case of clause (i), such adjustment or change shall be applied to
the number of shares of Common Stock that Secured Party is required to replace
in accordance with the proviso to the immediately preceding sentence and, in the
case of clause (ii), Secured Party shall make such payment or delivery to
Pledgor, whereupon the amount so paid or the assets so delivered shall become
Collateral hereunder. All determinations related to the immediately preceding
sentence shall be made by the Calculation Agent. Notwithstanding the foregoing,
if any of the Eligible Collateral pledged hereunder is unavailable for
rehypothecation by Secured Party at any time ((1) as a result of Pledgor's
withholding Pledgor's consent to rehypothecation of such Collateral, (2) as a
result of Pledgor's causing Secured Party to replace such Collateral pursuant to
the proviso to the first sentence in this Section 5(i), (3) as a result of any
Transfer Restrictions or (4) otherwise) (a "REHYPOTHECATION UNAVAILABILITY"),
the Calculation Agent shall adjust one or more of the Base Amount, the Exchange
Rate, the Threshold Price, the Issue Price, the Maturity Price, the Cash
Settlement Amount, any Closing Price and any other variable relevant to the
exercise, settlement or payment terms hereof or of the Securities Contract, as
appropriate to make Secured Party whole for Secured Party's cost relating to the
borrowing of shares of Common Stock in connection with hedging Secured Party's
exposure to the Securities Contract (whether such borrowing is effected by
Secured Party or by a counterparty to a transaction entered into by Secured
Party to hedge Secured Party's exposure to the Securities Contract), as
determined by the Calculation Agent. For purposes of determining the occurrence
of a Collateral Event of Default, the rehypothecation of any Collateral pledged
hereunder shall not affect the status of such Collateral as Collateral or
Eligible Collateral hereunder.
SECTION 6. Income and Voting Rights in Collateral. (a) Secured Party shall
have the right to receive and retain as Collateral hereunder all proceeds
(including, without limitation, ordinary cash dividends or interest) of the
Collateral, and Pledgor shall take all such action as Secured Party shall deem
reasonably necessary or appropriate to give effect to such right. All such
proceeds that are received by Pledgor shall be received in trust for the benefit
of Secured Party and, if Secured Party so directs, shall be segregated from
other funds of Pledgor and shall, forthwith upon demand by Secured Party, be
delivered over to the Custodian on behalf of Secured Party as Collateral in the
same form as received (with any necessary endorsement).
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(b) Unless an Acceleration Event shall have occurred and be continuing,
Pledgor shall have the right, from time to time, to vote and to give consents,
ratifications and waivers with respect to the Collateral (other than Collateral
that has been rehypothecated by Secured Party pursuant to Section 5(i)), and
Secured Party shall, upon receiving a written request from Pledgor accompanied
by a certificate of the General Partner of Pledgor stating that no Acceleration
Event has occurred and is continuing, deliver to Pledgor or as specified in such
request such proxies, powers of attorney, consents, ratifications and waivers in
respect of any of the Collateral that is registered, or held through a
securities intermediary, in the name of the Custodian, Secured Party or its
nominee as shall be specified in such request and shall be in form and substance
satisfactory to Secured Party.
(c) If an Acceleration Event shall have occurred and be continuing,
Secured Party shall have the right, to the extent permitted by law, and Pledgor
shall take all such action as may be necessary or appropriate to give effect to
such right, to vote and to give consents, ratifications and waivers, and to take
any other action with respect to any or all of the Collateral with the same
force and effect as if Secured Party were the absolute and sole owner thereof.
SECTION 7. Remedies upon Acceleration Events. (a) If any Acceleration
Event shall have occurred and be continuing, Secured Party may exercise all the
rights of a secured party under the Uniform Commercial Code (whether or not in
effect in the jurisdiction where such rights are exercised) and, in addition,
without being required to give any notice, except as herein provided or as may
be required by mandatory provisions of law, shall: (i) deliver or cause to be
delivered to itself from the Collateral Account all Collateral consisting of
shares of Common Stock (but not in excess of the number thereof deliverable
under the Securities Contract at such time) on the date of the Acceleration
Amount Notice relating to such Acceleration Event (the "DEFAULT SETTLEMENT
DATE") in satisfaction of Pledgor's obligations to deliver Common Stock under
the Securities Contract, whereupon Secured Party shall hold such shares of
Common Stock absolutely free from any claim or right of whatsoever kind,
including any equity or right of redemption of Pledgor that may be waived or any
other right or claim of Pledgor, and Pledgor, to the extent permitted by law,
hereby specifically waives all rights of redemption, stay or appraisal that
Pledgor has or may have under any law now existing or hereafter adopted; and
(ii) if such delivery shall be insufficient to satisfy in full all of the
obligations of Pledgor under the Securities Contract or hereunder, sell all of
the remaining Collateral, or such lesser portion thereof as may be necessary to
generate proceeds sufficient to satisfy in full all of the obligations of
Pledgor under the Securities Contract or hereunder, at public or private sale or
at any broker's board or on any securities exchange, for cash, upon credit or
for future delivery, and at such price or prices as Secured Party may deem
satisfactory. Pledgor covenants and agrees that Pledgor will execute and deliver
such documents and take such other action as Secured Party
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deems necessary or advisable in order that any such sale may be made in
compliance with law. Upon any such sale, Secured Party shall have the right to
deliver, assign and transfer to the buyer thereof the Collateral so sold. Each
buyer at any such sale shall hold the Collateral so sold absolutely and free
from any claim or right of whatsoever kind, including any equity or right of
redemption of Pledgor that may be waived or any other right or claim of Pledgor,
and Pledgor, to the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal that Pledgor has or may have under any
law now existing or hereafter adopted. The notice (if any) of such sale required
by Section 9-504 of the UCC shall (1) in case of a public sale, state the time
and place fixed for such sale, (2) in case of sale at a broker's board or on a
securities exchange, state the board or exchange at which such sale is to be
made and the day on which the Collateral, or the portion thereof so being sold,
will first be offered for sale at such board or exchange, and (3) in the case of
a private sale, state the day after which such sale may be consummated. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as Secured Party may fix in the notice of such sale.
At any such sale the Collateral may be sold in one lot as an entirety or in
separate parcels, as Secured Party may determine. Secured Party shall not be
obligated to make any such sale pursuant to any such notice. Secured Party may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the buyer thereof,
but Secured Party shall not incur any liability in case of the failure of such
buyer to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. Secured Party,
instead of exercising the power of sale herein conferred upon it, may proceed by
a suit or suits at law or in equity to foreclose the Security Interests and sell
the Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) Pledgor hereby irrevocably appoints Secured Party Pledgor's true and
lawful attorney, with full power of substitution, in the name of Pledgor,
Secured Party or otherwise, for the sole use and benefit of Secured Party, but
at the expense of Pledgor, to the extent permitted by law, to exercise, at any
time and from time to time while an Acceleration Event has occurred and is
continuing, all or any of the following powers with respect to all or any of the
Collateral:
(i) to demand, sue for, collect, receive and give acquittance for
any and all monies due or to become due upon or by virtue thereof,
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(ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in or with the
same or the proceeds or avails thereof, as fully and effectually as if
Secured Party were the absolute owner thereof (including, without
limitation, the giving of instructions and entitlement orders in respect
thereof), and
(iv) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference thereto;
provided that Secured Party shall give Pledgor not less than one day's prior
written notice of the time and place of any sale or other intended disposition
of any of the Collateral, except any Collateral that threatens to decline
speedily in value, including, without limitation, equity securities, or is of a
type customarily sold on a recognized market. Secured Party and Pledgor agree
that such notice constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the UCC.
(c) Upon any delivery or sale of all or any part of any Collateral made
either under the power of delivery or sale given under this Section 7 or under
judgment or decree in any judicial proceedings for foreclosure or otherwise for
the enforcement of this Agreement, Secured Party is hereby irrevocably appointed
the true and lawful attorney of Pledgor, in the name and stead of Pledgor, to
make all necessary deeds, bills of sale, instruments of assignment, transfer or
conveyance of the property, and all instructions and entitlement orders in
respect of the property thus delivered or sold. For that purpose Secured Party
may execute all such documents, instruments, instructions and entitlement
orders. This power of attorney shall be deemed coupled with an interest, and
Pledgor hereby ratifies and confirms that which Pledgor's attorney acting under
such power, or such attorney's successors or agents, shall lawfully do by virtue
of this Agreement. If so requested by Secured Party or by any buyer of the
Collateral or a portion thereof, Pledgor shall further ratify and confirm any
such delivery or sale by executing and delivering to Secured Party or to such
buyer or buyers at the expense of Pledgor all proper deeds, bills of sale,
instruments of assignment, conveyance or transfer, releases, instructions and
entitlement orders as may be designated in any such request.
(d) In the case of an Acceleration Event, Secured Party may proceed to
realize upon the security interest in the Collateral against any one or more of
the types of Collateral, at any time, as Secured Party shall determine in its
sole discretion subject to the foregoing provisions of this Section 7. The
proceeds of any sale of, or other realization upon, or other receipt from, any
of the Collateral shall be applied by Secured Party in the following order of
priorities:
14
<PAGE> 17
first, to the payment to Secured Party or the Custodian of the
expenses of such sale or other realization, including reasonable
compensation to the Custodian and the agents and counsel of the Custodian
and Secured Party, and all expenses, liabilities and advances incurred or
made by Secured Party or the Custodian in connection therewith, including
brokerage fees in connection with the sale by Secured Party of any
Collateral;
second, to the payment to Secured Party of an amount equal to the
aggregate Market Value of a number of shares of Common Stock equal to (i)
the number of shares of Common Stock that would be required to be
delivered under Section 8.01 of the Securities Contract on the Default
Settlement Date without giving effect to the proviso therein minus (ii)
the number of shares of Common Stock delivered to Secured Party on the
Default Settlement Date as described in Section 7(a);
finally, if all of the obligations of Pledgor hereunder and under
the Securities Contract have been fully discharged or sufficient funds
have been set aside by Secured Party at the request of Pledgor for the
discharge thereof, any remaining proceeds shall be released to Pledgor.
SECTION 8. Miscellaneous. (a). This Agreement is not intended and shall
not be construed to create any rights in any person other than Pledgor, Secured
Party and their respective successors and assigns and no other person shall
assert any rights as third party beneficiary hereunder. Whenever any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party. All the covenants and agreements herein
contained by or on behalf of Pledgor and Secured Party shall bind, and inure to
the benefit of, their respective successors and assigns whether so expressed or
not. The rights and duties under this Agreement may not be assigned or
transferred by any party hereto without the prior written consent of the other
parties hereto; provided that (i) Secured Party may assign or transfer any of
its rights or duties hereunder without the prior written consent of Pledgor and
(ii) the Agent may assign or transfer any of its rights or duties hereunder
without the prior written consent of the other parties hereto to any affiliate
of Credit Suisse First Boston, so long as such affiliate is a broker-dealer
registered with the Securities and Exchange Commission.
(b) Any provision of this Agreement may be amended or waived if, and only
if, such amendment or waiver is in writing and signed, in the case of an
amendment, by Pledgor and Secured Party or, in the case of a waiver, by the
party against whom the waiver is to be effective. No failure or delay by either
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and
15
<PAGE> 18
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(c) All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed or transmitted by any
standard forms of telecommunication. Notices to Pledgor shall be directed to
Pledgor at Suite 850, 101 Convention Center Drive, Las Vegas, Nevada 89019,
Telecopy No. (702) 598-3651, with a copy to Robert E. Freitas, Orrick,
Herrington & Sutcliffe LLP, 600 Hansen Way, Palo Alto, California 94304,
Telecopy No. (650) 614-7301; notices to Secured Party shall be directed to it in
care of Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York,
New York 10010, Telecopy No. (212) 325-8175, Attention: Ricardo Harewood, with a
copy to QSPV Limited, Queensgate House, George Town, Grand Cayman, Cayman
Islands, Telecopy No. (345) 945-7100, Attention: Martin Couch.
(d) This Agreement shall in all respects be construed in accordance with
and governed by the laws of the State of New York without reference to choice of
law doctrine (provided that as to Pledged Items located in any jurisdiction
other than the State of New York, Secured Party shall, in addition to any rights
under the laws of the State of New York, have all of the rights to which a
secured party is entitled under the laws of such other jurisdiction) and each
party hereto submits to the jurisdiction of the Courts of the State of New York
and the United States District Court located in the Borough of Manhattan in New
York City. The parties hereto hereby agree that the Custodian's jurisdiction,
within the meaning of Section 8-110(e) of the UCC, insofar as it acts as a
securities intermediary hereunder or in respect hereof, is the State of New
York. To the extent permitted by law, the unenforceability or invalidity of any
provision or provisions of this Agreement shall not render any other provision
or provisions herein contained unenforceable or invalid.
(e) EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(f) Pledgor hereby agrees that it shall not institute against, or join any
other person in instituting against, Secured Party any bankruptcy,
reorganization, arrangement, insolvency, moratorium or liquidation proceedings.
Pledgor hereby acknowledges and agrees that Secured Party's obligations under
this Agreement will be solely the corporate obligations of Secured Party, and
that Pledgor will not have any recourse to any of the directors, officers or
employees of Secured Party with respect to any claims, losses, damages,
liabilities, indemnities or other obligations in connection with any
transactions contemplated by this Agreement. Recourse in respect of any
obligations of Secured Party under this Agreement will be limited to
16
<PAGE> 19
the assets of Secured Party and no debt shall be owed by Secured Party in
respect of any shortfall after realization of such assets.
(g) This Agreement may be executed, acknowledged and delivered in any
number of counterparts and all such counterparts taken together shall be deemed
to constitute one and the same agreement.
(h) The rights and obligations of the Agent shall be as set forth in
Section 9.09 of the Securities Contract.
SECTION 9. Termination of Pledge Agreement. This Agreement and the rights
hereby granted by Pledgor in the Collateral shall cease, terminate and be void
upon fulfillment of all of the obligations of Pledgor under the Securities
Contract and hereunder. Any Collateral remaining at the time of such termination
shall be fully released and discharged from the Security Interests and delivered
to Pledgor by Secured Party, all at the request and expense of Pledgor.
SECTION 10. Set-off. In addition to and without limiting any rights of
set-off that Secured Party may have as a matter of law, pursuant to contract or
otherwise, upon the occurrence of a Reorganization Termination Date or an
Acceleration Date, Secured Party shall have the right to terminate, liquidate
and otherwise close out the transactions contemplated by the Securities Contract
and this Agreement pursuant to the terms of the Securities Contract and this
Agreement, and to set off any obligation it may have to Pledgor pursuant to the
Securities Contract or this Agreement, including without limitation any
obligation to (i) release from the Security Interests or return to Pledgor any
Collateral pursuant to Section 5(e) or Section 9 or (ii) replace any
rehypothecated Collateral pursuant to Section 5(i), against any right Secured
Party or any of its affiliates may have against Pledgor pursuant to the
Securities Contract or this Agreement, including without limitation any right to
receive a payment or delivery pursuant to the Securities Contract. In the case
of a set-off of any obligation to return or replace assets against any right to
receive assets of the same type, such obligation and right shall be set off in
kind. In the case of a set-off of any obligation to return or replace assets
against any right to receive assets of any other type, the value of each of such
obligation and such right shall be determined by the Calculation Agent and the
result of such set-off shall be that the net obligor shall pay or deliver to the
other party an amount of cash or assets, at the net obligor's option, with a
value (determined, in the case of a delivery of assets, by the Calculation
Agent) equal to that of the net obligation. In determining the value of any
obligation to release or deliver Common Stock or right to receive Common Stock,
the value at any time of such obligation or right shall be determined by
reference to the Market Value of the Common Stock at such time. If an obligation
or right is unascertained at the time of any such set-off, the Calculation Agent
may in good faith estimate the amount or value of such obligation or right, in
which case
17
<PAGE> 20
set-off will be effected in respect of that estimate, and the relevant party
shall account to the other party at the time such obligation or right is
ascertained.
<PAGE> 21
IN WITNESS WHEREOF, the parties have signed this Agreement as of
the date and year first above written.
PLEDGOR:
ZG NEVADA LIMITED PARTNERSHIP
By: ZG Nevada, Inc.,
its General Partner
By:
-------------------------------------
Name:
Title:
SECURED PARTY:
CSFB SAILS CORP.
By:
-------------------------------------
Name:
Title:
AGENT:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:
-------------------------------------
Name:
Title:
<PAGE> 22
EXHIBIT A
[Certificate for Additional Collateral]
The undersigned, the General Partner of ZG Nevada Limited Partnership
("Pledgor"), hereby certifies, pursuant to Section 5(b) of the SAILS Pledge
Agreement dated as of March 1, 2000 among Pledgor, Credit Suisse First Boston
Corporation, as Agent, and CSFB SAILS Corp. (the "Pledge Agreement"; terms
defined in the Pledge Agreement being used herein as defined therein), that:
1. Pledgor is delivering, or causing to be delivered in accordance
with Section 5(c) of the Pledge Agreement, the following securities (or
security entitlements in respect thereof) to Secured Party to be held by
Secured Party as additional Collateral (the "Additional Collateral"):
2. Pledgor hereby represents and warrants to Secured Party that the
Additional Collateral is Eligible Collateral and that the representations
and warranties contained in paragraphs (a), (b), (c) and (d) of Section 3
of the Pledge Agreement are true and correct with respect to the
Additional Collateral on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
___ day of ______________, 200_.
ZG NEVADA, INC.
By:
-------------------------------------
Name:
Title:
<PAGE> 23
EXHIBIT B
[Form of UCC-1 Financing Statement]
SCHEDULE A TO FINANCING STATEMENT NAMING
ZG NEVADA LIMITED PARTNERSHIP, AS DEBTOR, AND
CSFB SAILS CORP., AS SECURED PARTY
This financing statement covers ZG Nevada Limited Partnership's
("DEBTOR'S") right, title and interest in and to the following, whether now
owned or hereafter acquired (all of which is hereinafter collectively referred
to as the "COLLATERAL"):
(i) the Initial Pledged Items;
(ii) all additions to and substitutions for the Initial Pledged Items (the
"ADDITIONS AND SUBSTITUTIONS")
(iii) all income, proceeds and collections received or to be received, or
derived or to be derived, now or at any time hereafter (whether before or after
the commencement of any proceeding under applicable bankruptcy, insolvency or
similar law, by or against Debtor, with respect to Debtor) from or in connection
with the Initial Pledged Items and the Additions and Substitutions (including,
without limitation, (A) any shares of capital stock issued by the Issuer in
respect of any Common Stock constituting Collateral or any cash, securities or
other property distributed in respect of or exchanged for any Common Stock
constituting Collateral, or into which any such Common Stock is converted in
connection with any Reorganization Event, and any security entitlements in
respect of any of the foregoing, (B) any obligation of Secured Party to replace
any rehypothecated Collateral and (C) any amounts paid or assets delivered to
Pledgor by Secured Party in respect of dividends paid or distributions made on
shares of Common Stock constituting Collateral that have been rehypothecated);
(iv) the Collateral Account and all securities and other financial assets
(each as defined in Section 8-102 of the UCC), including the Initial Pledged
Items and the Additions and Substitutions, and other funds, property or other
assets from time to time held therein or credited thereto; and
(v) all powers and rights now owned or hereafter acquired under or with
respect to the Initial Pledged Items or the Additions and Substitutions.
<PAGE> 24
As used in this Schedule A, the following capitalized terms have the
meanings specified below (such meanings being equally applicable to both the
singular and plural forms of the terms defined):
"AGENT" means Credit Suisse First Boston Corporation.
"COLLATERAL ACCOUNT" means a securities account (as defined in Section 8-
501(a) of the UCC) established in the name of Secured Party at the offices of
the Custodian in which or to which certain of the Collateral is to be deposited
or credited.
"COMMON STOCK" means shares of Common Stock, par value $0.0001 per share,
of the Issuer, or security entitlements in respect thereof.
"CUSTODIAN" means The Bank of New York or any other custodian appointed by
Secured Party and identified to Debtor.
"INITIAL PLEDGED ITEMS" means 750,000 shares of Common Stock.
"ISSUER" means Digital Lightwave, Inc., a Delaware corporation.
"SECURED PARTY" means CSFB SAILS Corp.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
B-2
<PAGE> 25
EXHIBIT C
[Perfection Certificate]
The undersigned, the General Partner of ZG Nevada Limited Partnership
("Pledgor"), hereby certifies, pursuant to Section 3(h) of the SAILS Pledge
Agreement (the "Pledge Agreement") dated as of March 1, 2000 among Pledgor,
Credit Suisse First Boston Corporation, as Agent, and CSFB SAILS Corp. ("Secured
Party") (terms defined therein being used herein as defined in the Pledge
Agreement), that:
1. Jurisdiction of Organization. Pledgor is a limited partnership
organized under the laws of the State of Nevada.
2. Name. The exact name of Pledgor as it appears in its certificate of
limited partnership is:
ZG Nevada Limited Partnership
3. Prior Names. (a) Set forth below is each other name that Pledgor has
had since its organization, together with the date of the relevant change:
(b) Pledgor has not changed its organizational structure in any way
within the past five years.
4. Current Locations. The chief executive office of Pledgor is located at
the following address:
<TABLE>
<CAPTION>
MAILING ADDRESS COUNTY STATE
- --------------------------------------------------------------------------------
<S> <C> <C>
Suite 850 Clark Nevada
101 Convention Center Drive
Las Vegas, Nevada 89019
</TABLE>
5. Prior Locations. (a) Set forth below is the information required by
Section 4 above with respect to each other chief executive office maintained by
Pledgor at any time during the past five years:
<PAGE> 26
<TABLE>
<CAPTION>
MAILING ADDRESS COUNTY STATE
- --------------------------------------------------------------------------------
<S> <C> <C>
3500 Lakeside Court Washoe Nevada
Reno, Washoe County, Nevada 89509
</TABLE>
6. Filing Offices. In order to perfect the Security Interests granted by
Pledgor, a duly signed financing statement on Form UCC-1 in the form attached as
Exhibit B to the Pledge Agreement should be on file in the appropriate offices
(central and, where required, local) in each jurisdiction identified in Section
4 above.
7. Search Reports. Attached hereto as Schedule I is a true copy of a file
search report from the central UCC filing office in each jurisdiction identified
in Sections 4 and 5 above with respect to each name set forth in Sections 2 and
3(a) above (searches in local filing offices, if any, are not required).
C-2
<PAGE> 27
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 1(st) day
of March, 2000.
ZG NEVADA, INC.
By:
--------------------------------------
Name:
Title:
<PAGE> 28
C-4
<PAGE> 1
EXHIBIT 9
SAILS MANDATORILY EXCHANGEABLE SECURITIES CONTRACT
dated as of
March 8, 2000
among
ZG NEVADA LIMITED PARTNERSHIP,
CSFB SAILS CORP.
and
CREDIT SUISSE FIRST BOSTON CORPORATION, as Agent
1
<PAGE> 2
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions......................................................................1
ARTICLE 2
SALE AND PURCHASE
SECTION 2.01. Sale and Purchase................................................................6
SECTION 2.02. Purchase Price...................................................................6
SECTION 2.03. Payment for and Delivery of Contract Shares......................................6
SECTION 2.04. Cash Settlement Option...........................................................7
ARTICLE 3
TERMINATION BY SELLER
SECTION 3.01. Termination by Seller............................................................7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 4.01. Representations and Warranties of Seller.........................................8
ARTICLE 5
CONDITIONS TO BUYER'S OBLIGATIONS
SECTION 5.01. Conditions......................................................................11
ARTICLE 6
COVENANTS
SECTION 6.01. Taxes...........................................................................12
SECTION 6.02. Forward Contract................................................................12
SECTION 6.03. Notices.........................................................................12
SECTION 6.04. Further Assurances..............................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 6.05. Securities Contract.............................................................13
ARTICLE 7
ADJUSTMENTS
SECTION 7.01. Dilution Adjustments............................................................13
SECTION 7.02. Reorganization Events...........................................................15
SECTION 7.03. Provisions Relating to Reorganization Events and Spin-Offs......................16
SECTION 7.04. Termination and Payment.........................................................16
ARTICLE 8
ACCELERATION
SECTION 8.01. Acceleration....................................................................17
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices.........................................................................19
SECTION 9.02. Governing Law; Submission to Jurisdiction; Severability; Waiver
of Jury Trial; Service of Process.....................................................19
SECTION 9.03. Confidentiality.................................................................20
SECTION 9.04. Entire Agreement................................................................20
SECTION 9.05. Amendments, Waivers.............................................................21
SECTION 9.06. No Third Party Rights, Successors and Assigns...................................21
SECTION 9.07. Calculation Agent..............................................................21
SECTION 9.08. Set-off.........................................................................22
SECTION 9.09. Matters Related to Credit Suisse First Boston Corporation, as
Agent.................................................................................22
SECTION 9.10. Counterparts....................................................................23
SECTION 9.11. Limited Recourse................................................................23
</TABLE>
ii
<PAGE> 4
SAILS MANDATORILY EXCHANGEABLE SECURITIES CONTRACT
THIS AGREEMENT is made as of this 8th day of March, 2000 among ZG
NEVADA LIMITED PARTNERSHIP ("SELLER"), a Nevada limited partnership, CREDIT
SUISSE FIRST BOSTON CORPORATION, as agent (the "AGENT") hereunder, and CSFB
SAILS CORP. ("BUYER").
WHEREAS, Seller owns shares of common stock, par value $0.0001 per
share, of Digital Lightwave, Inc., a Delaware corporation (the "ISSUER"), or
security entitlements in respect thereof (the "COMMON STOCK");
WHEREAS, Seller has agreed, pursuant to the Pledge Agreement (as
defined herein), to grant Buyer a security interest in certain shares of Common
Stock to secure the obligations of Seller hereunder;
WHEREAS, Seller and Buyer are willing to sell and purchase such shares
of Common Stock at the time and on the terms set forth herein;
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby mutually
covenant and agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. As used herein, the following words and
phrases shall have the following meanings:
"ACCELERATION AMOUNT" has the meaning provided in Section 8.01.
"ACCELERATION AMOUNT NOTICE" has the meaning provided in Section 8.01.
"ACCELERATION DATE" has the meaning provided in Section 8.01.
"ACCELERATION DELIVERY DATE" has the meaning provided in Section 8.01.
"ACCELERATION EVENT" has the meaning provided in Section 8.01.
"ACQUIRING CORPORATION" has the meaning provided in Section 7.02.
<PAGE> 5
"BANKRUPTCY CODE" has the meaning provided in Section 6.05.
"BASE AMOUNT" has the meaning provided in Section 2.01.
"BUSINESS DAY" means any day on which commercial banks are open for
business in New York City.
"CALCULATION AGENT" means Credit Suisse Financial Products.
"CASH SETTLEMENT AMOUNT" means an amount of cash equal to the product
of the Maturity Price and the number of shares of Common Stock equal to the
product of (i) the Base Amount and (ii) the Exchange Rate.
"CLOSING PRICE" of any security on any date of determination means the
closing sale price (or, if no closing sale price is reported, the last reported
sale price) of such security on the Exchange for the regular trading session on
such date or, if such security is not listed on a national securities exchange
or quoted on a national automated quotation system, the last quoted bid price
for such security in the over-the-counter market for the regular trading session
for such date, as reported by the National Quotation Bureau or similar
organization, or, if such bid price is not available, the market value of such
security on such date as determined by the Calculation Agent.
"COLLATERAL ACCOUNT" has the meaning provided in the Pledge Agreement.
"CONTRACT SHARE AMOUNT" has the meaning provided in Section 2.03(b).
"CONTRACT SHARES" has the meaning provided in Section 2.03(b).
"CUSTODIAN" has the meaning provided in the Pledge Agreement.
"EXCHANGE" means, at any time, the principal national securities
exchange or automated quotation system, if any, on which the Common Stock is
listed or quoted at such time.
"EXCHANGE BUSINESS DAY" means any day that is (or, but for the
occurrence of a Market Disruption Event, would have been) a trading day on the
Exchange, other than a day on which trading on the Exchange is scheduled to
close prior to its regular weekday closing time.
"EXCHANGE RATE" has the meaning provided in Section 2.03(c).
2
<PAGE> 6
"FREE STOCK" means Common Stock that is not subject to any Transfer
Restrictions (other than Transfer Restrictions arising solely from the fact that
Seller is an "affiliate", within the meaning of Rule 144 under the Securities
Act, of the Issuer) in the hands of Seller immediately prior to delivery to
Buyer hereunder and would not upon delivery to Buyer be subject to any Transfer
Restrictions in the hands of Buyer.
"GENERAL PARTNER" means ZG Nevada, Inc., a Nevada corporation.
"ISSUE PRICE" has the meaning provided in Section 2.03(c).
"LIEN" means any lien, mortgage, security interest, pledge, charge or
encumbrance of any kind.
"LIMITED PARTNER" means Bryan J. Zwan.
"MARKET DISRUPTION EVENT" means the occurrence or the existence on any
Exchange Business Day during the one-half hour period ending at the close of the
regular trading session on the relevant exchange of any suspension of or
limitation in trading (by reason of movements in price exceeding limits
permitted by the relevant exchange or otherwise) in the Common Stock or in
listed options on the Common Stock, if any, if, in the determination of the
Calculation Agent, such suspension or limitation is material.
"MARKET VALUE" means, as of any date with respect to any share of
Common Stock, the Closing Price per share of Common Stock for the Exchange
Business Day prior to such date.
"MARKETABLE SECURITIES" means shares of common stock of a
Publicly-Traded Entity that are not subject to any Transfer Restrictions.
"MATURITY DATE" means March 8, 2005.
"MATURITY PRICE" means the average of the Closing Prices per share of
the Common Stock on the 20 Trading Days beginning 30 Exchange Business Days
immediately prior to the Maturity Date; provided that if there are not 20
Trading Days during the period beginning 30 Exchange Business Days immediately
prior to the Maturity Date and ending on the Exchange Business Day immediately
prior to the Maturity Date, the Maturity Price shall be the market value of one
share of Common Stock during such period as determined by the Calculation Agent.
"NEW COMMON STOCK" has the meaning provided in Section 7.01(c).
3
<PAGE> 7
"NON-STOCK CONSIDERATION" has the meaning provided in Section 7.02.
"OPTIONAL TERMINATION DATE" has the meaning provided in Section 3.01.
"ORGANIZATIONAL DOCUMENTS" means the Certificate of Limited Partnership
of Seller and the Amended and Restated Agreement of Limited Partnership of
Seller dated as of December 24, 1997 between the General Partner and the Limited
Partner, as amended from time to time.
"ORIGINAL COMMON STOCK" has the meaning provided in Section 7.01(c).
"PAYMENT DATE" has the meaning provided in Section 2.03(a).
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLEDGE AGREEMENT" means the SAILS Pledge Agreement dated as of the
date hereof among Seller, Buyer and the Agent, as amended from time to time.
"POTENTIAL ADJUSTMENT EVENT" has the meaning provided in Section 7.01.
"PUBLICLY-TRADED ENTITY" means an Acquiring Corporation or a surviving
or continuing corporation of the Issuer (or any successor) following a
Reorganization Event, or a corporation the capital stock of which is distributed
in a Spin-Off, the common stock of which is traded on any national securities
exchange or automatic interdealer quotation system in the United States;
provided that in the case of a Reorganization Event, the product of (i) the
Closing Price per share of common stock of such Acquiring Corporation or such
surviving or continuing corporation, as the case may be, on the Exchange
Business Day immediately succeeding such Reorganization Event multiplied by (ii)
the number of shares of such corporation's common stock held by non-affiliates
of such corporation shall not be less than the product of (A) the Closing Price
per share of Common Stock on the Exchange Business Day immediately preceding
such Reorganization Event and (B) the number of shares of Common Stock held by
non-affiliates of the Issuer.
"PURCHASE PRICE" has the meaning provided in Section 2.02.
"REORGANIZATION EVENT" has the meaning provided in Section 7.02.
"REORGANIZATION TERMINATION DATE" has the meaning provided in Section
7.02.
4
<PAGE> 8
"REPLACEMENT VALUE" has the meaning provided in Section 8.01.
"SECURED PARTY" has the meaning provided in the Pledge Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPIN-OFF" has the meaning provided in Section 7.01.
"TERMINATION AMOUNT NOTICE" has the meaning provided in Section 7.04.
"THRESHOLD PRICE" has the meaning provided in Section 2.03(c).
"TRADING DAY" is defined as any Exchange Business Day on which there is
not a Market Disruption Event.
"TRANSFER RESTRICTION" means, with respect to any share of Common Stock
or item of collateral pledged under the Pledge Agreement, any condition to or
restriction on the ability of the holder thereof to sell, assign or otherwise
transfer such share of Common Stock or item of collateral or to enforce the
provisions thereof or of any document related thereto whether set forth in such
item of collateral itself or in any document related thereto, including, without
limitation, (i) any requirement that any sale, assignment or other transfer or
enforcement of such share of Common Stock or item of collateral be consented to
or approved by any Person, including, without limitation, the issuer thereof or
any other obligor thereon, (ii) any limitations on the type or status, financial
or otherwise, of any purchaser, pledgee, assignee or transferee of such share of
Common Stock or item of collateral, (iii) any requirement of the delivery of any
certificate, consent, agreement, opinion of counsel, notice or any other
document of any Person to the issuer of, any other obligor on or any registrar
or transfer agent for, such share of Common Stock or item of collateral, prior
to the sale, pledge, assignment or other transfer or enforcement of such share
of Common Stock or item of collateral and (iv) any registration or qualification
requirement or prospectus delivery requirement for such share of Common Stock or
item of collateral pursuant to any federal, state or foreign securities law
(including, without limitation, any such requirement arising as a result of Rule
144 or Rule 145 under the Securities Act); provided that the required delivery
of any assignment, instruction or entitlement order from the seller, pledgor,
assignor or transferor of such share of Common Stock or item of collateral,
together with any evidence of the corporate or other authority of such Person,
shall not constitute a "TRANSFER RESTRICTION".
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"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
ARTICLE 2
SALE AND PURCHASE
SECTION 2.01. Sale and Purchase. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees
to purchase and acquire from Seller, the number of shares of Common Stock equal
to the product of 865,000 (subject to reduction as provided in Section 3.01, the
"BASE AMOUNT") and the Exchange Rate.
SECTION 2.02. Purchase Price. The purchase price (the "PURCHASE PRICE")
shall be $56,497,953.00 in cash.
SECTION 2.03. Payment for and Delivery of Contract Shares. (a) Upon the
terms and subject to the conditions of this Agreement, Buyer shall deliver to
Seller the Purchase Price on March 8, 2000 (the "PAYMENT DATE") at the offices
of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at
such other place as shall be agreed upon by Buyer and Seller, paid in
immediately available funds by wire transfer to an account designated by Seller.
(b) On the Maturity Date, Seller agrees, subject to Section 2.04, to
deliver to Buyer (i) a number of shares of Free Stock (the "CONTRACT SHARES")
equal to the product (the "CONTRACT SHARE AMOUNT"), rounded down to the nearest
whole number, of (A) the Base Amount and (B) the Exchange Rate and (ii) cash in
an amount equal to the value (based on the Maturity Price) of any fractional
share not delivered as a result of such rounding. If (x) by 10:00 A.M., New York
City time on the Maturity Date, Seller has not otherwise effected such delivery
of Common Stock or delivered cash in lieu thereof pursuant to Section 2.04 and
(y) the Common Stock then held by or on behalf of Secured Party as collateral
under the Pledge Agreement is Free Stock, then (i) Seller shall be deemed not to
have elected to deliver cash in lieu of shares of Free Stock pursuant to Section
2.04 (notwithstanding any notice by Seller to the contrary) and (ii) the
delivery provided by this Section 2.03(b) shall be effected by delivery to Buyer
from the Collateral Account in the manner set forth in the Pledge Agreement of a
number of shares of Free Stock then held by or on behalf of Secured Party as
collateral under the Pledge Agreement equal to the number thereof required to be
delivered by Seller to Buyer pursuant to this Section 2.03(b); provided that,
notwithstanding the foregoing and without limiting the generality of Section
8.01, if Seller gives notice of Seller's election to deliver cash in lieu of
shares of Free
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Stock on the Maturity Date pursuant to Section 2.04 and fails to deliver the
Cash Settlement Amount on the Maturity Date as provided in Section 2.04, Seller
shall be in breach of this Agreement and shall be liable to Buyer for any
damages suffered by Buyer as a result of such breach, including without
limitation damages suffered in connection with any decrease in the Closing Price
per share of Common Stock subsequent to the 30th Exchange Business Day
immediately preceding the Maturity Date.
(c) The "EXCHANGE RATE" shall be determined by the Calculation Agent in
accordance with the following formula, and is subject to adjustment as a result
of certain events as provided in Article 7 and as provided in Section 5(i) of
the Pledge Agreement: (i) if the Maturity Price is less than $100.9491 (the
"THRESHOLD PRICE") but greater than $84.1243 (the "ISSUE PRICE"), the Exchange
Rate shall be a ratio (rounded upward or downward to the nearest 1/10,000th or,
if there is not a nearest 1/10,000th, to the next lower 1/10,000th) equal to the
Issue Price divided by the Maturity Price, (ii) if the Maturity Price is equal
to or greater than the Threshold Price, the Exchange Rate shall be 0.8333 and
(iii) if the Maturity Price is equal to or less than the Issue Price, the
Exchange Rate shall be one (1).
SECTION 2.04. Cash Settlement Option. Seller may, upon written notice
delivered to Buyer at least 35 Exchange Business Days prior to the Maturity
Date, elect to deliver the Cash Settlement Amount to Buyer on the Maturity Date
by wire transfer of immediately available funds to an account designated by
Buyer, in lieu of the shares of Common Stock to be delivered on the Maturity
Date pursuant to Section 2.03(b).
ARTICLE 3
TERMINATION BY SELLER
SECTION 3.01. Termination by Seller. Seller may terminate this
Agreement in whole or in part upon 35 Exchange Business Days' prior written
notice to Buyer (the termination date specified in such notice, the "OPTIONAL
TERMINATION DATE"). If Seller terminates this Agreement in whole, Seller shall
make a cash payment, by wire transfer of immediately available funds to an
account designated by Buyer, to Buyer on the Optional Termination Date in an
amount equal to the Replacement Value (calculated in the manner set forth in
Section 8.01 as if the Optional Termination Date were the Acceleration Date). If
Seller terminates this Agreement in part, Seller shall specify the number of
shares of Common Stock with respect to which this Agreement is to be terminated
and (i) Seller shall make a cash payment, by wire transfer of immediately
available
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funds to an account designated by Buyer, to Buyer on the Optional Termination
Date in an amount equal to the Replacement Value (calculated in the manner set
forth in Section 8.01 as if the Optional Termination Date were the Acceleration
Date; provided that for purposes of such calculation, the Base Amount shall be
deemed to be such number of shares of Common Stock with respect to which this
Agreement is to be terminated) and (ii) the Base Amount shall be reduced by such
number of shares of Common Stock with respect to which this Agreement is to be
terminated.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 4.01. Representations and Warranties of Seller. Seller
represents and warrants to Buyer that:
(a) Seller is a limited partnership duly organized and
existing in good standing under the laws of the State of Nevada and has
the requisite power to own its properties and to carry on its business
as now being conducted.
(b) The execution and delivery of this Agreement and the
Pledge Agreement and the performance by Seller of Seller's obligations
hereunder and thereunder do not violate or conflict with any provision
of the Organizational Documents, any law applicable to Seller, any
order or judgment of any court or other agency of government applicable
to Seller or any of Seller's assets or any contractual restriction
binding on or affecting Seller or any of Seller's assets.
(c) All government and other consents that are required to
have been obtained by Seller with respect to this Agreement or the
Pledge Agreement have been obtained and are in full force and effect
and all conditions of any such consents have been complied with. Seller
has complied and will comply with all applicable disclosure or
reporting requirements in respect of the transactions contemplated
hereby and by the Pledge Agreement, including without limitation any
requirements imposed by Section 13 or Section 16 of the Securities
Exchange Act of 1934, as amended, or the rules and regulations
thereunder.
(d) Seller has the requisite power and authority to enter into
and perform this Agreement and the Pledge Agreement and to deliver the
Contract Shares in accordance with the terms hereof. The execution and
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delivery of this Agreement and the Pledge Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby and
thereby (including the delivery by Seller of the Contract Shares) have
been duly authorized by Seller. This Agreement and the Pledge Agreement
have been duly executed and delivered by Seller. Seller's obligations
under this Agreement and the Pledge Agreement constitute Seller's
legal, valid and binding obligations, enforceable in accordance with
their respective terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to
equitable principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law)).
(e) No Acceleration Event or event that, with the giving of
notice or the lapse of time or both, would constitute an Acceleration
Event has occurred and is continuing and no such event would occur as a
result of Seller's entering into or performing Seller's obligations
under this Agreement or the Pledge Agreement.
(f) There is not pending or, to Seller's knowledge, threatened
against Seller, the General Partner or the Limited Partner any action,
suit or proceeding at law or in equity or before any court, tribunal,
governmental body, agency or official or any arbitrator (including
without limitation any bankruptcy, insolvency or similar proceeding)
that is likely to affect the legality, validity or enforceability
against Seller of this Agreement or the Pledge Agreement or Seller's
ability to perform Seller's obligations under this Agreement or the
Pledge Agreement.
(g) Seller is acting for Seller's own account, and has made
Seller's own independent decision to enter into this Agreement and the
Pledge Agreement and as to whether this Agreement and the Pledge
Agreement are appropriate or proper for Seller based upon Seller's own
judgment and upon advice of such advisors as Seller deems necessary.
Seller acknowledges and agrees that Seller is not relying, and has not
relied, upon any communication (written or oral) of Buyer or any
affiliate, employee or agent of Buyer with respect to the legal,
accounting, tax or other implications of this Agreement and the Pledge
Agreement and that Seller has conducted Seller's own analyses of the
legal, accounting, tax and other implications hereof and thereof; it
being understood that information and explanations related to the terms
and conditions of this Agreement or the Pledge Agreement shall not be
considered investment advice or a recommendation to enter into this
Agreement or the Pledge Agreement. Seller is entering into this
Agreement and the Pledge
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Agreement with a full understanding of all of the terms and risks
hereof and thereof (economic and otherwise) and is capable of
evaluating and understanding (on Seller's own behalf or through
independent professional advice), and understands and accepts, the
terms, conditions and risks. Seller is also capable of assuming
(financially and otherwise), and assumes, those risks. Seller
acknowledges that neither Buyer nor any affiliate, employee or agent of
Buyer is acting as a fiduciary for or an advisor to Seller in respect
of this Agreement or the Pledge Agreement.
(h) Seller is not, on the date of this Agreement, in
possession of any material non-public information regarding the Issuer.
Seller does not know or have any reason to believe that the Issuer has
not complied with the reporting requirements contained in Rule
144(c)(1) under the Securities Act. Neither Seller nor any person who
would be considered to be the same "person" (as such term is used in
Rule 144(a)(2) under the Securities Act) as Seller has, without the
written consent of Buyer (which consent shall not be unreasonably
withheld), sold any shares of Common Stock or hedged (through swaps,
options, short sales or otherwise) any long position in the Common
Stock during the period beginning on the date three months prior to the
date hereof and ending on the date hereof, except (i) the sale by
Seller of 500,000 shares of Common Stock on February 22, 2000, (ii) the
sale by Seller of 50,000 shares of Common Stock on February 23, 2000,
(iii) the sale by The Bryan J. and June B. Zwan Foundation, Inc., of
37,500 shares of Common Stock on February 22, 2000, (iv) the
transaction contemplated by the SAILS Mandatorily Exchangeable
Securities Contract dated as of December 8, 1999 among the Limited
Partner, Buyer and Credit Suisse First Boston Corporation, as Agent,
maturing on December 8, 2004, (v) the transaction contemplated by the
SAILS Mandatorily Exchangeable Securities Contract dated as of March 1,
2000 among Seller, Buyer and Credit Suisse First Boston Corporation, as
Agent, maturing on March 1, 2005, and (vi) the transaction contemplated
by the SAILS Mandatorily Exchangeable Securities Contract dated as of
March 1, 2000 among Seller, Buyer and Credit Suisse First Boston
Corporation, as Agent, maturing on March 1, 2003. Seller's holding
period (calculated in the manner provided in Rule 144(d) under the
Securities Act) with respect to the Common Stock commenced at least one
year prior to the date of the Term Sheet (as defined in the Pledge
Agreement).
(i) Delivery of shares of Common Stock by Seller pursuant to
this Agreement on the Maturity Date or an Acceleration Delivery Date
will pass to Buyer title (or security entitlements) to such shares free
and clear of any Liens or Transfer Restrictions (other than Transfer
Restrictions
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arising solely from the fact that Seller is an "affiliate", within the
meaning of Rule 144 under the Securities Act, of the Issuer), except
for those created pursuant to the Pledge Agreement.
(j) Seller has a valid business purpose for entering into this
Agreement, and the transaction contemplated hereby is consistent with
Seller's overall investment strategy. Seller currently expects that
Seller will not elect to deliver cash in lieu of Common Stock on the
Maturity Date pursuant to Section 2.04. Seller intends, however, to
consider all relevant economic, market and business factors in
ultimately determining whether to deliver cash in lieu of Common Stock
on the Maturity Date.
ARTICLE 5
CONDITIONS TO BUYER'S OBLIGATIONS
SECTION 5.01. Conditions. The obligation of Buyer to deliver the
Purchase Price on the Payment Date is subject to the satisfaction of the
following conditions, each of which shall be conclusively deemed to be satisfied
upon payment of the Purchase Price on the Payment Date:
(a) The representations and warranties of Seller contained in
Article 4 and in the Pledge Agreement shall be true and correct as of
the Payment Date.
(b) The Pledge Agreement shall have been executed by the
parties thereto, and Seller shall have delivered to Secured Party in
accordance therewith the collateral required to be delivered pursuant
to Section 1(b) thereof, and Seller shall have executed UCC-1 financing
statements in the form of Exhibit B to the Pledge Agreement for filing
in the filing offices specified in Exhibit C to the Pledge Agreement.
(c) Seller shall have performed all of the covenants and
obligations to be performed by Seller hereunder and under the Pledge
Agreement on or prior to the Payment Date.
(d) Seller shall have delivered to Buyer on or prior to the
Payment Date an opinion of counsel acceptable to Buyer to the effect
set forth in Annex A.
(e) Seller shall have filed, or shall have caused to be filed,
in the manner contemplated by Rule 144(h) under the Securities Act, a
notice on
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Form 144 relating to the transactions contemplated hereby in form and
substance acceptable to Buyer.
ARTICLE 6
COVENANTS
SECTION 6.01. Taxes. Seller shall pay any and all documentary, stamp,
transfer or similar taxes and charges that may be payable in respect of the
entry into this Agreement and the transfer and delivery of any Common Stock
pursuant hereto. Seller further agrees to make all payments in respect of this
Agreement free and clear of, and without withholding or deduction for or on
account of, any present or future taxes, duties, fines, penalties, assessments
or other governmental charges of whatsoever nature (or interest on any taxes,
duties, fines, penalties, assessments or other governmental charges of
whatsoever nature) imposed, levied, collected, withheld or assessed by, within
or on behalf of (a) the United States or any political subdivision or
governmental authority thereof or therein having power to tax or (b) any
jurisdiction from or through which payment on the Agreement is made by Seller,
or any political subdivision or governmental authority thereof or therein having
power to tax. In the event such withholding or deduction is imposed, Seller
agrees to indemnify Buyer for the full amount of such withholding or deduction,
as well as any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto.
SECTION 6.02. Forward Contract. Seller hereby agrees that: (i) Seller
will not treat this Agreement, any portion of this Agreement, or any obligation
hereunder as giving rise to any interest income or other inclusions of ordinary
income; (ii) Seller will not treat the delivery of any portion of the shares of
Common Stock or cash to be delivered pursuant to this Agreement as the payment
of interest or ordinary income; (iii) Seller will treat this Agreement in its
entirety as a forward contract for the delivery of such shares of Common Stock
or cash; and (iv) Seller will not take any action (including filing any tax
return or form or taking any position in any tax proceeding) that is
inconsistent with the obligations contained in (i) through (iii).
Notwithstanding the preceding sentence, Seller may take any action or position
required (A) by any taxing authority or (B) by law, provided that Seller
delivers to Buyer an opinion of counsel, nationally recognized as expert in
Federal tax matters and acceptable to Buyer, to the effect that such action or
position is required by a statutory change or a Treasury regulation or
applicable court decision published after the date of this Agreement.
SECTION 6.03. Notices. Seller will cause to be delivered to Buyer:
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(a) Immediately upon the occurrence of any Acceleration Event
hereunder, notice of such occurrence; and
(b) In case at any time prior to the Maturity Date, Seller or
the General Partner of Seller receives notice that any event requiring
that an adjustment be calculated pursuant to Article 7 hereof shall
have occurred or be pending, then Seller shall promptly cause to be
delivered to Buyer a notice identifying such event and stating, if
known to Seller, the date on which such event occurred or is to occur
and, if applicable, the record date relating to such event. Seller
shall cause further notices to be delivered to Buyer if Seller or the
General Partner of Seller shall subsequently receive notice of any
further or revised information regarding the terms or timing of such
event or any record date relating thereto.
SECTION 6.04. Further Assurances. From time to time from and after the
date hereof through the Maturity Date, each of the parties hereto shall use such
party's reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper and advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement in accordance with the terms and conditions
hereof, including (i) using reasonable best efforts to remove any legal
impediment to the consummation of such transactions and (ii) the execution and
delivery of all such deeds, agreements, assignments and further instruments of
transfer and conveyance necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement in accordance with the
terms and conditions hereof.
SECTION 6.05. Securities Contract. The parties hereto recognize that
the Custodian is a "financial institution" within the meaning of Section 101(22)
of Title 11 of the United States Code (the "BANKRUPTCY CODE") and is acting as
agent and custodian for Buyer in connection with this Agreement and that Buyer
is a "customer" of the Custodian within the meaning of said Section 101(22). The
parties hereto further recognize that this Agreement is a "securities contract,"
as such term is defined in Section 741(7) of the Bankruptcy Code, entitled to
the protection of Section 555 of the Bankruptcy Code.
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ARTICLE 7
ADJUSTMENTS
SECTION 7.01. Dilution Adjustments. (a) Following the declaration by
the Issuer of the terms of any Potential Adjustment Event occurring prior to the
Maturity Date, the Calculation Agent will determine whether such Potential
Adjustment Event has a diluting or concentrative effect on the theoretical value
of the Common Stock and, if so, will (i) make the corresponding adjustment, if
any, to any one or more of the Base Amount, the Exchange Rate, the Threshold
Price, the Issue Price, the Maturity Price, the Cash Settlement Amount, any
Closing Price and any other variable relevant to the exercise, settlement or
payment terms hereof or of the Pledge Agreement as the Calculation Agent
determines appropriate to account for that diluting or concentrative effect and
(ii) determine the effective date of the adjustment. The Calculation Agent may
(but need not) determine the appropriate adjustment by reference to the
adjustment in respect of such Potential Adjustment Event made by an options
exchange to options on the Common Stock traded on that options exchange.
(b) For these purposes, "POTENTIAL ADJUSTMENT EVENT" means any of the
following:
(i) a subdivision, consolidation or reclassification of
shares of Common Stock (which does not constitute a Reorganization
Event), or a free distribution or dividend of any shares of Common
Stock to existing holders of Common Stock by way of bonus,
capitalization or similar issue;
(ii) a distribution or dividend to existing holders of Common
Stock of (A) shares of Common Stock, or (B) other share capital or
securities granting the right to payment of dividends and/or the
proceeds of liquidation of the Issuer equally or proportionately with
such payments to holders of Common Stock, or (C) other types of
securities, rights or warrants or other assets, in any case for payment
(cash or other) at less than the prevailing market price as determined
by the Calculation Agent;
(iii) a cash dividend;
(iv) a call by the Issuer in respect of shares of Common
Stock that are not fully paid;
(v) a repurchase by the Issuer of shares of Common Stock,
whether out of profits or capital and whether the consideration for
such repurchase is cash, securities or otherwise; or
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(vi) any other similar event that may have a diluting or
concentrative effect on the theoretical value of the Common Stock.
Without limiting the foregoing, the parties acknowledge that the
Calculation Agent will make adjustments to the Base Amount, the Exchange Rate,
the Threshold Price, the Issue Price, the Maturity Price, the Cash Settlement
Amount, any Closing Price and any other variable relevant to the exercise,
settlement or payment terms hereof or of the Pledge Agreement as the Calculation
Agent determines appropriate to account for the value of all cash dividends
(ordinary or extraordinary) with respect to the Common Stock.
(c) Notwithstanding the foregoing, in the event of a distribution of
shares of capital stock of a subsidiary of the Issuer that is a Publicly-Traded
Entity (a "SPIN-OFF") made to holders of shares of Common Stock, (i) the
"Contract Shares" shall include, in addition to the number of shares of Free
Stock equal to the Contract Share Amount, a number of shares of New Common Stock
equal to the product of (A) the Base Amount immediately prior to the
consummation of the Spin-Off and (B) the number of shares of New Common Stock
that a holder of one share of Original Common Stock receives in connection with
such Spin-Off and (ii) the "Maturity Price" shall be equal to the sum of (A) the
Maturity Price of the Original Common Stock and (B) the product of (x) Maturity
Price of the New Common Stock and (y) the number of shares of New Common Stock
that a holder of one share of Original Common Stock would have owned or been
entitled to receive immediately following such Spin-Off. Following a Spin-Off,
"ORIGINAL COMMON STOCK" shall mean the common stock of the entity that is the
Issuer immediately prior to the Spin-Off and "NEW COMMON STOCK" shall mean the
common equity securities of the Publicly-Traded Entity resulting from such
Spin-Off.
SECTION 7.02. Reorganization Events. In the event of (i) any
consolidation or merger of the Issuer with or into another entity (other than a
merger or consolidation in which the Issuer is the continuing corporation and in
which the Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of the
Issuer or another corporation), (ii) any sale, transfer, lease or conveyance of
the property of the Issuer as an entirety or substantially as an entirety, (iii)
any statutory exchange of securities of the Issuer with another corporation
(other than in connection with a merger or acquisition) or (iv) any liquidation,
dissolution or winding up of the Issuer (any such event, a "REORGANIZATION
EVENT"), then (A) if there is a surviving or continuing corporation and (1) such
surviving or continuing corporation is a Publicly-Traded Entity or (2) the
entity (the "ACQUIRING CORPORATION") issuing the consideration received by
holders of Common Stock in such Reorganization Event is a Publicly-Traded
Entity, "Base Amount" shall
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mean the product of (x) the Base Amount immediately prior to the consummation of
the Reorganization Event and (y) the number of shares of common stock of such
Publicly-Traded Entity that a holder of one share of Common Stock receives in
connection with such Reorganization Event and, if the consideration received by
holders of Common Stock includes cash or property other than common stock of
such Publicly-Traded Entity ("NON-STOCK CONSIDERATION"), Seller shall make a
cash payment as if this Agreement were terminated in part pursuant to Section
3.01, by wire transfer of immediately available funds to an account designated
by Buyer, to Buyer on the date on which the Reorganization Event is consummated
(the "REORGANIZATION TERMINATION DATE") in an amount equal to the Replacement
Value (calculated in the manner set forth in Section 8.01 as if the
Reorganization Termination Date were the Acceleration Date; provided that for
purposes of such calculation, the Base Amount shall be equal to the product of
(I) the Base Amount immediately prior to consummation of the Reorganization
Event and (II) the percentage of the value of the consideration received by
holders of Common Stock represented by the Non-Stock Consideration, as
determined by the Calculation Agent) or (B) if there is no surviving or
continuing corporation in such Reorganization Event or if the consideration
received by holders of Common Stock consists solely of Non-Stock Consideration,
this Agreement shall terminate and Seller shall make a payment or delivery to
Buyer as provided in Section 7.04.
SECTION 7.03. Provisions Relating to Reorganization Events and
Spin-Offs. If a Reorganization Event occurs and clause (B) of Section 7.02 does
not apply, (a) the surviving or continuing corporation or the Acquiring
Corporation, as the case may be, shall be deemed to be the "Issuer" and the
common equity securities of such corporation shall be deemed to be the "Common
Stock" and (b) the Calculation Agent shall calculate corresponding adjustments,
if any, to the Base Amount, the Exchange Rate, the Threshold Price, the Issue
Price, the Maturity Price, the Cash Settlement Amount, any Closing Price and any
other variable relevant to the exercise, settlement or payment terms hereof as
the Calculation Agent determines appropriate to account for such event. If a
Spin-Off occurs, the entity that is the Issuer immediately prior to the Spin-Off
and the Publicly-Traded Entity resulting from the Spin-Off shall each be deemed
to be the "Issuer" and the Original Common Stock and the New Common Stock shall
each be deemed to be the "Common Stock". Following any Spin-Off, the Calculation
Agent shall calculate further adjustments pursuant to this Article 7 by applying
the methodology set forth in this Article 7 to both the Original Common Stock
and the New Common Stock.
SECTION 7.04. Termination and Payment. Following termination of this
Agreement pursuant to clause (B) of Section 7.02 as a result of any
Reorganization Event, the Calculation Agent shall determine the Replacement
Value in the manner provided in Section 8.01 (calculated, for purposes of this
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Section 7.04, as if the Reorganization Termination Date were the Acceleration
Date, and representing the fair replacement value (including both intrinsic and
time value) to Buyer of an agreement with terms that would preserve for Buyer
the economic equivalent of the payments and deliveries that Buyer and its
affiliates would, but for the occurrence of the Reorganization Event, have been
entitled to receive after the Reorganization Termination Date hereunder). As
promptly as reasonably practicable after calculation of the Replacement Value,
the Calculation Agent shall deliver to Buyer and Seller a notice (the
"TERMINATION AMOUNT NOTICE") specifying the Replacement Value. Not later than
three Business Days following delivery of a Termination Amount Notice, Seller
shall make a cash payment, by wire transfer of immediately available funds to an
account designated by Buyer, to Buyer in an amount equal to the Replacement
Value. Notwithstanding the foregoing, to the extent that any Marketable
Securities are received by holders of Common Stock in such Reorganization Event,
then in lieu of delivering cash as provided in the immediately preceding
sentence, Seller may deliver Marketable Securities with an equal value (as
determined by the Calculation Agent).
ARTICLE 8
ACCELERATION
SECTION 8.01. Acceleration. If one or more of the following events
(each an "ACCELERATION EVENT") shall occur:
(a) any legal proceeding shall have been instituted or any
other event shall have occurred or condition shall exist that in
Buyer's reasonable judgment is highly likely to have a material adverse
effect on the financial condition of Seller or on Seller's ability to
perform Seller's obligations hereunder, or that is likely to affect the
validity or binding effect of any agreement of Seller hereunder or
under the Pledge Agreement;
(b) Seller is dissolved, makes an assignment for the benefit
of creditors, files a petition in bankruptcy, is adjudicated insolvent
or bankrupt, petitions or applies to any tribunal for any receiver of
or any trustee for it or any substantial part of its property,
commences any proceeding relating to it under any reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect, or
there is commenced against or with respect to it or any substantial
portion of its property any
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such proceeding and an order for relief is issued or such proceeding
remains undismissed for a period of 30 days;
(c) at any time, representations made by Seller in Sections
4.01(b), 4.01(c), 4.01(d) and 4.01(i) under this Agreement or in
Section 3 under the Pledge Agreement or any certificate delivered
pursuant to Section 5(b) of the Pledge Agreement would be incorrect or
misleading in any material respect if made as of such time;
(d) Seller fails to deliver shares of Common Stock (or the
Cash Settlement Amount) on the Maturity Date as required by this
Agreement;
(e) Seller fails to fulfill or discharge when due any of
Seller's obligations, covenants or agreements under or relating to this
Agreement or the Pledge Agreement (other than the obligation referred
to in Section 8.01(d)) and such failure remains unremedied for 60 days
following notice from Buyer;
(f) due to the adoption of, or any change in, any applicable
law after the date hereof, or due to the promulgation of, or any change
in, the interpretation by any court, tribunal or regulatory authority
with competent jurisdiction of any applicable law after the date
hereof, it becomes unlawful for Seller to perform any absolute or
contingent obligation to make payment or delivery hereunder or to
comply with any other material provision of this Agreement or the
Pledge Agreement;
(g) in the reasonable judgment of the Calculation Agent, Buyer
is unable to hedge Buyer's exposure to this Agreement because of the
lack of sufficient shares of Common Stock being made available for
share borrowing by lenders;
(h) there occurs a default under any indebtedness for money
borrowed by Seller, the General Partner or the Limited Partner whether
such indebtedness now exists or shall hereafter be created, which
indebtedness, individually or in the aggregate, is in excess of
$10,000,000 principal amount, which default shall constitute a failure
to pay any portion of the principal of such indebtedness when due and
payable after the expiration of any applicable grace or cure period
with respect thereto or shall have resulted in such indebtedness
becoming or being declared due and payable prior to the date on which
it would otherwise have become due and payable; or
18
<PAGE> 22
(i) a Collateral Event of Default within the meaning of the
Pledge Agreement shall occur;
then, upon notice to Seller from Buyer at any time following an Acceleration
Event, an "ACCELERATION DATE" shall occur, and Seller shall become obligated to
deliver to Buyer on the date (the "ACCELERATION DELIVERY DATE") three Exchange
Business Days following delivery of the Acceleration Amount Notice a number of
shares of Free Stock equal to the Acceleration Amount; provided that if Secured
Party proceeds to realize upon any collateral pledged under the Pledge Agreement
and to apply the proceeds of such realization as provided in the second
paragraph of Section 7(d) thereof, then, to the extent of such application of
proceeds, Seller's obligation to deliver Free Stock pursuant to this paragraph
shall be deemed to be an obligation to deliver an amount of cash equal to the
aggregate Market Value of such Free Stock on the Acceleration Date. The
"ACCELERATION AMOUNT" means the quotient obtained by dividing: (i) the
Replacement Value by (ii) the Market Value per share of the Common Stock on the
Acceleration Date.
The "REPLACEMENT VALUE" means an amount determined by the Calculation
Agent representing the fair replacement value (including both intrinsic and time
value) to Buyer of an agreement with terms that would preserve for Buyer the
economic equivalent of the payments and deliveries that Buyer would, but for the
occurrence of the Acceleration Date, have been entitled to receive after the
Acceleration Date hereunder (taking into account any adjustments pursuant to
Section 7.01 or pursuant to Section 5(i) of the Pledge Agreement that may have
been calculated on or prior to the Acceleration Date), including any loss of
bargain, cost of funding or, without duplication, loss or cost incurred as a
result of Buyer's terminating, liquidating, obtaining or reestablishing any
hedge or related trading position.
As promptly as reasonably practicable after calculation of the
Replacement Value, the Calculation Agent shall deliver to Seller and Buyer a
notice (the "ACCELERATION AMOUNT NOTICE") specifying the Acceleration Amount of
shares of Common Stock required to be delivered by Seller.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard forms of telecommunication. Notices to Buyer shall
be directed to it care of Credit Suisse First Boston Corporation, Eleven Madison
19
<PAGE> 23
Avenue, New York, New York 10010, Telecopy No. (212) 325-8175, Attention:
Ricardo Harewood, with a copy to QSPV Limited, Queensgate House, George Town,
Grand Cayman, Cayman Islands, Telecopy No. (345) 945-7100, Attention: Martin
Couch. Notices to Seller shall be directed to Seller at Suite 850, 101
Convention Center Drive, Las Vegas, Nevada 89019, Telecopy No. (702) 598- 3651,
with a copy to Robert E. Freitas, Orrick, Herrington & Sutcliffe LLP, 600 Hansen
Way, Palo Alto, California 94304, Telecopy No. (650) 614-7301.
SECTION 9.02. Governing Law; Submission to Jurisdiction; Severability;
Waiver of Jury Trial; Service of Process. (a) This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
reference to choice of law doctrine and each party hereto submits to the
jurisdiction of the Courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City.
(b) To the extent permitted by law, the unenforceability or invalidity
of any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(c) SELLER AND BUYER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(d) Seller irrevocably appoints Corporation Trust Company of Nevada as
process agent to receive for Seller and on Seller's behalf, service of process
in any action, suit or other proceeding arising out of this Agreement, the
Pledge Agreement or any transaction contemplated hereby or thereby. If for any
reason Corporation Trust Company of Nevada is unable to act as such, Seller will
promptly notify Buyer and within 30 days appoint a substitute process agent
acceptable to Seller. Nothing in this Agreement will affect the right of either
party to serve process in any other manner permitted by law. Buyer irrevocably
appoints CT Corporation System as process agent to receive for Buyer and on
Buyer's behalf, service of process in any action, suit or other proceeding
arising out of this Agreement, the Pledge Agreement or any transaction
contemplated hereby or thereby. If for any reason CT Corporation System is
unable to act as such, Buyer will promptly notify Seller and within 30 days
appoint a substitute process agent acceptable to Seller. Nothing in this
Agreement will affect the right of either party to serve process in any other
manner permitted by law.
SECTION 9.03. Confidentiality. Except as required by law or judicial or
administrative process, or as requested by a regulatory authority or
self-regulatory organization, each party hereto agrees to keep this Agreement
and the Pledge Agreement and the transactions contemplated hereby and thereby
confidential. In
20
<PAGE> 24
the event disclosure is permitted pursuant to the preceding sentence, the
disclosing party shall (i) provide prior notice of such disclosure to the other
party, (ii) use such party's best efforts to minimize the extent of such
disclosure and (iii) comply with all reasonable requests of the other party to
minimize the extent of such disclosure. This Section 9.03 shall not prevent
Seller or Buyer from disclosing information as necessary to third-party advisors
in connection with the transactions contemplated hereby or by the Pledge
Agreement; provided that Seller or Buyer, as the case may be, shall use their
reasonable best efforts to cause such advisors to comply with this Section 9.03
as if a party hereto.
SECTION 9.04. Entire Agreement. Except as expressly set forth herein,
this Agreement constitutes the entire agreement and understanding among the
parties with respect to its subject matter hereof and supersedes all oral
communications and prior writings with respect thereto.
SECTION 9.05. Amendments, Waivers. Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Buyer and Seller or, in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.06. No Third Party Rights, Successors and Assigns. This
Agreement is not intended and shall not be construed to create any rights in any
person other than Seller, Buyer and their respective successors and assigns and
no other person shall assert any rights as third party beneficiary hereunder.
Whenever any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party. All the covenants
and agreements herein contained by or on behalf of Seller and Buyer shall bind,
and inure to the benefit of, their respective successors and assigns whether so
expressed or not, and shall be enforceable by and inure to the benefit of Seller
and Buyer and their respective successors and assigns. The rights and duties
under this Agreement may not be assigned or transferred by any party hereto
without the prior written consent of the other parties hereto; provided that (i)
Buyer may assign or transfer any of its rights or duties hereunder without the
prior written consent of Seller and (ii) the Agent may assign or transfer any of
its rights or duties hereunder without the prior written consent of the other
parties hereto to any affiliate of Credit Suisse First Boston, so long as such
affiliate is a broker-dealer registered with the Securities and Exchange
Commission.
21
<PAGE> 25
SECTION 9.07. Calculation Agent. All determinations and calculations of
the Calculation Agent made pursuant to this Agreement or the Pledge Agreement
shall be made in a commercially reasonable manner and shall be binding in the
absence of manifest error. The Calculation Agent will have no responsibility for
good faith errors or omissions in the determination so made of any Closing
Price, the Maturity Price, the Exchange Rate, the Cash Settlement Amount or any
other amount as provided herein or in the Pledge Agreement. The Calculation
Agent shall promptly advise Seller in writing of any adjustments, calculations
or determinations made by it under this Agreement or the Pledge Agreement. The
Calculation Agent shall in good faith consider and respond in writing to any
objection of Seller to any determination or calculation of the Calculation Agent
hereunder or under the Pledge Agreement.
SECTION 9.08. Set-off. In addition to and without limiting any rights
of set-off that a party hereto may have as a matter of law, pursuant to contract
or otherwise, upon the occurrence of a Reorganization Termination Date or an
Acceleration Date, Buyer shall have the right to terminate, liquidate and
otherwise close out the transactions contemplated by this Agreement pursuant to
the terms of this Agreement, and to set off any obligation that Buyer or any
affiliate of Buyer may have to Seller pursuant to this Agreement or the Pledge
Agreement, including without limitation any obligation to make any release,
delivery or payment to Seller pursuant to the Pledge Agreement, against any
right Buyer or any of its affiliates may have against Seller pursuant to this
Agreement or the Pledge Agreement, including without limitation any right to
receive a payment or delivery pursuant to this Agreement. In the case of a
set-off of any obligation to release, deliver or pay assets against any right to
receive assets of the same type, such obligation and right shall be set off in
kind. In the case of a set-off of any obligation to release, deliver or pay
assets against any right to receive assets of any other type, the value of each
of such obligation and such right shall be determined by the Calculation Agent
and the result of such set-off shall be that the net obligor shall pay or
deliver to the other party an amount of cash or assets, at the net obligor's
option, with a value (determined, in the case of a delivery of assets, by the
Calculation Agent) equal to that of the net obligation. In determining the value
of any obligation to release or deliver Common Stock or right to receive Common
Stock, the value at any time of such obligation or right shall be determined by
reference to the Market Value of the Common Stock at such time. If an obligation
or right is unascertained at the time of any such set-off, the Calculation Agent
may in good faith estimate the amount or value of such obligation or right, in
which case set-off will be effected in respect of that estimate, and the
relevant party shall account to the other party at the time such obligation or
right is ascertained.
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<PAGE> 26
SECTION 9.09. Matters Related to Credit Suisse First Boston
Corporation, as Agent. (a) Credit Suisse First Boston Corporation shall act as
"agent" for Buyer and Seller within the meaning of Rule 15a-6 under the
Securities Exchange Act of 1934 in connection with the transactions contemplated
by this Agreement and by the Pledge Agreement.
(b) The Agent shall have no responsibility or liability (including,
without limitation, by way of guarantee, endorsement or otherwise) to Buyer or
Seller or otherwise in respect of this Agreement or the Pledge Agreement,
including, without limitation, in respect of the failure of Buyer or Seller to
pay or perform under this Agreement or the Pledge Agreement, except for its
gross negligence or willful misconduct in performing its duties as Agent
hereunder or thereunder.
(c) Each of Buyer and Seller agrees to proceed solely against the other
to collect or recover any securities or money owing to Buyer or Seller, as the
case may be, in connection with or as a result of this Agreement or the Pledge
Agreement.
(d) As a broker-dealer registered with the Securities and Exchange
Commission, Credit Suisse First Boston Corporation, in its capacity as Agent,
will be responsible for (i) effecting the transactions contemplated by this
Agreement and the Pledge Agreement, (ii) issuing all required notices,
confirmations and statements to Buyer and Seller and (iii) maintaining books and
records relating to this Agreement and the Pledge Agreement.
SECTION 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, and all such counterparts taken together shall be deemed
to constitute one and the same agreement.
SECTION 9.11. Limited Recourse. Seller hereby agrees that it shall not
institute against, or join any other person in instituting against, Buyer any
bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation
proceedings. Seller hereby acknowledges and agrees that Buyer's obligations
under this Agreement will be solely the corporate obligations of Buyer, and that
Seller will not have any recourse to any of the directors, officers or employees
of Buyer with respect to any claims, losses, damages, liabilities, indemnities
or other obligations in connection with any transactions contemplated by this
Agreement. Recourse in respect of any obligations of Buyer under this Agreement
will be limited to the assets of Buyer and no debt shall be owed by Buyer in
respect of any shortfall after realization of such assets.
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<PAGE> 27
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
SELLER:
ZG NEVADA LIMITED PARTNERSHIP
By: ZG Nevada, Inc.,
its General Partner
By:
--------------------------------
Name:
Title:
BUYER:
CSFB SAILS CORP.
By:
--------------------------------
Name:
Title:
AGENT:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:
--------------------------------
Name:
Title:
<PAGE> 28
ANNEX A
(a) Seller is a limited partnership duly organized and existing in good
standing under the laws of the State of Nevada.
(b) The execution and delivery of this Agreement and the Pledge
Agreement and the performance by Seller of Seller's obligations hereunder and
thereunder do not violate or conflict with any provision of the Organizational
Documents, any law applicable to Seller, any order or judgment of any court or
other agency of government known to such counsel applicable to Seller or any of
Seller's assets or any contractual restriction known to such counsel binding on
or affecting Seller or any of Seller's assets.
(c) All government and other consents that are known to such counsel to
be required to have been obtained by Seller with respect to this Agreement or
the Pledge Agreement have been obtained and are in full force and effect and all
conditions of any such consents have been complied with.
(d) Seller has the requisite partnership power and authority to enter
into and perform this Agreement and the Pledge Agreement and to deliver the
Contract Shares in accordance with the terms hereof. The execution and delivery
of this Agreement and the Pledge Agreement by Seller and the consummation by
Seller of the transactions contemplated hereby and thereby (including the
delivery by Seller of the Contract Shares) have been duly authorized by all
necessary partnership action. This Agreement and the Pledge Agreement have been
duly executed and delivered by Seller. Seller's obligations under this Agreement
and the Pledge Agreement constitute Seller's legal, valid and binding
obligations, enforceable in accordance with their respective terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general application (regardless of whether enforcement
is sought in a proceeding in equity or at law)).
(e) To such counsel's knowledge, no registration, recordation or filing
with any governmental body, agency or official is required by Seller in
connection with the execution and delivery by Seller of this Agreement or the
Pledge Agreement, other than any such registration, recordation or filing that
(i) has previously been made or (ii) will be made by Seller in connection with
Section 13(d) or 16 of the Securities Exchange Act of 1934, as amended.
(f) The Pledge Agreement creates in favor of Buyer a security interest
in Seller's rights in the Initial Pledged Items. Upon the Custodian's indicating
by
<PAGE> 29
book entry that such Collateral has been credited to Buyer's securities account
pursuant to the Pledge Agreement, Buyer will have control (within the meaning of
Section 8-106 of the UCC) of a security entitlement with respect to such
Collateral and such security interest will be perfected. Assuming that Buyer
acquires such security entitlement without notice of any adverse claim, then an
action based on an adverse claim to the financial asset relating to such
Collateral, whether framed in conversion, replevin, constructive trust,
equitable lien, or other theory, may not be asserted against Buyer.
(g) Assuming that Buyer purchases Common Stock pursuant to the
Securities Contract and that, at the time of such purchase the Custodian has
indicated by book entry that such Common Stock has been credited to Buyer's
account, and that Buyer acquires such security entitlement without notice of any
adverse claim, then an action based on an adverse claim to the financial asset
relating to such Common Stock, whether framed in conversion, replevin,
constructive trust, equitable lien, or other theory, may not be asserted against
Buyer.
A-2
<PAGE> 1
EXHIBIT 10
SAILS PLEDGE AGREEMENT
dated as of
March 8, 2000
among
ZG NEVADA LIMITED PARTNERSHIP,
CSFB SAILS CORP.
and
CREDIT SUISSE FIRST BOSTON CORPORATION, as Agent
<PAGE> 2
TABLE OF CONTENTS
--------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. The Security Interests.....................................2
SECTION 2. Definitions................................................3
SECTION 3. Representations and Warranties of Pledgor..................5
SECTION 4. Certain Covenants of Pledgor...............................7
SECTION 5. Administration of the Collateral and Valuation of the
Securities......................................................8
SECTION 6. Income and Voting Rights in Collateral....................11
SECTION 7. Remedies upon Acceleration Events.........................12
SECTION 8. Miscellaneous.............................................15
SECTION 9. Termination of Pledge Agreement...........................17
SECTION 10. Set-off..................................................17
</TABLE>
<PAGE> 3
PLEDGE AGREEMENT
THIS AGREEMENT is made as of this 8th day of March, 2000 among ZG
NEVADA LIMITED PARTNERSHIP ("PLEDGOR"), a Nevada limited partnership, CREDIT
SUISSE FIRST BOSTON CORPORATION, as agent (the "AGENT") hereunder, and CSFB
SAILS CORP. ("SECURED PARTY").
WHEREAS, Pledgor owns shares of common stock, par value $0.0001 per
share, of Digital Lightwave, Inc., a Delaware corporation (the "ISSUER"), or
security entitlements in respect thereof (the "COMMON STOCK");
WHEREAS, Pledgor and Credit Suisse First Boston Corporation have
entered into a Term and Conditions for Private SAILS (the "TERM SHEET") dated as
of February 28, 2000, pursuant to which Pledgor and Credit Suisse First Boston
Corporation have agreed to sell and purchase such shares of Common Stock at the
time and on the terms set forth therein;
WHEREAS, pursuant to an Assignment and Assumption Agreement dated as
of March 8, 2000 between Credit Suisse First Boston Corporation and Secured
Party, Credit Suisse First Boston Corporation assigned to Secured Party all of
the rights and obligations of Credit Suisse First Boston Corporation under the
Term Sheet;
WHEREAS, the Term Sheet provides that the parties thereto will enter
into final documentation, consisting of a SAILS Mandatorily Exchangeable
Securities Contract and a SAILS Pledge Agreement, relating to the transactions
contemplated by the Term Sheet;
WHEREAS, pursuant to the Term Sheet, Pledgor has granted the
purchaser under the Term Sheet a security interest in certain shares of Common
Stock to secure the obligations of Pledgor thereunder and under the Securities
Contract;
WHEREAS, Pledgor and Secured Party wish to (i) set forth additional
understandings and agreements relating to such security interest and (ii)
confirm, on the terms set forth herein, the continuation of such security
interest;
WHEREAS, it is a condition to the obligations of Secured Party under
the Securities Contract (as defined herein) that Pledgor and Secured Party enter
into this Agreement;
<PAGE> 4
NOW, THEREFORE, in consideration of their mutual covenants contained
herein and to secure the performance by Pledgor of Pledgor's obligations under
the Securities Contract and the observance and performance of the covenants and
agreements contained herein and in the Securities Contract, the parties hereto,
intending to be legally bound, hereby mutually covenant and agree as follows:
SECTION 1. The Security Interests. In order to secure the full and
punctual observance and performance of the covenants and agreements contained
herein and in the Securities Contract:
(a) Pledgor hereby assigns and pledges to Secured Party, and grants
to Secured Party, security interests in and to, and a lien upon and right of
set-off against, and transfers to Secured Party, as and by way of a security
interest having priority over all other security interests, with power of sale,
all of Pledgor's right, title and interest in and to (i) the Initial Pledged
Items; (ii) all additions to and substitutions for the Initial Pledged Items
(including, without limitation, any securities, instruments or other property
delivered or pledged pursuant to Section 4(a) or 5(b)) (such additions and
substitutions, the "ADDITIONS AND SUBSTITUTIONS"); (iii) all income, proceeds
and collections received or to be received, or derived or to be derived, now or
any time hereafter (whether before or after the commencement of any proceeding
under applicable bankruptcy, insolvency or similar law, by or against Pledgor,
with respect to Pledgor) from or in connection with the Initial Pledged Items
and the Additions and Substitutions (including, without limitation, (A) any
shares of capital stock issued by the Issuer in respect of any Common Stock
constituting Collateral or any cash, securities or other property distributed in
respect of or exchanged for any Common Stock constituting Collateral, or into
which any such Common Stock is converted, in connection with any Reorganization
Event, and any security entitlements in respect of any of the foregoing, (B) any
obligation of Secured Party to replace any rehypothecated Collateral pursuant to
Section 5(i) and (C) any amounts paid or assets delivered to Pledgor by Secured
Party in respect of dividends paid or distributions made on shares of Common
Stock constituting Collateral that have been rehypothecated in accordance with
Section 5(i)); (iv) the Collateral Account and all securities and other
financial assets (each as defined in Section 8-102 of the UCC), including the
Initial Pledged Items and the Additions and Substitutions, and other funds,
property or assets from time to time held therein or credited thereto; and (v)
all powers and rights now owned or hereafter acquired under or with respect to
the Initial Pledged Items or the Additions and Substitutions (such Initial
Pledged Items, Additions and Substitutions, proceeds, collections, powers,
rights, Collateral Account and assets held therein or credited thereto being
herein collectively called the "COLLATERAL"). Secured Party shall have all of
the rights, remedies and recourses with respect to the Collateral afforded a
secured party by
2
<PAGE> 5
the UCC, in addition to, and not in limitation of, the other rights, remedies
and recourses afforded to Secured Party by this Agreement.
(b) On or prior to the date of the Term Sheet, Pledgor delivered to
Credit Suisse First Boston Corporation a number of shares of Common Stock equal
to the Base Amount as of the Payment Date (the "INITIAL PLEDGED ITEMS"), in the
manner provided in Section 5(c). As of the Payment Date, such Initial Pledged
Items shall include, as Eligible Collateral, at least the Base Amount of shares
of Common Stock.
(c) In the event that the Issuer at any time issues in respect of any
Common Stock constituting Collateral hereunder, or comprising financial assets
underlying security entitlements constituting Collateral hereunder, any
additional or substitute shares of capital stock of any class, Pledgor shall
immediately pledge and deliver to Secured Party in accordance with Section 5(c)
all such shares or security entitlements in respect thereof as additional
Collateral hereunder.
(d) The Security Interests are granted as security only and shall not
subject Secured Party to, or transfer or in any way affect or modify, any
obligation or liability of Pledgor or the Issuer with respect to any of the
Collateral or any transaction in connection therewith.
(e) The parties hereto expressly agree that all rights, assets and
property at any time held in or credited to the Collateral Account shall be
treated as financial assets (as defined in Section 8-102 of the UCC).
SECTION 2. Definitions. Capitalized terms used and not otherwise
defined herein shall have the meanings ascribed to them in the Securities
Contract. As used herein, the following words and phrases shall have the
following meanings:
"ADDITIONS AND SUBSTITUTIONS" has the meaning provided in Section
1(a).
"COLLATERAL" has the meaning provided in Section 1(a).
"COLLATERAL ACCOUNT" has the meaning provided in Section 5(c).
"COLLATERAL EVENT OF DEFAULT" means, at any time, the occurrence of
either of the following: (A) failure of the Collateral to include, as Eligible
Collateral, at least the Maximum Deliverable Number of shares of Common Stock or
(B) failure at any time of the Security Interests to constitute valid and
perfected security interests in all of the Collateral, subject to no prior or
equal Lien, and, with respect to any Collateral consisting of securities or
security entitlements
3
<PAGE> 6
(each as defined in Section 8-102 of the UCC), as to which Secured Party has
Control, or, in each case, assertion of such by Pledgor in writing.
"CONTROL" means "control" as defined in Section 8-106 and Section
9-115 of the UCC.
"CUSTODIAN" means The Bank of New York, or any other custodian
appointed by Secured Party and identified to Seller.
"DEFAULT SETTLEMENT DATE" has the meaning provided in Section 7(a).
"ELIGIBLE COLLATERAL" means Common Stock; provided that Pledgor has
good and marketable title thereto, free of all Liens (other than the Security
Interests) and Transfer Restrictions and that Secured Party has a valid, first
priority perfected security interest therein, a first lien thereon and Control
with respect thereto, and provided further that to the extent the number of
shares of Common Stock pledged hereunder exceeds at any time the Maximum
Deliverable Number thereof, such excess shares shall not be Eligible Collateral.
"INITIAL PLEDGED ITEMS" has the meaning provided in Section 1(b).
"LOCATION" means, with respect to any party, the place such party is
"deemed located" within the meaning of Section 9-103(3)(d) of the UCC.
"MAXIMUM DELIVERABLE NUMBER" means, on any date, a number of shares
of Common Stock equal to the Base Amount on such date.
"PLEDGED ITEMS" means, as of any date, any and all securities and
instruments delivered by Pledgor to be held by or on behalf of Secured Party
under this Agreement as Collateral.
"REHYPOTHECATION UNAVAILABILITY" has the meaning provided in Section
5(i).
"REHYPOTHECATE" has the meaning provided in Section 5(i).
"SECURITY INTERESTS" means the security interests in the Collateral
created hereby.
"SECURITIES CONTRACT" means the SAILS Mandatorily Exchangeable
Securities Contract dated as of the date hereof among Pledgor, Secured Party and
the Agent, as amended from time to time.
4
<PAGE> 7
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
SECTION 3. Representations and Warranties of Pledgor. Pledgor hereby
represents and warrants to Secured Party that:
(a) Pledgor's holding period (calculated in the manner provided in
Rule 144(d) under the Securities Act) with respect to the Eligible Collateral
delivered in accordance with Section 1(b) commenced at least one year prior to
the date of the Term Sheet, and Pledgor (i) owns, and, except with respect to
Collateral rehypothecated pursuant to Section 5(i) at all times prior to the
release of the Collateral pursuant to the terms of this Agreement, will own the
Collateral free and clear of any Liens (other than the Security Interests) or
Transfer Restrictions and (ii) is not and will not become a party to or
otherwise bound by any agreement, other than this Agreement, that (x) restricts
in any manner the rights of any present or future owner of the Collateral with
respect thereto or (y) provides any person other than Pledgor, Secured Party or
any securities intermediary through whom any Collateral is held (but, in the
case of any such securities intermediary, only with respect to Collateral held
through it) with Control with respect to any Collateral.
(b) Other than financing statements or other similar or equivalent
documents or instruments with respect to the Security Interests, no financing
statement, security agreement or similar or equivalent document or instrument
covering all or any part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be effective to perfect a
lien, security interest or other encumbrance of any kind on such Collateral.
(c) All Collateral consisting of securities and all financial assets
underlying Collateral consisting of security entitlements (each as defined in
Section 8-102 of the UCC) at any time pledged hereunder is and will be issued by
an issuer organized under the laws of the United States, any State thereof or
the District of Columbia and (i) certificated (and the certificate or
certificates in respect of such securities or financial assets are and will be
located in the United States) and registered in the name of Pledgor or held
through a securities intermediary whose securities intermediary's jurisdiction
(within the meaning of Section 8-110(e) of the UCC) is located in the United
States or (ii) uncertificated and either registered in the name of Pledgor or
held through a securities intermediary whose securities intermediary's
jurisdiction (within the meaning of Section 8-110(e) of the UCC) is located in
the United States; provided that this representation shall not be deemed to be
breached if, at any time, any such Collateral is issued by an issuer that is not
organized under the laws of the United States, any State thereof or the District
of Columbia, and the parties hereto agree
5
<PAGE> 8
to procedures or amendments hereto necessary to enable Secured Party to maintain
a valid and continuously perfected security interest in such Collateral, in
respect of which Secured Party will have Control, subject to no prior Lien. The
parties hereto agree to negotiate in good faith any such procedures or
amendments.
(d) Upon (i) in the case of Collateral consisting of investment
property (as defined in Section 9-115 of the UCC), (A) the delivery of
certificates evidencing any such investment property consisting of securities to
the Custodian in accordance with Section 5(c)(i), (B) the registration of any
such investment property consisting of uncertificated securities in the name of
the Custodian or its nominee in accordance with Section 5(c)(ii) or (C) the
crediting of any securities or other financial assets underlying any such
investment property consisting of security entitlements to a securities account
of the Custodian in accordance with Section 5(c)(iii) and, in each case, the
crediting of such securities or financial assets to the Collateral Account or
(ii) in the case of Collateral not consisting of investment property, the filing
of UCC-1 financing statements in the form of Exhibit B hereto in the filing
offices specified in Exhibit C hereto, Secured Party will have a valid and
perfected security interest in such Collateral, in respect of which Secured
Party will have (in the case of Collateral consisting of investment property)
Control, subject to no prior Lien.
(e) No registration, recordation or filing with any governmental
body, agency or official is required in connection with the execution and
delivery of this Agreement or necessary for the validity or enforceability
hereof or for the perfection or enforcement of the Security Interests, other
than the filing of UCC-1 financing statements in the form of Exhibit B hereto in
the filing offices specified in Exhibit C hereto.
(f) Pledgor has not performed and will not perform any acts that
might prevent Secured Party from enforcing any of the terms of this Agreement or
that might limit Secured Party in any such enforcement.
(g) The Location of Pledgor is the address set forth in Section 8(c),
and under the Uniform Commercial Code as in effect in such Location, no local
filing is required to perfect a security interest in collateral consisting of
general intangibles.
(h) Pledgor has delivered to Secured Party a perfection certificate
substantially in the form attached as Exhibit C hereto, completed and
supplemented with the schedules and attachments contemplated thereby to the
satisfaction of Secured Party, and signed by the General Partner of Pledgor.
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SECTION 4. Certain Covenants of Pledgor. Pledgor agrees that, so long
as any of Pledgor's obligations under the Securities Contract remain
outstanding:
(a) Pledgor shall ensure at all times that a Collateral Event of
Default shall not occur, and shall pledge additional Collateral in the manner
described in Sections 5(b) and 5(c) as necessary to cause such requirement to be
met.
(b) Pledgor shall, at the expense of Pledgor and in such manner and
form as Secured Party may reasonably require, give, execute, deliver, file and
record any financing statement, notice, instrument, document, agreement or other
papers that may be necessary or desirable in order to (i) create, preserve,
perfect, substantiate or validate any security interest granted pursuant hereto,
(ii) create or maintain Control with respect to any such security interests in
any investment property (as defined in Section 9-115 of the UCC) or (iii) enable
Secured Party to exercise and enforce its rights hereunder with respect to such
security interest. To the extent permitted by applicable law, Pledgor hereby
authorizes Secured Party to execute and file, in the name of Pledgor or
otherwise, UCC financing or continuation statements (which may be carbon,
photographic, photostatic or other reproductions of this Agreement or of a
financing statement relating to this Agreement) that Secured Party in its sole
discretion may deem reasonably necessary or appropriate to further perfect, or
maintain the perfection of, the Security Interests.
(c) Pledgor shall warrant and defend Pledgor's title to the
Collateral, subject to the rights of Secured Party, against the claims and
demands of all persons. Secured Party may elect, but without an obligation to do
so, to discharge any Lien of any third party on any of the Collateral.
(d) Pledgor agrees that Pledgor shall not change (i) Pledgor's name,
identity or organizational structure in any manner or (ii) Pledgor's Location,
unless in either case (A) Pledgor shall have given Secured Party not less than
30 days' prior notice thereof and (B) such change shall not cause any of the
Security Interests to become unperfected, cause Secured Party to cease to have
Control in respect of any of the Security Interests in any Collateral consisting
of investment property (as defined in Section 9-115 of the UCC) or subject any
Collateral to any other Lien.
(e) Pledgor agrees that Pledgor shall not (i) create or permit to
exist any Lien (other than the Security Interests) or any Transfer Restriction
upon or with respect to the Collateral, (ii) sell or otherwise dispose of, or
grant any option with respect to, any of the Collateral or (iii) enter into or
consent to any agreement pursuant to which any person other than Pledgor,
Secured Party and any securities intermediary through whom any of the Collateral
is held (but in the case of any
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such securities intermediary only in respect of Collateral held through it) has
or will have Control in respect of any Collateral.
SECTION 5. Administration of the Collateral and Valuation of the
Securities. (a) Secured Party shall determine on each Business Day whether a
Collateral Event of Default shall have occurred.
(b) Pledgor may pledge additional Eligible Collateral hereunder at
any time. Concurrently with the delivery of any additional Eligible Collateral,
Pledgor shall deliver to Secured Party a certificate of the General Partner of
Pledgor substantially in the form of Exhibit A hereto and dated the date of such
delivery, (i) identifying the additional items of Eligible Collateral being
pledged and (ii) certifying that with respect to such items of additional
Eligible Collateral the representations and warranties contained in paragraphs
(a), (b), (c) and (d) of Section 3 are true and correct with respect to such
Eligible Collateral on and as of the date thereof. Pledgor hereby covenants and
agrees to take all actions required under Section 5(c) and any other actions
necessary to create for the benefit of Secured Party a valid, first priority,
perfected security interest in, and a first lien upon, such additional Eligible
Collateral, as to which Secured Party will have Control.
(c) Any delivery of any securities or security entitlements (each as
defined in Section 8-102 of the UCC) as Collateral to Secured Party by Pledgor
shall be effected (i) in the case of Collateral consisting of certificated
securities registered in the name of Pledgor, by delivery of certificates
representing such securities to the Custodian, accompanied by any required
transfer tax stamps, and in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in blank,
with signatures appropriately guaranteed, all in form and substance satisfactory
to Secured Party, and the crediting by the Custodian of such securities to a
securities account (as defined in Section 8-501 of the UCC) (the "COLLATERAL
ACCOUNT") of Secured Party maintained by the Custodian, (ii) in the case of
Collateral consisting of uncertificated securities registered in the name of
Pledgor, by transmission by Pledgor of an instruction to the issuer of such
securities instructing such issuer to register such securities in the name of
the Custodian or its nominee, accompanied by any required transfer tax stamps,
the issuer's compliance with such instructions and the crediting by the
Custodian of such securities to the Collateral Account, (iii) in the case of
securities in respect of which security entitlements are held by Pledgor through
a securities intermediary, by the crediting of such securities, accompanied by
any required transfer tax stamps, to a securities account of the Custodian at
such securities intermediary or, at the option of Secured Party, at another
securities intermediary satisfactory to Secured Party and the crediting by the
Custodian of such securities to the Collateral Account or (iv) in any case, by
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complying with such reasonable alternative delivery instructions as Secured
Party shall provide to Pledgor in writing. Upon delivery of any such Pledged
Item under this Agreement, Secured Party shall examine (or cause the Custodian
to examine) such Pledged Item and any certificates delivered pursuant to Section
5(b) or otherwise pursuant to the terms hereof in connection therewith to
determine that they comply as to form with the requirements for Eligible
Collateral.
(d) If on any Business Day Secured Party determines that a Collateral
Event of Default shall have occurred, Secured Party shall promptly notify
Pledgor of such determination by telephone call to the General Partner of
Pledgor followed by a written confirmation of such call.
(e) If on any Business Day Secured Party determines that no
Acceleration Event or failure by Pledgor to meet any of Pledgor's obligations
under Sections 4 or 5 hereof has occurred and is continuing, Pledgor may obtain
the release from the Security Interests of any Collateral upon delivery to
Secured Party of a written notice from the General Partner of Pledgor indicating
the items of Collateral to be released so long as, after such release, no
Collateral Event of Default shall have occurred.
(f) On the Maturity Date, unless (i) Pledgor shall have otherwise
effected the deliveries required by Section 2.03(b) of the Securities Contract
or shall have delivered the Cash Settlement Amount to Secured Party in lieu of
shares of Common Stock in accordance with Section 2.04 of the Securities
Contract on the Maturity Date or (ii) the Common Stock then held by or on behalf
of Secured Party hereunder is not Free Stock, Secured Party shall deliver or
cause to be delivered to itself from the Collateral Account in whole or partial,
as the case may be, satisfaction of Pledgor's obligations to deliver shares of
Common Stock to Secured Party on the Maturity Date pursuant to the Securities
Contract, shares of Common Stock then held by or on behalf of it hereunder
representing the number of shares of Common Stock required to be delivered under
the Securities Contract on the Maturity Date. Upon any such delivery, Secured
Party shall hold such shares of Common Stock absolutely and free from any claim
or right whatsoever (including, without limitation, any claim or right of
Pledgor).
(g) Secured Party may at any time or from time to time, in its sole
discretion, cause any or all of the Common Stock pledged hereunder registered in
the name of Pledgor or Pledgor's nominee to be transferred of record into the
name of the Custodian, Secured Party or its nominee. Pledgor shall promptly give
to Secured Party copies of any notices or other communications received by
Pledgor with respect to Common Stock pledged hereunder registered, or held
through a securities intermediary, in the name of Pledgor or Pledgor's nominee
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<PAGE> 12
and Secured Party shall promptly give to Pledgor copies of any notices and
communications received by Secured Party with respect to Common Stock pledged
hereunder registered, or held through a securities intermediary, in the name of
Custodian, Secured Party or its nominee.
(h) Pledgor agrees that Pledgor shall forthwith upon demand pay to
Secured Party:
(i) the amount of any taxes that Secured Party or the
Custodian may have been required to pay by reason of the Security
Interests or to free any of the Collateral from any Lien thereon, and
(ii) the amount of any and all reasonable costs and
expenses, including the fees and disbursements of counsel and of any
other experts, that Secured Party or the Custodian may incur in
connection with (A) the enforcement of this Agreement, including such
expenses as are incurred to preserve the value of the Collateral and
the validity, perfection, rank and value of the Security Interests,
(B) the collection, sale or other disposition of any of the
Collateral, (C) the exercise by Secured Party of any of the rights
conferred upon it hereunder or (D) any Acceleration Event.
Any such amount not paid on demand shall bear interest (computed on the basis of
a year of 360 days and payable for the actual number of days elapsed) at a rate
per annum equal to 5% plus the prime rate as published from time to time in The
Wall Street Journal, Eastern Edition.
(i) Without limiting the rights and obligations of the parties under
this Agreement, upon the consent of Pledgor (which consent need not be in
writing), Secured Party may, notwithstanding Section 9-207 of the UCC, sell,
lend, pledge, rehypothecate, assign, invest, use, commingle or otherwise dispose
of, or otherwise use in its business (collectively, "REHYPOTHECATE"), any
Collateral, free from any claim or right of any nature whatsoever of Pledgor,
including any equity or right of redemption by Pledgor; provided that Secured
Party will replace any rehypothecated Collateral (with the same Collateral or
identical substitute Collateral) (A) upon five Business Days' notice from
Pledgor or (B) if not already replaced, on the Maturity Date or any Optional
Termination Date; provided further that in the case of any Optional Termination
Date on which the Securities Contract is terminated in part pursuant to Section
3.01 of the Securities Contract, Secured Party will be obligated to replace only
an amount of rehypothecated Collateral sufficient to ensure that on such date,
the Collateral Account will contain a number of shares of Common Stock at least
equal to the number of shares of Common Stock with respect to which the
Securities Contract is to be terminated pursuant to Section 3.01 of the
Securities Contract. If at any time at which any shares of Common Stock
constituting
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Collateral have been rehypothecated pursuant to this Section 5(i) there shall
occur an event of a type that would, had Secured Party borrowed such shares of
Common Stock from Pledgor on terms customary for loans of equity securities (as
determined by the Calculation Agent), require either (i) an adjustment to the
number of shares of Common Stock or a change in the type of securities or other
property that Secured Party would be required to deliver to Pledgor to repay
such stock loan or (ii) a payment or delivery by Secured Party to Pledgor in
respect of dividends paid or distributions made on such shares of Common Stock,
then, in the case of clause (i), such adjustment or change shall be applied to
the number of shares of Common Stock that Secured Party is required to replace
in accordance with the proviso to the immediately preceding sentence and, in the
case of clause (ii), Secured Party shall make such payment or delivery to
Pledgor, whereupon the amount so paid or the assets so delivered shall become
Collateral hereunder. All determinations related to the immediately preceding
sentence shall be made by the Calculation Agent. Notwithstanding the foregoing,
if any of the Eligible Collateral pledged hereunder is unavailable for
rehypothecation by Secured Party at any time ((1) as a result of Pledgor's
withholding Pledgor's consent to rehypothecation of such Collateral, (2) as a
result of Pledgor's causing Secured Party to replace such Collateral pursuant to
the proviso to the first sentence in this Section 5(i), (3) as a result of any
Transfer Restrictions or (4) otherwise) (a "REHYPOTHECATION UNAVAILABILITY"),
the Calculation Agent shall adjust one or more of the Base Amount, the Exchange
Rate, the Threshold Price, the Issue Price, the Maturity Price, the Cash
Settlement Amount, any Closing Price and any other variable relevant to the
exercise, settlement or payment terms hereof or of the Securities Contract, as
appropriate to make Secured Party whole for Secured Party's cost relating to the
borrowing of shares of Common Stock in connection with hedging Secured Party's
exposure to the Securities Contract (whether such borrowing is effected by
Secured Party or by a counterparty to a transaction entered into by Secured
Party to hedge Secured Party's exposure to the Securities Contract), as
determined by the Calculation Agent. For purposes of determining the occurrence
of a Collateral Event of Default, the rehypothecation of any Collateral pledged
hereunder shall not affect the status of such Collateral as Collateral or
Eligible Collateral hereunder.
SECTION 6. Income and Voting Rights in Collateral. (a) Secured Party
shall have the right to receive and retain as Collateral hereunder all proceeds
(including, without limitation, ordinary cash dividends or interest) of the
Collateral, and Pledgor shall take all such action as Secured Party shall deem
reasonably necessary or appropriate to give effect to such right. All such
proceeds that are received by Pledgor shall be received in trust for the benefit
of Secured Party and, if Secured Party so directs, shall be segregated from
other funds of Pledgor and shall, forthwith upon demand by Secured Party, be
delivered over to the Custodian on behalf of Secured Party as Collateral in the
same form as received (with any necessary endorsement).
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(b) Unless an Acceleration Event shall have occurred and be
continuing, Pledgor shall have the right, from time to time, to vote and to give
consents, ratifications and waivers with respect to the Collateral (other than
Collateral that has been rehypothecated by Secured Party pursuant to Section
5(i)), and Secured Party shall, upon receiving a written request from Pledgor
accompanied by a certificate of the General Partner of Pledgor stating that no
Acceleration Event has occurred and is continuing, deliver to Pledgor or as
specified in such request such proxies, powers of attorney, consents,
ratifications and waivers in respect of any of the Collateral that is
registered, or held through a securities intermediary, in the name of the
Custodian, Secured Party or its nominee as shall be specified in such request
and shall be in form and substance satisfactory to Secured Party.
(c) If an Acceleration Event shall have occurred and be continuing,
Secured Party shall have the right, to the extent permitted by law, and Pledgor
shall take all such action as may be necessary or appropriate to give effect to
such right, to vote and to give consents, ratifications and waivers, and to take
any other action with respect to any or all of the Collateral with the same
force and effect as if Secured Party were the absolute and sole owner thereof.
SECTION 7. Remedies upon Acceleration Events. (a) If any Acceleration
Event shall have occurred and be continuing, Secured Party may exercise all the
rights of a secured party under the Uniform Commercial Code (whether or not in
effect in the jurisdiction where such rights are exercised) and, in addition,
without being required to give any notice, except as herein provided or as may
be required by mandatory provisions of law, shall: (i) deliver or cause to be
delivered to itself from the Collateral Account all Collateral consisting of
shares of Common Stock (but not in excess of the number thereof deliverable
under the Securities Contract at such time) on the date of the Acceleration
Amount Notice relating to such Acceleration Event (the "DEFAULT SETTLEMENT
DATE") in satisfaction of Pledgor's obligations to deliver Common Stock under
the Securities Contract, whereupon Secured Party shall hold such shares of
Common Stock absolutely free from any claim or right of whatsoever kind,
including any equity or right of redemption of Pledgor that may be waived or any
other right or claim of Pledgor, and Pledgor, to the extent permitted by law,
hereby specifically waives all rights of redemption, stay or appraisal that
Pledgor has or may have under any law now existing or hereafter adopted; and
(ii) if such delivery shall be insufficient to satisfy in full all of the
obligations of Pledgor under the Securities Contract or hereunder, sell all of
the remaining Collateral, or such lesser portion thereof as may be necessary to
generate proceeds sufficient to satisfy in full all of the obligations of
Pledgor under the Securities Contract or hereunder, at public or private sale or
at any broker's board or on any securities exchange, for cash, upon credit or
for future delivery, and at such price or prices as Secured Party may deem
satisfactory. Pledgor covenants and agrees that Pledgor will execute and deliver
such documents and take such other action as Secured Party
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deems necessary or advisable in order that any such sale may be made in
compliance with law. Upon any such sale, Secured Party shall have the right to
deliver, assign and transfer to the buyer thereof the Collateral so sold. Each
buyer at any such sale shall hold the Collateral so sold absolutely and free
from any claim or right of whatsoever kind, including any equity or right of
redemption of Pledgor that may be waived or any other right or claim of Pledgor,
and Pledgor, to the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal that Pledgor has or may have under any
law now existing or hereafter adopted. The notice (if any) of such sale required
by Section 9-504 of the UCC shall (1) in case of a public sale, state the time
and place fixed for such sale, (2) in case of sale at a broker's board or on a
securities exchange, state the board or exchange at which such sale is to be
made and the day on which the Collateral, or the portion thereof so being sold,
will first be offered for sale at such board or exchange, and (3) in the case of
a private sale, state the day after which such sale may be consummated. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as Secured Party may fix in the notice of such sale.
At any such sale the Collateral may be sold in one lot as an entirety or in
separate parcels, as Secured Party may determine. Secured Party shall not be
obligated to make any such sale pursuant to any such notice. Secured Party may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the buyer thereof,
but Secured Party shall not incur any liability in case of the failure of such
buyer to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. Secured Party,
instead of exercising the power of sale herein conferred upon it, may proceed by
a suit or suits at law or in equity to foreclose the Security Interests and sell
the Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) Pledgor hereby irrevocably appoints Secured Party Pledgor's true
and lawful attorney, with full power of substitution, in the name of Pledgor,
Secured Party or otherwise, for the sole use and benefit of Secured Party, but
at the expense of Pledgor, to the extent permitted by law, to exercise, at any
time and from time to time while an Acceleration Event has occurred and is
continuing, all or any of the following powers with respect to all or any of the
Collateral:
(i) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due upon or by
virtue thereof,
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(ii) to settle, compromise, compound, prosecute or defend
any action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in or with
the same or the proceeds or avails thereof, as fully and effectually
as if Secured Party were the absolute owner thereof (including,
without limitation, the giving of instructions and entitlement orders
in respect thereof), and
(iv) to extend the time of payment of any or all thereof
and to make any allowance and other adjustments with reference
thereto;
provided that Secured Party shall give Pledgor not less than one day's prior
written notice of the time and place of any sale or other intended disposition
of any of the Collateral, except any Collateral that threatens to decline
speedily in value, including, without limitation, equity securities, or is of a
type customarily sold on a recognized market. Secured Party and Pledgor agree
that such notice constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the UCC.
(c) Upon any delivery or sale of all or any part of any Collateral
made either under the power of delivery or sale given under this Section 7 or
under judgment or decree in any judicial proceedings for foreclosure or
otherwise for the enforcement of this Agreement, Secured Party is hereby
irrevocably appointed the true and lawful attorney of Pledgor, in the name and
stead of Pledgor, to make all necessary deeds, bills of sale, instruments of
assignment, transfer or conveyance of the property, and all instructions and
entitlement orders in respect of the property thus delivered or sold. For that
purpose Secured Party may execute all such documents, instruments, instructions
and entitlement orders. This power of attorney shall be deemed coupled with an
interest, and Pledgor hereby ratifies and confirms that which Pledgor's attorney
acting under such power, or such attorney's successors or agents, shall lawfully
do by virtue of this Agreement. If so requested by Secured Party or by any buyer
of the Collateral or a portion thereof, Pledgor shall further ratify and confirm
any such delivery or sale by executing and delivering to Secured Party or to
such buyer or buyers at the expense of Pledgor all proper deeds, bills of sale,
instruments of assignment, conveyance or transfer, releases, instructions and
entitlement orders as may be designated in any such request.
(d) In the case of an Acceleration Event, Secured Party may proceed
to realize upon the security interest in the Collateral against any one or more
of the types of Collateral, at any time, as Secured Party shall determine in its
sole discretion subject to the foregoing provisions of this Section 7. The
proceeds of any sale of, or other realization upon, or other receipt from, any
of the Collateral shall be applied by Secured Party in the following order of
priorities:
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first, to the payment to Secured Party or the Custodian of
the expenses of such sale or other realization, including reasonable
compensation to the Custodian and the agents and counsel of the
Custodian and Secured Party, and all expenses, liabilities and
advances incurred or made by Secured Party or the Custodian in
connection therewith, including brokerage fees in connection with the
sale by Secured Party of any Collateral;
second, to the payment to Secured Party of an amount equal
to the aggregate Market Value of a number of shares of Common Stock
equal to (i) the number of shares of Common Stock that would be
required to be delivered under Section 8.01 of the Securities
Contract on the Default Settlement Date without giving effect to the
proviso therein minus (ii) the number of shares of Common Stock
delivered to Secured Party on the Default Settlement Date as
described in Section 7(a);
finally, if all of the obligations of Pledgor hereunder
and under the Securities Contract have been fully discharged or
sufficient funds have been set aside by Secured Party at the request
of Pledgor for the discharge thereof, any remaining proceeds shall be
released to Pledgor.
SECTION 8. Miscellaneous. (a). This Agreement is not intended and
shall not be construed to create any rights in any person other than Pledgor,
Secured Party and their respective successors and assigns and no other person
shall assert any rights as third party beneficiary hereunder. Whenever any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party. All the covenants and agreements herein
contained by or on behalf of Pledgor and Secured Party shall bind, and inure to
the benefit of, their respective successors and assigns whether so expressed or
not. The rights and duties under this Agreement may not be assigned or
transferred by any party hereto without the prior written consent of the other
parties hereto; provided that (i) Secured Party may assign or transfer any of
its rights or duties hereunder without the prior written consent of Pledgor and
(ii) the Agent may assign or transfer any of its rights or duties hereunder
without the prior written consent of the other parties hereto to any affiliate
of Credit Suisse First Boston, so long as such affiliate is a broker-dealer
registered with the Securities and Exchange Commission.
(b) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by Pledgor and Secured Party or, in the case of a waiver, by the
party against whom the waiver is to be effective. No failure or delay by either
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and
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remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(c) All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard forms of telecommunication. Notices to Pledgor shall be directed to
Pledgor at Suite 850, 101 Convention Center Drive, Las Vegas, Nevada 89019,
Telecopy No. (702) 598-3651, with a copy to Robert E. Freitas, Orrick,
Herrington & Sutcliffe LLP, 600 Hansen Way, Palo Alto, California 94304,
Telecopy No. (650) 614-7301; notices to Secured Party shall be directed to it in
care of Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York,
New York 10010, Telecopy No. (212) 325-8175, Attention: Ricardo Harewood, with a
copy to QSPV Limited, Queensgate House, George Town, Grand Cayman, Cayman
Islands, Telecopy No. (345) 945-7100, Attention: Martin Couch.
(d) This Agreement shall in all respects be construed in accordance
with and governed by the laws of the State of New York without reference to
choice of law doctrine (provided that as to Pledged Items located in any
jurisdiction other than the State of New York, Secured Party shall, in addition
to any rights under the laws of the State of New York, have all of the rights to
which a secured party is entitled under the laws of such other jurisdiction) and
each party hereto submits to the jurisdiction of the Courts of the State of New
York and the United States District Court located in the Borough of Manhattan in
New York City. The parties hereto hereby agree that the Custodian's
jurisdiction, within the meaning of Section 8-110(e) of the UCC, insofar as it
acts as a securities intermediary hereunder or in respect hereof, is the State
of New York. To the extent permitted by law, the unenforceability or invalidity
of any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(e) EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(f) Pledgor hereby agrees that it shall not institute against, or
join any other person in instituting against, Secured Party any bankruptcy,
reorganization, arrangement, insolvency, moratorium or liquidation proceedings.
Pledgor hereby acknowledges and agrees that Secured Party's obligations under
this Agreement will be solely the corporate obligations of Secured Party, and
that Pledgor will not have any recourse to any of the directors, officers or
employees of Secured Party with respect to any claims, losses, damages,
liabilities, indemnities or other obligations in connection with any
transactions contemplated by this Agreement. Recourse in respect of any
obligations of Secured Party under this Agreement will be limited to
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the assets of Secured Party and no debt shall be owed by Secured Party in
respect of any shortfall after realization of such assets.
(g) This Agreement may be executed, acknowledged and delivered in any
number of counterparts and all such counterparts taken together shall be deemed
to constitute one and the same agreement.
(h) The rights and obligations of the Agent shall be as set forth in
Section 9.09 of the Securities Contract.
SECTION 9. Termination of Pledge Agreement. This Agreement and the
rights hereby granted by Pledgor in the Collateral shall cease, terminate and be
void upon fulfillment of all of the obligations of Pledgor under the Securities
Contract and hereunder. Any Collateral remaining at the time of such termination
shall be fully released and discharged from the Security Interests and delivered
to Pledgor by Secured Party, all at the request and expense of Pledgor.
SECTION 10. Set-off. In addition to and without limiting any rights
of set-off that Secured Party may have as a matter of law, pursuant to contract
or otherwise, upon the occurrence of a Reorganization Termination Date or an
Acceleration Date, Secured Party shall have the right to terminate, liquidate
and otherwise close out the transactions contemplated by the Securities Contract
and this Agreement pursuant to the terms of the Securities Contract and this
Agreement, and to set off any obligation it may have to Pledgor pursuant to the
Securities Contract or this Agreement, including without limitation any
obligation to (i) release from the Security Interests or return to Pledgor any
Collateral pursuant to Section 5(e) or Section 9 or (ii) replace any
rehypothecated Collateral pursuant to Section 5(i), against any right Secured
Party or any of its affiliates may have against Pledgor pursuant to the
Securities Contract or this Agreement, including without limitation any right to
receive a payment or delivery pursuant to the Securities Contract. In the case
of a set-off of any obligation to return or replace assets against any right to
receive assets of the same type, such obligation and right shall be set off in
kind. In the case of a set-off of any obligation to return or replace assets
against any right to receive assets of any other type, the value of each of such
obligation and such right shall be determined by the Calculation Agent and the
result of such set-off shall be that the net obligor shall pay or deliver to the
other party an amount of cash or assets, at the net obligor's option, with a
value (determined, in the case of a delivery of assets, by the Calculation
Agent) equal to that of the net obligation. In determining the value of any
obligation to release or deliver Common Stock or right to receive Common Stock,
the value at any time of such obligation or right shall be determined by
reference to the Market Value of the Common Stock at such time. If an obligation
or right is unascertained at the time of any such set-off, the Calculation Agent
may in good faith estimate the amount or value of such obligation or right, in
which case
17
<PAGE> 20
set-off will be effected in respect of that estimate, and the relevant party
shall account to the other party at the time such obligation or right is
ascertained.
<PAGE> 21
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
PLEDGOR:
ZG NEVADA LIMITED PARTNERSHIP
By: ZG Nevada, Inc.,
its General Partner
By:
-------------------------------
Name:
Title:
SECURED PARTY:
CSFB SAILS CORP.
By:
-------------------------------
Name:
Title:
AGENT:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE> 22
EXHIBIT A
[Certificate for Additional Collateral]
The undersigned, the General Partner of ZG Nevada Limited Partnership
("PLEDGOR"), hereby certifies, pursuant to Section 5(b) of the SAILS Pledge
Agreement dated as of March 8, 2000 among Pledgor, Credit Suisse First Boston
Corporation, as Agent, and CSFB SAILS Corp. (the "PLEDGE AGREEMENT"; terms
defined in the Pledge Agreement being used herein as defined therein), that:
1. Pledgor is delivering, or causing to be delivered in
accordance with Section 5(c) of the Pledge Agreement, the following
securities (or security entitlements in respect thereof) to Secured
Party to be held by Secured Party as additional Collateral (the
"ADDITIONAL COLLATERAL"):
2. Pledgor hereby represents and warrants to Secured Party
that the Additional Collateral is Eligible Collateral and that the
representations and warranties contained in paragraphs (a), (b), (c)
and (d) of Section 3 of the Pledge Agreement are true and correct
with respect to the Additional Collateral on and as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this __ day of __________, 200_.
ZG NEVADA, INC.
By:
----------------------------
Name:
Title:
<PAGE> 23
EXHIBIT B
[Form of UCC-1 Financing Statement]
SCHEDULE A TO FINANCING STATEMENT NAMING
ZG NEVADA LIMITED PARTNERSHIP, AS DEBTOR, AND
CSFB SAILS CORP., AS SECURED PARTY
This financing statement covers ZG Nevada Limited Partnership's
("DEBTOR'S") right, title and interest in and to the following, whether now
owned or hereafter acquired (all of which is hereinafter collectively referred
to as the "COLLATERAL"):
(i) the Initial Pledged Items;
(ii) all additions to and substitutions for the Initial Pledged Items
(the "ADDITIONS AND SUBSTITUTIONS")
(iii) all income, proceeds and collections received or to be
received, or derived or to be derived, now or at any time hereafter (whether
before or after the commencement of any proceeding under applicable bankruptcy,
insolvency or similar law, by or against Debtor, with respect to Debtor) from or
in connection with the Initial Pledged Items and the Additions and Substitutions
(including, without limitation, (A) any shares of capital stock issued by the
Issuer in respect of any Common Stock constituting Collateral or any cash,
securities or other property distributed in respect of or exchanged for any
Common Stock constituting Collateral, or into which any such Common Stock is
converted in connection with any Reorganization Event, and any security
entitlements in respect of any of the foregoing, (B) any obligation of Secured
Party to replace any rehypothecated Collateral and (C) any amounts paid or
assets delivered to Pledgor by Secured Party in respect of dividends paid or
distributions made on shares of Common Stock constituting Collateral that have
been rehypothecated);
(iv) the Collateral Account and all securities and other financial
assets (each as defined in Section 8-102 of the UCC), including the Initial
Pledged Items and the Additions and Substitutions, and other funds, property or
other assets from time to time held therein or credited thereto; and
(v) all powers and rights now owned or hereafter acquired under or
with respect to the Initial Pledged Items or the Additions and Substitutions.
<PAGE> 24
As used in this Schedule A, the following capitalized terms have the
meanings specified below (such meanings being equally applicable to both the
singular and plural forms of the terms defined):
"AGENT" means Credit Suisse First Boston Corporation.
"COLLATERAL ACCOUNT" means a securities account (as defined in
Section 8-501(a) of the UCC) established in the name of Secured Party at the
offices of the Custodian in which or to which certain of the Collateral is to be
deposited or credited.
"COMMON STOCK" means shares of Common Stock, par value $0.0001 per
share, of the Issuer, or security entitlements in respect thereof.
"CUSTODIAN" means The Bank of New York or any other custodian
appointed by Secured Party and identified to Debtor.
"INITIAL PLEDGED ITEMS" means 865,000 shares of Common Stock.
"ISSUER" means Digital Lightwave, Inc., a Delaware corporation.
"SECURED PARTY" means CSFB SAILS Corp.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
B-2
<PAGE> 25
EXHIBIT C
[Perfection Certificate]
The undersigned, the General Partner of ZG Nevada Limited Partnership
("PLEDGOR"), hereby certifies, pursuant to Section 3(h) of the SAILS Pledge
Agreement (the "PLEDGE AGREEMENT") dated as of March 8, 2000 among Pledgor,
Credit Suisse First Boston Corporation, as Agent, and CSFB SAILS Corp. ("SECURED
PARTY") (terms defined therein being used herein as defined in the Pledge
Agreement), that:
1. Jurisdiction of Organization. Pledgor is a limited partnership
organized under the laws of the State of Nevada.
2. Name. The exact name of Pledgor as it appears in its certificate
of limited partnership is:
ZG Nevada Limited Partnership
3. Prior Names. (a) Set forth below is each other name that Pledgor
has had since its organization, together with the date of the relevant change:
(b) Pledgor has not changed its organizational structure in any way
within the past five years.
4. Current Locations. The chief executive office of Pledgor is
located at the following address:
<TABLE>
<CAPTION>
MAILING ADDRESS COUNTY STATE
- --------------------------------------------------------------------------------
<S> <C> <C>
Suite 850 Clark Nevada
101 Convention Center Drive
Las Vegas, Nevada 89019
</TABLE>
5. Prior Locations. (a) Set forth below is the information required
by Section 4 above with respect to each other chief executive office maintained
by Pledgor at any time during the past five years:
<PAGE> 26
<TABLE>
<CAPTION>
MAILING ADDRESS COUNTY STATE
- --------------------------------------------------------------------------------
<S> <C> <C>
3500 Lakeside Court Washoe Nevada
Reno, Washoe County, Nevada 89509
</TABLE>
6. Filing Offices. In order to perfect the Security Interests granted
by Pledgor, a duly signed financing statement on Form UCC-1 in the form attached
as Exhibit B to the Pledge Agreement should be on file in the appropriate
offices (central and, where required, local) in each jurisdiction identified in
Section 4 above.
7. Search Reports. Attached hereto as Schedule I is a true copy of a
file search report from the central UCC filing office in each jurisdiction
identified in Sections 4 and 5 above with respect to each name set forth in
Sections 2 and 3(a) above (searches in local filing offices, if any, are not
required).
C-2
<PAGE> 27
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 8th day
of March, 2000.
ZG NEVADA, INC.
By:
----------------------------
Name:
Title:
